## Facts

- In 1994, Dennis Leslie, Mark Khayter, and Robert Goulart formed Boston Software Collaborative, Inc. (BSC), a Massachusetts closely held corporation.
- Each founder contributed $200 in start-up capital, received approximately one-third of BSC’s shares, and served as a director.
- Khayter served as BSC’s president and chief executive officer; Goulart served as clerk; Leslie served as treasurer and performed administrative and office-management functions.
- BSC provided software-engineering and technical consulting services and billed clients by the hour.
- Khayter and Goulart billed substantially more client hours than Leslie and received additional compensation tied to their billings.
- Leslie sought additional compensation, arguing that his administrative and office-management work should be credited in the compensation structure.
- Over time, BSC received multiple complaints about Leslie from employees and clients.
- Employees reported that Leslie made inappropriate comments and overreacted to employees.
- Clients reported dissatisfaction with Leslie’s work quality, including concerns that he was billed as a senior engineer but did not demonstrate corresponding skill, took too long to complete work, or was unwanted on projects.
- At one point, three key employees threatened to resign because of problems working with Leslie.
- In 2000, after considering leaving BSC, Leslie decided to remain and sent an email to another employee stating his decision.
- In that same email, Leslie stated that his wife “reserved the right to shoot the other two partners,” and the email was forwarded to Khayter and Goulart.
- The statement was treated as serious because Leslie had a license to carry a firearm and sometimes carried a gun.
- Khayter and Goulart placed Leslie on unpaid leave and presented a proposed separation agreement that included ten weeks of pay and possible consulting or contract opportunities.
- Leslie refused to sign the separation agreement.
- Khayter and Goulart then acted through their board and shareholder control to remove Leslie from his employment and from his officer/director roles.
- Leslie sued BSC, Khayter, and Goulart asserting, among other theories, wrongful termination, failure to pay dividends, and freeze-out/oppression based on alleged breach of fiduciary duties in a close corporation.

## Issues

1. Whether, in a Massachusetts close corporation, the controlling shareholders/directors breached fiduciary duties owed to a one-third shareholder by ending his employment and removing him from officer and director positions.
2. Whether the removal of a shareholder-employee from employment and management constituted an actionable freeze-out that frustrated the shareholder’s reasonable expectations in the enterprise.
3. If the actions burdened the minority shareholder, whether the defendants showed a legitimate business purpose and, if so, whether the plaintiff proved a less harmful alternative that would have met that purpose.

## Decision

- The court treated BSC as a close corporation and applied Massachusetts’ close-corporation fiduciary-duty framework requiring shareholders in control to act with the utmost good faith and loyalty toward one another.
- The court recognized that participation in management and employment may be a significant component of a shareholder’s expected benefit in a close corporation, but those expectations are not unconditional.
- The court credited the defendants’ evidence of substantial business reasons for removing Leslie, including repeated employee and client complaints and the disruption risk created by Leslie’s conduct.
- The court also credited the seriousness of the emailed “shoot” statement in light of the small workplace, the strain among the founders, and the evidence that Leslie had carried a firearm.
- Applying the Massachusetts balancing approach for close-corporation disputes, the court concluded the defendants’ actions were supported by legitimate business objectives and were not an improper freeze-out under the circumstances.
- The court entered judgment for the defendants on the fiduciary-duty/freeze-out theories (and related claims premised on an improper termination or squeeze-out).

## Legal Principles

- Shareholders in a Massachusetts close corporation owe each other a heightened fiduciary duty comparable to that owed among partners, including a duty of utmost good faith and loyalty.
- A minority shareholder in a close corporation may claim that termination from employment or exclusion from management frustrates reasonable expectations tied to ownership, especially when salary and participation function as the main return on investment.
- Under the Massachusetts framework associated with *Wilkes*, once the minority shows a serious burden on expected benefits, the majority may avoid liability by demonstrating a legitimate business purpose for its action.
- If the majority shows a legitimate business purpose, the minority may still prevail by proving that the same objective could have been achieved through a practicable alternative that would have been less harmful to the minority’s interests.
- Documented performance problems, client dissatisfaction, workplace conflict, and credible safety concerns can qualify as legitimate business reasons for removing a shareholder-employee from employment and management in a close corporation.

## Conclusion

In *Leslie v. Boston Software Collaborative, Inc.*, the Massachusetts Superior Court applied close-corporation fiduciary-duty rules but held that the other two founder-shareholders did not violate those duties by placing Leslie on unpaid leave and removing him from employment and corporate positions, because the defendants proved legitimate business reasons grounded in performance, workplace disruption, and safety concerns and the plaintiff did not show a workable, less harmful alternative.


Leslie v. Boston Software Collaborative, Inc., 14 Mass. L. Rptr. 379 (2002)