Court: District Court, D. Massachusetts; September 17, 2015; Federal District Court
A contract dispute has arisen between the Robert Reiser Company and former employee Scott Scriven following Scriven's termination. The court has jurisdiction based on diversity of citizenship. The Reiser Company alleges breach of contract, conversion, and breach of the implied covenant of good faith and fair dealing against Scriven, who has counterclaimed with allegations of intentional misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing, usury, undue influence, unconscionability, breach of fiduciary duty, and retaliation. The Reiser Company seeks to dismiss seven out of eight counterclaims and has moved for judgment on the pleadings for its claims. The court will grant the motion to dismiss in part and deny it in part, while denying the motion for judgment on the pleadings.
The factual background reveals that Roger Reiser, President and CEO of the Reiser Company, faced challenges in recruiting executive talent due to a difficult reputation and allegations of creating a hostile work environment. In 2013, Scriven was approached about a leadership role with a promise of a succession plan to transition Roger out of his position by mid-2015. Scriven received an offer letter for the role of Senior Vice-President of Sales and Marketing, stating his employment would be "at will," allowing termination at any time without notice. The offer included a long-term incentive plan to be finalized within 60 days, which would not vest in the first five years, and a relocation package that featured a $300,000 interest-free loan for purchasing a new home.
A note to Reiser was secured by property, structured as a 20-year loan with payments starting in year 6, and it would become due if Scriven left the company. Scriven resigned on July 22, 2013, and later took a $400,000 loan for a $405,000 townhome purchase, along with an additional $100,000 interest-free loan to be repaid from the sale of his Kansas City home. Scriven did not receive a formal note or mortgage during his employment. He discovered the company’s failure to pay overtime to non-exempt employees and that it over-invoiced customers, leading to his confrontation with George Reiser, who dismissed his concerns. Scriven faced a hostile work environment created by Roger Reiser and was terminated on February 2, 2015. The next day, he received a letter demanding a general release and a quit claim deed for the townhome. Scriven's severance pay was contingent upon signing a release and deeding the property to the company. On February 27, 2015, Scriven was pressured to sign a usurious 6-month promissory note. After his termination, he returned to Kansas City and sold the townhouse for $455,000, with $400,000 held in escrow. He retained a company laptop during his employment.
Procedurally, the Reiser Company filed a complaint on April 29, 2015, alleging breach of contract, conversion, and breach of the implied covenant of good faith and fair dealing. Scriven responded with counterclaims including intentional misrepresentation, breach of contract, breach of implied good faith, usury, undue influence, unconscionability, breach of fiduciary duty, and retaliation. The Reiser Company moved to dismiss all counterclaims except for breach of contract and subsequently sought judgment on its claims against Scriven. The legal standard for a motion to dismiss requires the court to assume the truth of the well-pleaded facts and determine if the claims are plausible, allowing dismissal if the allegations do not sufficiently demonstrate entitlement to relief.
Count One of the counterclaim asserts a claim for intentional misrepresentation against Robert Reiser & Co., requiring Scriven to demonstrate that a false representation of a material fact was made with knowledge of its falsity, intended to induce action, and that he reasonably relied on it to his detriment. The counterclaim is deemed insufficient as it fails to allege actionable fraud or provide detailed specifics. The first misrepresentation claim regarding a succession plan lacks allegations that it misrepresented the company's actual intentions at the time. Additionally, the counterclaim does not adequately demonstrate any injury related to the alleged misrepresentation concerning a long-term incentive plan or the failure to offer a note and mortgage at closing, asserting that Scriven could not have suffered harm as the incentive plan wouldn't have vested by his termination. Consequently, the motion to dismiss Count One is granted.
Counts Four, Five, and Six, which claim usury, undue influence, and unconscionability linked to a proposed February 2015 promissory note, also fail as the counterclaim does not indicate that Scriven executed the note or entered into a contract based on it. Therefore, the motion to dismiss these counts is also granted.
Count Seven alleges breach of fiduciary duty, but Scriven concedes that the claim is inadequately pleaded and plans to withdraw it without prejudice for potential amendment. This count will be dismissed.
Count Three concerns breach of the implied covenant of good faith and fair dealing, which is inherent in every contract under Massachusetts law. The covenant mandates that neither party should undermine the other’s rights to the contract's benefits. However, it cannot be used to establish rights and duties not outlined in the contract itself. The counterclaim presents four theories supporting this claim.
The plaintiff's imposition of a 5% monthly interest rate on the mortgage, compounded monthly, constitutes a breach of contract and a violation of the covenant of good faith and fair dealing. The counterclaim lacks allegations that Scriven agreed to the February 2015 promissory note, nor does it indicate that the Reiser Company is enforcing that note against him. While the covenant of good faith and fair dealing is implied in contracts, it is not applicable to contract offers. The counterclaim also asserts that the plaintiff breached this covenant by maliciously terminating Scriven without cause, despite his status as an at-will employee, which generally allows termination for any reason. However, an employer may be liable for unpaid compensation if the termination is in bad faith and connected to previously performed work. The complaint does not specify any benefits that Scriven was denied nor how wrongful termination affected him. Additionally, the counterclaim alleges the plaintiff violated its own personnel policies regarding warnings and termination, yet fails to detail those policies or their relevance to an at-will employee or any compensable injuries. Lastly, the claim regarding the withholding of severance pay to compel Scriven to sign a release is deemed a breach of contract and the covenant of good faith and fair dealing. This allegation is sufficient under Fed. R. Civ. P. 8(d) to state a claim, leading to the denial of the motion to dismiss Count Three related to untimely severance payment. Count Eight of the counterclaim alleges retaliation under Massachusetts law, claiming Scriven was terminated for raising concerns about unpaid overtime for non-exempt employees and confronting management about over-invoicing practices. The Massachusetts Supreme Judicial Court holds that the statutory protection extends only to employees seeking their rights and does not cover actions taken on behalf of others.
Mass. Gen. Laws ch. 149, § 148A prohibits employers from retaliating against employees for making complaints or assisting investigations regarding wage-related issues. The complaint alleges that Scriven reported the company’s failure to pay overtime to non-exempt employees to George Reiser and faced termination as a result, establishing a claim for retaliation under this statute. Massachusetts law allows at-will employment but recognizes exceptions when termination contravenes public policy, which may apply in this case. Scriven's common-law retaliation claim overlaps with the statutory claim, allowing it to survive a motion to dismiss. The court emphasizes that while Scriven must eventually prove a causal relationship between his complaints and the termination, this evaluation is premature.
Regarding the Reiser Company’s motion for judgment on the pleadings, it argued that Scriven breached a loan agreement and committed conversion by not returning a company laptop. However, the court found insufficient evidence at this stage to grant judgment in favor of the company, noting that Scriven's affirmative defenses could bar recovery. Consequently, the motions to dismiss and for judgment on the pleadings were both denied in part, with the dismissal granted for certain counts of the counterclaim, while others were allowed to proceed.
