Arguing that When a Stockholder/employment Agreement Provides that a Corporation’s Board of Directors Has the Exclusive Authority to Decide Whether a Senior Executive Should be Terminated for Cause, the Only Issue for a Reviewing Court Should Be Whether or Not the Board Made its Employment Decision in Good Faith.
Click here to read the brief.
This case, which is before the Massachusetts Supreme Judicial Court on an application for direct appellate review, asks how a court should review a decision of a corporation’s board of directors to terminate a senior executive for cause under the terms of a stockholder/employment agreement. A high-ranking executive is generally an employee at will who can be terminated without cause, as in this case. Nonetheless, under the typical stockholder/employment agreement, such as the one here, an executive who is terminated for cause can lose his stock ownership in the corporation, along with any severance package. And, as with many other such agreements, the contract at issue provides a definition of “cause” and also provides, significantly, that “a determination of ‘Cause’ may only be made by the Board of Directors . . . .” (Emphasis added.) Under this clear contractual language preserving the board’s fact-finding prerogative, should a court defer to the board’s decision so long as the board has acted in good faith? Or should a court instead have the discretion to disregard the board’s decision and determine the issue for itself in a trial de novo? The Superior Court in this case took the latter view and reversed the decision of the board of directors of Babcock Power, a high technology company headquartered in Danvers, Massachusetts, to terminate for cause the employment of Dr. Eric Balles, a high-ranking, senior executive employee. As a result, the lower court awarded Balles approximately $2 million in damages and attorneys’ fees.
This case raises an important issue of internal corporate governance that warrants, and NELF supported Babcock Power’s application for Direct Appellate Review and intends to file an amicus brief on the merits as well. In its amicus brief, NELF will argue, inter alia, that, in the circumstances of this case, the board’s decision should be upheld unless the employee can show that the decision was made in bad faith or was otherwise tainted by fraud, and that the Superior Court’s review should have been limited to those issues alone.
Click here to read the brief.
This case, which is before the Massachusetts Supreme Judicial Court on an application for direct appellate review, asks how a court should review a decision of a corporation’s board of directors to terminate a senior executive for cause under the terms of a stockholder/employment agreement. A high-ranking executive is generally an employee at will who can be terminated without cause, as in this case. Nonetheless, under the typical stockholder/employment agreement, such as the one here, an executive who is terminated for cause can lose his stock ownership in the corporation, along with any severance package. And, as with many other such agreements, the contract at issue provides a definition of “cause” and also provides, significantly, that “a determination of ‘Cause’ may only be made by the Board of Directors . . . .” (Emphasis added.) Under this clear contractual language preserving the board’s fact-finding prerogative, should a court defer to the board’s decision so long as the board has acted in good faith? Or should a court instead have the discretion to disregard the board’s decision and determine the issue for itself in a trial de novo? The Superior Court in this case took the latter view and reversed the decision of the board of directors of Babcock Power, a high technology company headquartered in Danvers, Massachusetts, to terminate for cause the employment of Dr. Eric Balles, a high-ranking, senior executive employee. As a result, the lower court awarded Balles approximately $2 million in damages and attorneys’ fees.
This case raises an important issue of internal corporate governance that warrants, and NELF supported Babcock Power’s application for Direct Appellate Review and intends to file an amicus brief on the merits as well. In its amicus brief, NELF will argue, inter alia, that, in the circumstances of this case, the board’s decision should be upheld unless the employee can show that the decision was made in bad faith or was otherwise tainted by fraud, and that the Superior Court’s review should have been limited to those issues alone.
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