Opinion
14-P-1299
01-27-2016
MATTHEW W. STROBECK v. WILLIAM A. MUGGIA.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
After a three-week trial, a jury found that William A. Muggia, the defendant, had proved by a preponderance of the evidence that Matthew W. Strobeck, the plaintiff, was terminated from his employment for cause as defined by the principals' agreement signed by both parties. In accordance with the jury's special verdict, judgment entered declaring that Strobeck's employment was terminated for cause and dismissing Strobeck's claims. On appeal Strobeck argues that the trial judge erred by (1) refusing to instruct the jury on Strobeck's claim for a breach of the implied covenant of good faith and fair dealing, (2) improperly instructing the jury on the terms of the principals' agreement, and (3) admitting evidence of cause acquired after his termination. We affirm.
The defendant filed a conditional cross appeal. He argued that the trial judge improperly allocated to him the burden of proving the negative of the plaintiff's allegations at trial. Since we affirm, we need not address this argument.
Background. Strobeck and Muggia were both employed by Westfield Capital Management Company, L.P. (Westfield), a Boston-based investment management firm. WMS Management LLC (WMS), a Delaware limited liability company, was the sole member of WMS General Partner LLC, a Delaware limited liability company. WMS General Partner LLC is a general partner of Westfield, a Delaware limited partnership. At all times relevant, Strobeck and Muggia were the only holders of class A units in WMS. Both were principals and parties to the principals' agreement, the contract at issue.
The principals' agreement governed Strobeck's and Muggia's rights and obligations with respect to their class A units in WMS. Section 3.e. of the principals' agreement provided that if one of the principals, Strobeck or Muggia, was terminated for cause (as defined in the agreement), the nonterminated principal had the right to purchase the terminated principal's class A units in WMS for one dollar. However, if one of the principals was terminated without cause, the nonterminated principal was required to purchase the terminated principal's class A units for their fair market value.
The full text of section 3.e. of the principals' agreement provides as follows: "Termination for Cause. If the Termination Event is the result of the Terminated Principal's termination for Cause, then the purchase price to be paid by the Non-Terminated Principal to the Terminated Principal for the Class A Units of WMS shall be an amount, in the aggregate, to be paid in cash, equal to one dollar ($1.00)."
Section 3.a.i. "Repurchase of Class A Units upon Termination Event," defines "Cause" as "(i) the Principal having (A) committed any act or omission that constitutes fraud, dishonesty, theft, bad faith or other willful misconduct in carrying out the duties of the Principal to WMS or any Westfield Company (in any capacity with WMS or any Westfield Company), (B) failed to substantially perform (other than for disability) the duties properly assigned to the Principal (in any capacity with WMS or any Westfield Company) after written notice from WMS or any Westfield Company to the Principal of such failure (C) committed any event referred to in Section 203(c) of the Investment Advisers Act of 1940 or Section 411(a) of the Employee Retirement Income Security Act of 1974 (whether occurring prior to or during the Principal's period of affiliation with WMS or any Westfield Company), or (D) committed any material violation of any rules, regulations, instructions, personnel practices or policies as in effect from time to time of WMS or any Westfield Company (collectively, the 'Rules'), in each case to the extent that the Rules apply to the Principal (in any capacity with WMS or any Westfield Company)[.]"
On October 12, 2011, Westfield's management committee unanimously voted to terminate Strobeck's employment with Westfield. The following day, Muggia orally provided Strobeck with ten reasons for his termination "for Cause." On January 19, 2012, Muggia sent Strobeck written notice of his intent to invoke section 3.e. of the principals' agreement and purchase Strobeck's class A units for one dollar. Again on January 27, 2012, Muggia wrote Strobeck by letter and enclosed a partially executed copy of an instrument of transfer to effectuate the purchase of Strobeck's class A units. In response, Strobeck brought this litigation, setting forth claims for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. Strobeck claims that he was not terminated for cause; rather he contends that he was terminated because Muggia desired to purchase his class A units for one dollar instead of the fair market value of approximately thirty million dollars.
Since Muggia had majority ownership interest in WMS, he appointed three of the four members of Westfield's Management Committee. Strobeck appointed one member.
Strobeck does not suggest that there is insufficient evidence to support the jury's finding of cause. Consequently we do not detail the evidence presented that supports that determination.
Discussion. 1. Implied covenant of good faith and fair dealing. The plaintiff argues that the trial judge erred by not instructing the jury on his claim for a breach of the implied covenant of good faith and fair dealing. He asserts that the definitions of "Cause" provided in section 3.a.i. of the principals' agreement include "undefined subjective criteria," which permitted Muggia discretion in defining cause for the purpose of characterizing Strobeck's termination. Strobeck pinpoints words, such as "willful misconduct" and "substantially perform," out of their full context to support his argument that the jury should have been instructed that Muggia was required to act in good faith. We disagree.
In the present case, Delaware law governs. "Although part of every contract governed by Delaware law, the implied covenant does not apply when 'the subject at issue is expressly covered by the contract.'" NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 20 (Del. Ch. 2009), quoting from Dave Greytak Enterprises, Inc. v. Mazda Motors of Am., Inc., 622 A.2d 14, 24 (Del. Ch. 1992).
The contract specifies that it is governed by the law of Delaware. Within reason parties have a right to designate the governing law. Morris v. Watsco, Inc., 385 Mass. 672, 674 (1982). The parties agree that Delaware law applies.
The contractual provision set forth in section 3.a.i. does not require a subjective, discretionary determination. Cf. Wilmington Leasing v. Parrish Leasing Co., L.P., 1996 WL 560190, at *6 (Del. Ch. 1996) (when determining whether to remove general partner and what constitutes satisfactory performance are left to "sole discretion of the invoking party, the application of a good faith standard to the enforcement of conditions is appropriate"). Instead, here the provision defining cause gave both parties sufficient notice of acts or omissions that would constitute termination for cause. See Dave Greytak Eneterprises, Inc. v. Mazda Motors of Am., Inc., supra. See also Gilbert v. El Paso Co., 490 A.2d 1050, 1055 (Del. Ch. 1984), aff'd. 575 A.2d 1131 (Del. 1990). Because the conditions constituting cause are expressly delineated, Muggia's motivations are irrelevant. The judge was not required to instruct the jury on the implied covenant of good faith and fair dealing.
2. Jury instructions regarding "result of." In the alternative, the plaintiff argues that the trial judge erred by misconstruing the plain meaning of section 3.e. of the principals' agreement, specifically the language, "If the Termination Event is the result of the Terminated Principal's termination for Cause, then the purchase price to be paid by the Non-Terminated Principal . . . shall be . . . one dollar" (emphasis added). The plaintiff submits that section 3.e. required that the management committee's reasons for terminating him for cause at the time of his termination were the only reasons that the jury could consider in determining whether cause for his termination existed. The plaintiff maintains that the trial judge erred by instructing the jury to determine whether cause existed irrespective of the management committee's reasons at the time of the plaintiff's termination. The plaintiff's argument is without merit.
Section 3.a.iii. defines a termination event "with respect to a Principal, [as] such Principal's failure to be employed as an employee of WMS or any Westfield Company (whether by termination, resignation or otherwise)."
The trial judge instructed the jury, "You should understand that the definition of cause in the principals['] agreement does not make mention of the management committee's views, and it is your job to determine if Mr. Strobeck committed acts meeting the definition of cause set out in the principals['] agreement, irrespective of what the management committee may have thought. . . . Again, the principals['] agreement does not state that cause is limited to matters discussed at the time of the termination."
"A court must accept and apply the plain meaning of . . . unambiguous term[s] in the context of the contract language and circumstances . . . ." Lorillard Tobacco Co. v. American Legacy Foundation, 903 A.2d 728, 740 (Del. 2006). "Ambiguity does not exist where the court can determine the meaning of a contract 'without any other guide than a knowledge of the simple facts on which, from the nature of language in general, its meanings depends.'" Rhone-Poulenc Basic Chem. Co. v. American Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992), quoting from Holland v. Hannan D.C. App., 456 A.2d 807, 815 (1983). The plain meaning of section 3.e. is that the principal's employment had to have been terminated for conduct that fell within the definition of "Cause" as set forth in section 3.a.i.(i) (see note 3, supra), rather than for some other reason, such as the dissolution of Westfield. As the judge instructed the jury, the agreement "requires your consideration of the questions: . . . what acts did Mr. Strobeck commit, and, if such acts have been proven, whether they meet the definition of 'Cause.'" The language does not require that the precise cause had to have been identified at the time of termination. The judge did not commit error.
3. After-acquired evidence. The plaintiff further argues that the trial judge erred by admitting evidence acquired after his termination for the purpose of showing cause. Again, the judge did not commit error. After-acquired evidence is relevant to the objective determination whether a contractual condition for termination was met. Davenport Group MG, L.P. v. Strategic Inv. Partners, Inc., 685 A.2d 715, 723 (Del. Ch. 1996). The jury were permitted to consider if cause existed for Strobeck's termination regardless of when the evidence was discovered. The evidence was admissible.
Judgment affirmed.
By the Court (Cohen, Meade & Agnes, JJ.),
The panelists are listed in order of seniority. --------
/s/
Clerk Entered: January 27, 2016.