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Wage Act counterclaims constitute SLAPP suit

Wage Act counterclaims constitute SLAPP suit

1222neih_4_TortiA worker at a high-tech startup who sued the company for misclassifying him as an independent contractor was entitled to have the company’s counterclaims for tortious interference and bad faith dismissed under the anti-SLAPP statute, a Superior Court judge in Massachusetts has ruled.

The plaintiff, who had served as the defendant company’s vice president of business development before their relationship soured, argued that the counterclaims arose solely upon his legitimate petitioning activity, namely his attempt to vindicate his rights under the Wage Act.

Judge Dennis J. Curran agreed.

“Aside from denying most of [the plaintiff’s] factual allegations in its answer and alleging a different factual scenario in its counterclaim, [the defendant] has done nothing to refute the facts alleged by the plaintiff,” Curran wrote, granting the plaintiff’s special motion to dismiss the tortious interference and bad faith counterclaims under G.L.c. 231, §49H, the anti-SLAPP law. “[The defendant’s] failure to meet its burden and the dismissal of counterclaims under [the plaintiff’s] special motion requires, by law, that this court award him attorneys’ fees and costs associated with the bringing of the motion.”

However, the judge denied the plaintiff’s special motion to dismiss the defendant’s counterclaims for breach of contract, breach of fiduciary duty, fraud and misrepresentation.

The five-page decision is Barnum v. Tubifi, Inc.

Growing trend

Plaintiff’s counsel David B. Summer of Boston said he and his co-counsel, Boston’s Alan Meyerson, handle a large number of wage cases and recently have noticed employers filing counterclaims that are better characterized as SLAPP suits.

“In general, we have a pretty good track record [of getting them dismissed],” Summer said. “Employers may not couch their counterclaims in terms of abuse of process, but if you look at the terms of the allegations they’re making, it’s definitely based on petitioning activity.”

He said Barnum did not, in fact, involve a “plain Jane” abuse-of-process counterclaim, making for a more interesting anti-SLAPP analysis.

But Summer said his client was disappointed that the judge declined to dismiss the defendant’s other counterclaims. According to Summer, they, too, were based on petitioning activity.

Emanuel D. Torti of Torti Flanagan in Norfolk represented the defendant. He said the decision highlights the need for the Legislature to reassess the Wage Act and the anti-SLAPP law in light of the common practice within the high-tech community of startups and their personnel exchanging work for stock in the company, as occurred in Barnum.

“Neither the Wage Act nor the anti-SLAPP statute should be applied to sophisticated joint ventures where the parties clearly agree to exchange services for equity,” he said. “A disgruntled partner and shareholder should not be able to reach to the Wage Act or seek protection under the anti-SLAPP statute by suing his fellow partners when a startup fails to bear fruit.”

Torti also called the court “fair-minded” in allowing four of his client’s six counterclaims while recognizing the constraints placed upon it by the anti-SLAPP law and Wage Act as written.

Nicholas F. Ortiz, a Boston lawyer who regularly handles Wage Act cases, said when facing such claims, employers tend to “get creative” with their counterclaims.

“There is a motivation to throw the kitchen sink at former employees bringing lawsuits,” he said. “The court here articulated the test for when that steps into SLAPP territory — namely, whether there is an independent basis for counterclaims apart from the lawsuit itself.”

Because of mandatory sanctions, attorneys defending against Wage Act claims need to be careful in assessing and pleading counterclaim facts, he said.

Similarly, Ortiz said, plaintiffs’ attorneys should be watchful for opportunities to bring anti-SLAPP motions when counterclaims are based solely on the wage claims themselves.

Alleged misclassification

In May 2011, plaintiff Micha Barnum signed an offer to become vice president of business development for defendant Tubifi, Inc., known as Project Madmen at the time he joined.

According to the terms of the offer, the plaintiff was to take on a senior role in the business and report to its chief executive office. Specifically, he was charged with identifying and analyzing partnerships that would enhance cash flow, providing guidance and expertise, and, initially, assisting with sales efforts.

The plaintiff’s initial base compensation was to be determined by the company’s cash flow. Once the company was fully funded with a positive cash flow, the plaintiff was supposed to receive between $100,000 and $120,000 in base compensation. The offer apparently indicated the intent to create a stock incentive program, but none was offered at the time.

Meanwhile, for the period before the company became fully funded, it agreed to pay the plaintiff $5,000 a month in base compensation and did so from May through September 2011. But from October to July 2012, it apparently paid the plaintiff sporadically, if at all, and in varying amounts.

During that time, the plaintiff emailed the CEO, one of several people the plaintiff worked under during his tenure with the company, requesting that he be paid the agreed-to amounts.

In November 2013, the plaintiff stopped working at Tubifi. Three months later, he sued the company and several executives in Superior Court. He brought his claim under the Wage Act, alleging that he was misclassified as an independent contractor and was owed past wages because he was actually an employee.

In its answer, the defendant insisted that the plaintiff was, in fact, an independent contractor and was compensated through stock offerings in the company. It also brought counterclaims arising from various interactions with the plaintiff, including claims for breach of contract, breach of fiduciary duty, fraud, tortious interference and bad faith.

The plaintiff responded with a special motion to dismiss under the anti-SLAPP statute.

Petitioning activity

Curran rejected the plaintiff’s assertions that the contract, fiduciary, fraud and misrepresentation claims should be construed as illegal SLAPP suits, finding instead that the claims had some basis beyond the plaintiff’s petitioning activity.

For example, the judge said, the defendant claimed that the plaintiff breached his contract not only by filing suit against the company, but by failing to provide services as outlined in the offer he had signed.

Additionally, the defendant alleged self-dealing on the part of the plaintiff with regard to bookkeeping and accrued wages. That would form a basis for a claim of breach of fiduciary duty beyond simply the plaintiff’s petitioning activity, the judge said.

Similarly, the defendant alleged in its counterclaim that the plaintiff misrepresented his necessity for money for child support and misrepresented that he was managing the defendant’s books in good faith while, at the same time, making self-serving lists showing his own accrued wages.

“While all the above counterclaims make some reference to Mr. Barnum’s allegations that he is entitled to wages, they each have additional allegations upon which the counterclaims are based,” Curran said. “Therefore … Mr. Barnum has not met his burden of demonstrating they are solely based on the petitioning activity and the special motion to dismiss must be denied.”

At the same time, Curran found that the defendant’s counterclaims of interference with contractual relations and breach of the implied covenant of good faith and fair dealing did indeed violate the anti-SLAPP law.

“Tubifi, Inc. must demonstrate, by a preponderance of the evidence, that Mr. Barnum lacked any reasonable factual support or arguable basis in law for his petitioning activity and that it suffered actual injury as a result,” the judge said.

But aside from denying most of the plaintiff’s factual allegations in its answer and alleging a different factual scenario in its counterclaim, the defendant did nothing to refute the plaintiff’s allegations, Curran said. Meanwhile, the defendant submitted no affidavit upon which to base its factual allegations, he said.

“Therefore, because it has not supported its rebuttal of Mr. Barnum’s allegations with affidavits, it is unable to show by a preponderance of the evidence that the petitioning activity lacked reasonable factual support,” he said.

Accordingly, Curran awarded the plaintiff costs and fees associated with bringing his motion to dismiss on those claims.

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