Faithless Servants Beware: Massachusetts Forfeiture Law is More Severe than Astra USA, Inc. v. Bildman Might Suggest

Abstract

Massachusetts courts have long held fiduciary parties to strict standards of behavior. Fiduciaries that fall short of those standards expose themselves to a variety of consequences, some of which may be quite harsh. One is equitable forfeiture, the subject of this article. It can require that an employee who is also a fiduciary (such as a corporate officer) repay compensation received during the period of his or her breach, in addition to traditional damages. Depending on the employee and the period of time the employee is in breach, equitable forfeiture can result in millions of dollars of recoupment for an employer. Recently, the Supreme Judicial Court issued an opinion in Astra USA, Inc. v. Bildman, a long running litigation involving the disgraced chief executive of a Westborough-based pharmaceutical company. Although the case was decided under New York law, it is significant for Massachusetts practitioners because in dicta the Court pointed out apparent discrepancies between Massachusetts and New York forfeiture law. In particular, the Court noted that Massachusetts forfeiture law is considerably more lenient toward the breaching fiduciary than New York law with respect to the degree of potential forfeiture. The Court also suggested that in Massachusetts, unlike New York, a disloyal employee is entitled to apportionment (or an offset, as it is sometimes called) of compensation based on services performed that were unrelated to the breach.

Bildman leaves the reader with the distinct impression that in any circumstance Massachusetts forfeiture law is more relaxed than its New York analog. That impression is not unreasonable in light of Bildman’s dicta, particularly the Court’s statements juxtaposing Massachusetts and New York forfeiture law. There are, however, Massachusetts cases that support the proposition that forfeiture law in the Commonwealth is much more severe than Bildman’s dicta might suggest and that Massachusetts judges retain considerable discretion in deciding just how much forfeiture is equitable. Those cases are explored in this article.

Keywords: Equitable Forfeiture, Faithless Servant Doctrine, Astra, Bildman, Massachusetts, Offset, Fiduciary Duty, Apportionment