P and Johnson agreed to form abiotechnology startup company with P serving as president and chief executive officer (CEO) and Johnson providing initial funding. Stephen Rose was a representative for Johnson and spoke to P on Johnson's behalf during their negotiations over the formation of the company. D was established as a Delaware limited liability company (LLC) headquartered in Boston. P transferred his intellectual property rights to D in exchange for a substantial equity interest. Johnson also received an equity interest in return for his initial investment in the company. P and Johnson each had authority to appoint two board members to D's four-member board of representatives, and both could remove and replace their representatives with or without cause. Most board decisions required a seventy-five per cent majority to pass. Johnson served on the board for only the first year of the company. Rose was appointed as one of Johnson's board representatives in 1999 and remained a Johnson board member until the company's dissolution. Johnson indicated to P that P should contact Rose about any financing issues, stating that Rose “speaks for” Johnson. Johnson insisted P sign an employment agreement with D. The agreement provided that Segal would serve as the president and CEO of the company, with the “duties, responsibilities and authority” commensurate with those positions, such as “conducting the company's business, research and development,” and managing its “finances and other administrative matters, subject to the overall direction and authority of [its] [b]oard.” After the second year, D, with the approval of at least fifty per cent of the [board], may replace P as chief executive officer.” If no suitable replacement CEO could be found within fifteen months, on which seventy-five per cent of the board could agree, the Johnson board members were authorized to appoint a new CEO. Under the employment agreement, P's “employment period” could be terminated in one of three ways: (1) resignation; (2) removal for cause approved by fifty per cent of the board; or (3) removal without cause approved by seventy-five per cent of the board. The agreement specified P's salary for the first two years of his employment. Afterward, his salary was to be determined by a vote of seventy-five per cent of the board, and was “payable in regular installments. The employment agreement identified Johnson as a third-party beneficiary, and authorized him to “enforce D's rights under the terms of this agreement.” Any amendment or waiver of a provision in the employment agreement required written consent from D, P, and Johnson. At no point did Johnson exercise these rights, including termination rights. Johnson began funding through Fisk Ventures, LLC (Fisk), an entity owned entirely by Johnson and Rose. Fisk became the largest shareholder of Genitrix and gained the authority to appoint a fifth member to the board. Johnson and Fisk's combined equity in Genitrix exceeded fifty per cent. Fisk and Johnson's board representatives, taken together, constituted sixty per cent of the board. D never employed more than five full-time employees. P was responsible for all day-to-day operations. He supervised the laboratory and directly managed human resources. He was in charge of fundraising and generating new capital. P also handled the company's payroll. As the only individual with authority to “physically sign checks, he wrote checks for employee wages. On March 23, 2006, P informed the board that the company was running out of funds to pay its employees. Rose told P that Fisk would not invest more money in D if Segal continued to control the management of the company. Fisk did invest additional money in D on April 6, 2006, but unlike prior investments, Rose earmarked that investment for specific purposes: payroll, expenses necessary to comply with covenants in the LLC agreement, and the repair or replacement of a centrifuge. All subsequent Fisk investments were also earmarked for specific purposes, such as patent fees and other employees' salaries. P voted in favor of each board resolution authorizing Genitrix to accept these investments. P stopped taking his salary in January 2007. He testified that he did so to help the company afford to pay Elihu Young, its last remaining employee other than P. On May 17, 2007, Johnson's board members finally agreed to lay off Young, voting in favor of a board resolution to terminate Young's employment. A week later, Fisk invested additional money in Genitrix for the purpose of paying Young's remaining salary. When Young left, Young closed the company's laboratory. Rose filed a petition for the judicial dissolution of D on behalf of Fisk in June 2007. P was a named party to the Delaware dissolution proceeding because he was still the president of the company. P actively opposed the dissolution. P brought counterclaims in that proceeding against Ds for breach of the LLC agreement, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duties, and tortious interference with his employment agreement. P did not bring a Massachusetts Wage Act claim. During this time, P did some other work as president, including paying patent annuity fees and protecting the work associated with those patents, securing directors' and officers' insurance, and making necessary tax filings. P testified that he continued to work for the company during this time, despite no longer taking a salary, because he thought he “would eventually get paid.” He believed that when the company sold its patents, “that money would go, at least in part, to pay [him].” In late 2007, Young threatened to bring a Wage Act claim against the company for outstanding unpaid wages. In March 2008, Rose directed Fisk to invest enough money in D to compensate Young for his unpaid wages, and in return, Young signed an agreement releasing D, its board members, and its agents from liability. Rose did not, however, direct Fisk to invest money in D toward P's salary. On February 19, 2009, P sent an e-mail message to Rose stating, “The Company owes me wages and benefit expenses. I cannot agree to any arrangement that does not respect that claim.” In early 2009, P filed suit against Rose and Johnson in Massachusetts under the Wage Act for unpaid wages from 2007 to 2009. The Delaware Court of Chancery ordered D's dissolution and appointed a liquidator to conduct the dissolution and winding up of the company's affairs. The liquidator auctioned off D's intellectual property. Fisk submitted the winning bid of $300,000 even though Johnson's board representatives had said D was worth over $15 million three years earlier. P submitted a proof of claim to the liquidator for back pay in June 2009, but that claim was denied. P appealed from the denial to the chancellor, who dismissed the claim as moot in October, 2010, because the company did not have enough money to satisfy P's claims. D moved for summary judgment in the Massachusetts Wage Act suit, and a Superior Court judge granted the motion, finding that Ds did not “have the management” of the company under the Wage Act. The Appeals Court reversed and remanded the grant of summary judgment on the Wage Act claim. At trial the jury were instructed that the “duty to pay wages extends to the president and treasurer of a corporation and any officers or agents having the management of such corporation, which includes an LLC, such as D.” The jury were instructed that a “person qualifies as an agent having the management of such corporation if he … ‘controls, directs, and participates to a substantial degree in formulating and determining policy of the corporation or LLC.’” The jury went on to find Ds individually liable under the Wage Act. P filed a timely notice of appeal, and Johnson and Rose's application for direct appellate review.

This section contains the nature of the case and procedural background.

The legal issues presented in this case will be displayed here.

The applicable rule of law for this case will be displayed here.

The court's holding and decision will be displayed here.

Legal analysis from Dean's Law Dictionary will be displayed here.