New England Biz Law Update
The president of a closely held family corporation needed board approval to terminate his brother, the vice president of the company, a Massachusetts Superior Court judge has ruled in a case of first impression.
The corporation argued that its president, Bryan Weadock, sought to fire his brother Daniel — who served as vice president of the company and managed the International, a golf club in Bolton, Mass., that the company operated — in his capacity as an employee and not in his capacity as a board-appointed officer. Accordingly, the corporation contended, Bryan did not need explicit board approval to effect the termination.
But Judge Janet Kenton-Walker, sitting in Worcester Superior Court, disagreed.
“[T]he court discerns no record support for the proposition that Daniel’s role as vice president was distinct from his role as manager of the International, and [the corporation points] to none,” said Kenton-Walker, denying the company’s motion for summary judgment.
“[B]y assigning Daniel the responsibility of managing the day-to-day operations of the International at the same [time] they elected him as vice president, the directors were necessarily defining the duties of vice president to include managing the International,” Kenton-Walker said.
The 12-page decision is Arklow, Inc., et al. v. Weadock (and a companion case).
‘Just and appropriate’ relief
John O. Mirick of Worcester, Mass., who represented Vice President Daniel Weadock, noted that when lawyers draft prayers for relief, they often include the phrase: “and such other order as the Court deems just and appropriate.”
“This decision is a reminder that such prayers for relief are not simply formulaic incantations. In the absence of controlling precedent, the court looked to general principles of corporate law and made a decision that is ‘just and appropriate,’” said Mirick, who practices at Mirick, O’Connell, DeMallie & Lougee.
Juliet A. Davison of Boston, the attorney for the Weadock brothers’ mother, Florence — who serves as one of two board members alongside Bryan and intervened in the suit on Daniel’s behalf — said the case stands for the proposition that whatever the board does, only the board can undo.
“While that might seem like an obvious legal proposition, this case was very hard-fought over the course of a year, and this is the first holding in Massachusetts that establishes that principle,” Davison said.
Davison also applauded the court for rejecting the corporation’s technical legal argument based on governing documents and looking instead to how the company was run as a practical matter.
Bowditch & Dewey attorney Michael P. Angelini, who represented the corporation, said the judge was correct on the law but he disagreed with her factual determination.
“The case very squarely stands for the proposition that one officer doesn’t have the right to terminate the position of another officer,” the Worcester lawyer said, noting that Bryan terminated Daniel as manager of the business but never terminated him as vice president. “But I think the judge was incorrect in determining, to the extent she did, that there was a congruence between a person’s status as an officer and as an employee.”
Burlington, Mass., business litigator David B. Mack, who handles corporate governance issues but was not involved in the case, said the decision is noteworthy in that it places limits on the well-accepted premise that the president of a corporation has the power to hire and fire at-will employees.
Here, the judge said that in a situation in which the employee is also an officer appointed by the board and his responsibilities as officer and employee are identical, the power to remove the individual vests with the board and not the president, Mack said.
“If the corporation had defined Daniel’s duties as an employee in some document so that it distinguished them from his duties as an officer, the result may have been different,” the O’Connor, Carnathan & Mack attorney continued. “But it’s not uncommon in closely held businesses for individuals to wear multiple hats and to forego the formality of defining the roles of each, and it often proves costly to one side or both in the event a dispute arises.”
Attempted termination
Plaintiff Arklow Limited Partnership owns the International. Intervenor Florence Weadock, mother of Bryan and Daniel, owns a 53-percent interest in the partnership. The rest of the partnership is split between her four children and another individual.
Co-plaintiff Arklow, Inc., a closely held family corporation, manages the operations and affairs of the partnership, including the operation of the International. Florence, who serves as corporate secretary, is a 50-percent shareholder of the corporation, as is Bryan, the president.
During a directors’ meeting on Nov. 21, 2005, Florence and Bryan elected defendant Daniel as vice president and placed him in charge of managing day-to-day operations of the International.
At some point Bryan apparently grew displeased with his brother’s management of the club and, on Jan. 10, 2013, had the Bolton constable deliver a termination letter to Daniel and another employee.
The letter instructed Daniel to leave the office, building and grounds of the club immediately and turn over his keys and credit cards, as well as the club’s computer. It also stated that Daniel was no longer to enter the property at any time without Bryan’s permission.
Daniel refused to comply with the letter. The following day, Bryan filed an action in Superior Court on behalf of both the corporation and the limited partnership seeking injunctive relief to remove Daniel.
Apparently Florence — whom the court permitted to intervene on Daniel’s behalf — had, at one point, supported Daniel’s termination but changed her position before Bryan issued the termination letter.
According to the corporation’s bylaws, the president has general supervision and control of the business of the corporation. The bylaws also provide that officers shall serve at the pleasure of the directors.
On Jan. 21, Florence and Bryan held a shareholders’ and directors’ meeting regarding the removal. Bryan voted to remove Daniel “from all his managerial positions in the company while Florence voted against removal.”
Meanwhile, with the corporation’s removal action pending, all parties filed motions for summary judgment.
No authority
Kenton-Walker rejected the corporation’s argument that Bryan had the authority to fire Daniel without board approval as an exercise of his supervisory powers.
“The corporation and the LP contend that Bryan terminated Daniel in his capacity as manager of the International, not his capacity as Vice-President, and therefore, explicit approval of the directors was unnecessary to effectuate the termination,” the judge observed.
However, she said, “the court discerns no record support for the proposition that Daniel’s role as Vice President was distinct from his role as manager of the International, and the Corporation and the LP point to none.”
The judge also was unmoved by the corporation’s argument that Daniel could not have been put in charge of the International in his capacity as vice president because the bylaws do not provide the vice president with such responsibility.
“The corporation and the LP are correct that the by-laws do not set out the responsibilities of the Vice President, the by-laws leave the power to assign duties to the directors,” Kenton-Walker said.
But by putting Daniel in charge of day-to-day operations of the International at the same time they elected him vice president, the directors by necessity defined the vice president’s duties to include managing the club, she said.
“Therefore, the by-laws authorized the directors to assign Daniel, as Vice President, the responsibility of managing the day-to-day operations, and that is exactly what they did,” the judge said.
Since Daniel was managing the International in his capacity as vice president, Kenton-Walker continued, Bryan had no authority as president to remove him as vice president.
“While the parties fail to cite any on-point mandatory authority, and the court is unaware of any, [this] conclusion fits squarely with general principles of corporate law that the parties have brought to the court’s attention,” the judge concluded, granting Daniel and Florence’s cross-motions for summary judgment. “As the body putting Daniel into office, the board of directors had inherent and exclusive authority to remove Daniel absent a delegation of that authority.”
