New England Biz Law Update
The Massachusetts Supreme Judicial Court recently determined that a higher burden of proof applies to employees suing company officials for interfering with their employment status – ruling that an “actual malice” standard is required.
A chief financial officer had sued a company director for causing him to leave his job following the director’s threats of physical harm related to money dispute, and he won a jury verdict.
But the SJC in Blackstone v. Cashman overturned the verdict, saying the jury should have been told that the corporate director could be liable only if he acted with “actual malice” toward the CFO.
The jury had been instructed that it only needed to find that the defendant director had acted with “improper means.”
The plaintiff, Thomas B. Blackstone, was chief financial officer and vice president of J.M. Cashman Inc. from 1988 to 1995. The defendant, James M. Cashman, was a director of the company and owned 50 percent of its shares. The defendant’s brother owned the other 50 percent and was also a director.
In August 1994, the defendant and his brother agreed to liquidate the company, which was based in Quincy, Mass. To supervise the process, they brought in an outside manager, David Ferrari, as chief executive officer. As part of the agreement to wind down the company, each brother was due a $20,000 check on the first day of each month. The plaintiff was responsible for sending the checks.
The defendant did not receive his monthly check for June 1995. Believing Blackstone was improperly withholding it, the defendant phoned him at the company and demanded he send the check as required. Blackstone refused, and the defendant allegedly became irate and swore at him.
The defendant then called Ferrari on his car phone. Highly agitated, he insisted Ferrari take care of the problem. During his outburst, he also allegedly said he would “go down and shoot [the plaintiff]” and that he would “bash [the plaintiff] over the head with a baseball bat.”
The defendant’s brother and attorney assured Ferrari the threatening comments were out of anger and were not serious. Later that day, the defendant himself assured Ferrari he was not serious and apologized.
When the plaintiff Blackstone learned of the comments the next day, he left the office. Despite Ferrari’s repeated assurances and a written apology from the defendant, Blackstone did not return to the company offices and worked from home until his contract expired at the end of the month. He claimed he remained “very, very concerned” that the defendant might come to the office to “finish me off.”
Ferrari said he would have retained Blackstone had he wanted to stay. Blackstone eventually sued the defendant, alleging intentional interference with advantageous future relations, i.e., the prospect of his continued employment with the company after his contract expired.
Faulty instruction
On appeal, the SJC noted in 1981 it had ruled in Gram v. Liberty Mutual Ins. Co. that “corporate officials” are “privileged to act [unless they do so] out of malevolence, that is with ‘actual malice.’”
Meanwhile, the court rejected Blackstone’s assertions that its 1990 decision in United Truck Leasing Corp. v. Geltman abandoned the “actual malice” standard when it declined to apply that standard to an individual accused of interfering with a contractual relationship between a company and one of its customers.
“Geltman is inapposite because it did not concern a corporate official acting within the scope of his corporate responsibilities,” Cordy observed. “[The defendant in Geltman] was not a corporate official. … [He] was merely an unrelated third party, accused of wrongfully interfering in the contractual relations of others. He was not entitled to an actual malice instruction under Gram.”
Cordy further noted the court had upheld the actual malice standard as applied to corporate officials five times since Geltman had been decided. “These precedents confirm the actual malice standard by repeated use of the term and recitation of its definition,” said Cordy.
The court also rejected arguments that an absolute malice standard was inappropriate because of policy concerns that such a standard would give corporate officials license to commit torts in contexts far beyond the scope of this case.
“While we respect this concern, we do not find it decisive here,” Cordy wrote. “The present case was briefed and argued on the limited question whether the trial judge applied the proper standard to the facts at hand. We must simply ask whether, based on our past precedents, the factual structure of this case warranted an actual malice instruction.”
The court found that the defendant – despite a lack of day-to-day involvement in the company – was a corporate official.
“A corporate director, whatever the frequency of his involvement in day-to-day operations, has an important interest in and responsibility for the conduct of business by the company’s corporate officers,” Cordy wrote.
Dissenting opinion
Justice Judith A. Cowin issued a sharply worded dissent in which justices John M. Greaney and Francis X. Spina joined.
According to Cowin, the SJC in Geltman clearly meant to abandon the actual malice requirement in favor of the “improper in motive or means” requirement.
“The only significant difference between the two standards is that the [court] insulates from liability those corporate officials who, without a ‘spiteful, malignant purpose,’ nonetheless interfere in employment contracts through, for instance, misrepresentations or threats,” she explained.
“An inquiry into whether [the defendant] acted with ‘actual malice’ is worse than unnecessary,” Cowin added. “[I]t creates a fictitious element that is confusing and, because it has the potential to insulate business people from claims for which they should be liable, is extremely poor public policy.”
