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Massmanian v.
DuBose, 20 Mass. L. Rep. 62, 2005 Mass. Super. LEXIS 488
(September 23, 2005) (Gants, J.). |
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The Court took the unusual step of
issuing an injunction preventing the Defendants from
terminating the Plaintiff’s employment at North/Win,
Ltd. Because termination of employment is compensable by
money damages, an injunction preventing termination is
typically inappropriate. The Court held that the
potential freeze out of a minority shareholder from a
closely held corporation warranted deviation from the
norm.
Plaintiff is a minority shareholder of
North/Win, a closely held corporation. He brought suit
against the majority shareholders alleging, among other
things, that they wrongfully diverted the company’s
assets and profits to other entities they controlled.
After Plaintiff commenced suit, North/Win fired him,
contending that he had neglected his duties and engaged
in continuing acts of insubordination. Under his
employment agreement, Plaintiff was entitled to lifetime
employment unless he resigned or was fired for cause.
Termination for cause not only deprived Plaintiff of
lifetime employment, it triggered the potential
repurchase of his shares by the company.
The Court held that Plaintiff was likely
to prove that his termination was wrongful and that the
defendants had improperly diverted assets to companies
they controlled. The Court also noted that the
Defendants’ assertions in their affidavits had
repeatedly been shown to be false or a
mischaracterization of the truth. In finding that
Plaintiff was likely to prevail, the Court emphasized
that one day after Plaintiff’s termination the
Defendants ordered their employees to |
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sign, as a condition of their continued
employment, an overreaching confidentiality agreement
that barred them from speaking about the lawsuit
or compliance with laws and regulations unless
specifically ordered to do so by a court of law.
The Court recognized that “the loss of
income resulting from a termination of employment, no
matter how painful, is classically a wrong that can be
remedied with money damages and is not the stuff of
irreparable injury” warranting injunctive relief.
Nevertheless, the Court held that in this minority
shareholder “freeze out” Plaintiff would suffer
irreparable harm in two ways: (1) he would be deprived
of his ownership interest in the company because the
termination of his employment triggered the re-purchase
of his shares; and (2) he would be denied access to the
operations of the company, which would render him unable
to guard against the diversion of corporate assets.
Discovery would not prevent irreparable harm because of
the demonstrated intention and ability of the defendants
to take extraordinary steps to deny Plaintiff and his
counsel information as to what was happening at the
company in the Plaintiff’s absence.
Counsel to minority shareholders of a
closely held corporation can cite Massmanian as
authority for the proposition that the loss of
employment under some circumstances can cause
irreparable harm warranting an injunction. Counsel to
the majority shareholders also can refer to Massmanian
in advising counsel how to avoid being forced to retain
minority shareholders/ employees during the course of
litigation.
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