Segal v. Genitrix, LLC

Supreme Judicial Court of Massachusetts · 2017 · Corporations

CorporationsMassachusetts Wage ActLimited Liability CompanyAgencyBoard member liabilityInvestor liabilityWage ActG. L. c. 149, § 148

Facts

Genitrix was a Delaware LLC in which Segal served as president and sole officer and handled day-to-day operations, finances, and payroll, including exclusive authority to sign checks and order payroll. Johnson and Rose were investors and board members, but neither was president, treasurer, or an officer of Genitrix; the LLC agreement also stated that members, as members, had no authority to bind the company. Johnson had a contractual right as a third-party beneficiary to enforce Segal's employment agreement, and Rose acted as Johnson's representative on financial matters. When Genitrix ran short of funds, Segal stopped paying himself, while Rose conditioned new investments from Fisk on specified uses and the Johnson representatives opposed some of Segal's cost-cutting proposals.

Issue

Can LLC board members and investors who are not officers be held personally liable under the Massachusetts Wage Act as "agents having the management" of the company based on their board oversight, investment leverage, and limited contractual authority over the president's employment agreement? More specifically, was the evidence sufficient to show that Johnson and Rose were agents having the management of Genitrix?

Rule

For Wage Act personal liability, a defendant must fall within the statute's specified categories: president, treasurer, or other officers or agents having the management of the company. To qualify as an "agent having the management," the person must both be an agent of the company and have significant management responsibilities similar to those of a corporate president or treasurer, particularly regarding control of finances or payment of wages; board membership alone, ordinary board oversight, or ordinary investor conduct does not satisfy this standard.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakefront Biolabs, LLC, a Massachusetts-based startup in Boston, stopped paying engineers for two months. Nina Patel sat on the five-member board and regularly voted on budgets and staffing, but she held no officer title and had never been separately authorized to sign checks, direct payroll, or act for the company outside board votes.

An unpaid engineer sues Nina personally under the Massachusetts Wage Act. Is Nina most likely personally liable?

Explanation. The majority held that personal liability extends only to the president, treasurer, or other officers or agents having the management of the company. Neither the board nor an individual director is, as such, an agent of the corporation, and ordinary board oversight is not enough. Because Nina is only a director and was not separately empowered to act as an agent with management authority similar to a president or treasurer, she is not personally liable. (Derived from Segal v. Genitrix, LLC (n.d.).)