Cook v. Applause App Quality, Inc., et al. (Lawyers Weekly No. 09-007-17)
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, so SUPERIOR COURT
CIVIL ACTION
NO. 2016-3293-BLS 2
WALTER COOK,
Plaintiff
vs.
APPLAUSE APP QUALITY, INC., DORON REUVENI,
and CHRISTOPHER MALONE,
Defendants
MEMORANDUM OF DECISION AND ORDER ON
PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION
In this putative class action, the plaintiff Walter Cook, individually and on behalf of others similarly situated, alleges violations of the Massachusetts Wage Act, G.L.c. 149 §149, 150, and the Massachusetts Minimum Fair Wage Act, G.L.c. 151 §§1A-1B. The Complaint was filed in October 2016 and, after an effort to settle the case through mediation, the parties proceeded with discovery. On August 10, 2017, the defendants requested extensions of various deadlines, to which the plaintiff assented. Under the revised tracking order, class-based discovery is to be complete by October 20, 2017, with a motion for class certification to follow.
The case is now before the Court because the defendant Applause App Quality, Inc. (Applause) on September 8, 2017 sent a document to putative class members entitled “Option Cancellation Agreement.” The document was sent in connection with a proposed merger between Applause and another company, Vista Equity Partners. On page six of the ten-page, single spaced document is language purporting to release Applause from the claims asserted in the instant case. Plaintiff’s counsel had no advance notice of the merger, and learned of the Option Cancellation Agreement only when an employee of Applause contacted him about it.
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On September 11, 2017, plaintiff filed an Emergency Motion for a Temporary Restraining Order challenging Applause’s communications with potential class members. Rather than proceeding on an ex parte basis, this Court scheduled a hearing for September 14, 2017. After hearing, the Court issued a Temporary Order which among things prohibited Applause from any further communications and required it to withdraw the Option Cancellation Agreement pending further hearing. That further hearing was held on September 21, 2017, at which time defendant moved to terminated the Temporary Order. Based on the reasons set forth herein, this Court now extends that earlier order as a Preliminary Injunction and DENIES the defendant’s Motion.
LEGAL ANALYSIS
Although the issues presented by this motion are new to this judge, the applicable legal principles are not. It has long been recognized that a court has inherent power to regulate and control the conduct of parties and their legal representatives if that is necessary to protect the integrity of the judicial process. Kevlik v. Goldstein, 724 F.2d 844, 847 (1st Cir. 1984) and cases cited therein. Where suit has been brought as a putative class action, that authority is made explicit in Rule 23(d), Mass. R.Civ. P., which states that the court may “impose such terms as shall fairly and adequately protect the interests of the class in whose behalf the action is brought or defended.” The potential that such interests will be unfairly compromised is particularly strong before a class has been certified, since potential class members are not yet represented by counsel and (in cases involving alleged wage violations) because of the heightened possibility of coercion between an employer defendant and its workers. See Chambers v. RDI Logistics, Inc., 476 Mass. 90, 111 (2016) (Chambers); see also Belt v. Emcare, Inc., 299 F. Supp. 2d 664, 668 (E.D. Tex. 2003) (“[W]here the absent class member and the defendant are involved in an
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ongoing business relationship, such as employer-employee, any communications are more likely to be coercive”); Kleiner v. First Nat’l Bank, 751 F.2d 1193, 1202 (11th Cir. 1985) (same). Although a court’s authority to regulate communications by one party or his lawyer is circumscribed by the First Amendment, it is appropriately exercised to prevent “’misleading or coercive communications with potential class members that could or are intended to undermine participation in a class or collective action.” Chambers, 476 Mass. at 111, quoting Davine vs. Golub Corp., U.S. Dist. Ct., No. 14-30136-MGM (D. Mass. Oct. 24, 2014). Any order that does limit the opposing party’s communications must be supported by “clear and specific findings” that show a need for the limitation and a likelihood that, without it, there is a real potential of serious abuse. Chambers, 476 Mass. at 111, quoting Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981).
With these principles in mind, this Court turns to the communication here at issue: the Option Cancellation Agreement (the Agreement). The Agreement contains two sets of releases, one appearing in Section 7 (and entitled “Release”) and the other appearing in Section 9 (c) (under the heading of “Additional Covenants”). The release language in Section 7 is quite broad and applies to a wide variety of claims, known and unknown, that have been or could be asserted against Applause and its successors and assigns, including Vista Equity. It specifically excludes from its reach, however, “any rights to receive compensation (including without limitation wages, fees, salaries and bonuses) and benefits or reimbursement of expenses that have accrued in respect of any employment” with Applause. Section 9 of the Agreement pertains directly to the instant case and purports to release precisely what Section 7 appears to preserve in that the employee relinquishes any claim to wages as asserted in this case. That the Agreement appears to be internally contradictory would alone support the conclusion that it is misleading.
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As to the specific language of Section 9, it does accurately describe the claims in the instant case (which it references by name and docket number), and that description is in capitals and bold face. However, it is included in a document that by its title relates to stock options already earned by Applause employees under to a 2008 Equity Incentive Plan. The purpose of the Agreement is set forth on the first page and states that, as a result of the Merger Agreement entered into between Applause and other entities on August 18, 2017, these employee stock options are cancelled except that if they are vested, the option holder will receive a cash payment “equal to the Optionholder’s applicable portion of the consideration payable pursuant to the Merger Agreement…” That cash payment will be made, however, only if the option holder signs and returns the Agreement, and thus agrees to the releases in Section 7 and 9. In other words, any Applause employee with vested stock options will receive the cash equivalent only if he or she agrees to release any and all claims against Applause, including the claims asserted here.
Plaintiff contends that Applause has no legal basis for withholding compensation to its employees who hold vested stock options by conditioning it on those employees giving up their rights against Applause on wholly unrelated claims. This Court is inclined to agree. But see footnote 1, infra. The Agreement appears to cancel all stock options, whether vested or not, but vested stock options cannot be cancelled without some equivalent compensation. Consequently, that right to some compensation cannot be conditioned upon the employee giving up any claim to wages due and owing, which is what the Agreement appears to require the employee to do (assuming that Section 9 trumps Section 7 so as to avoid the internal contradictions between those two sections described above). As plaintiff’s counsel puts it, “defendants are trying to
settle with class members by offering to pay them money that they are already entitled to
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receive.” 1
Defense counsel argues that such a general release like the one here at issue is “industry practice” where stock options are being cancelled as a result of a merger. He offers no evidence of that, however. Indeed, plaintiff’s counsel’s own research suggests that the industry practice (at least with respect to publicly traded companies) is to include releases that pertain only to claims that relate to the agreement itself and the stock options to which it pertains. The manner in which this Agreement was presented to putative class members was also coercive. Despite defense counsel’s attempt to characterize it as a mere offer, this Agreement was presented in a “take or leave it” fashion, without any indication that Applause was open to discussing it. Moreover, the Agreement – including Section 9 — is written in the dense and impenetrable language that only a lawyer can decipher. As if in recognition of that fact, the Agreement requires the employee to specifically represent that he or she had the opportunity to consult with legal counsel regarding his or her rights – and more specifically, that he or she has reviewed the Complaint in the instant action. Since these employees are likely of limited means and are not currently represented by class counsel (or even know who class counsel is), the chance that any employee would actually get independent and meaningful legal advice is decidedly slim.
This case is thus far different than the communication at issue in Chambers, which a lower court in its discretion declined to enjoin. In Chambers, the employer defendant in a Wage Act case sent a letter to its employees that described the then pending action against it in terms that a non-lawyer could easily understand. The defendant made a straightforward offer to pay a
1 At the hearing on September 21, 2017, defense counsel argued that this Court has misunderstood the Agreement and that it is supported by consideration. This Court need not decide today whether counsel is correct since I make no final determination regarding the validity of any Agreement executed before the Temporary Order issued. That the Agreement is difficult to decipher, however, and could lead to different interpretations only reinforces this Court’s conclusion that it constitutes a communication to putative class members that is misleading.
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sum of money to any individual willing to relinquish his or her claim, as a putative class member, to seek compensation for unpaid wages, including any claim that the individual had been misclassified as an independent contractor. The letter did not require the recipient to give up any other rights; indeed, it specifically stated that the recipient’s decision to accept or reject the cash offer would not have any impact on his or her business dealings with the company unrelated to the class action. Finally, in refusing to reverse the lower court, the SJC did not specifically bless the communication at issue. It held only that the lower court did not abuse its discretion – that is, that its ruling did not involve a “clear error of judgment in weighing the factors relevant to the decision…such that [it] falls outside the range of reasonable alternatives.” Chambers, 476 Mass. at 111, quoting Merles v. Lerner, 391 Mass. 221, 226 (1984). This Court in the exercise of its discretion, concludes that Applause’s conduct is improper.
Accordingly, the plaintiff’s Motion for a Preliminary Injunction is ALLOWED, the defendant’s Motion to Terminate the Temporary Order is DENIED. This Court adopts the proposed Order submitted by plaintiff’s counsel at the hearing on September 21, 2017.
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Janet L. Sanders
Justice of the Superior Court
Dated: September 21, 2017