The hiring and retention of quality producers constitute the lifeblood of insurance agencies.
In a recent federal district court case, Matthew Post v. Mark Edward Partners LLC, Mark Freitas, and Andrew Guerin, this issue was forefront in providing an object lesson in what can go wrong when an agency, its officers, and a producer being onboarded, come to loggerheads and litigation ensues.
The relative amounts in dispute in this lawsuit are not large, yet the agency faces the potential of a mandatory treble damage award and attorney fees if it loses the Wage Act counts. Likewise, the producer has the possibility of having to repay the agency $50,000 plus if the agency can prove its advancement claim.
In either case, the lesson an agency or producer might take from this lawsuit is to think of hiring a producer like a marriage and consider getting a good prenuptial agreement before you start the relationship.
Mark Edwards hires Mathew Post to develop “a Massachusetts presence”
Mark Edward Partners LLC (“Mark Edward” or “the Company”) is a New York insurance brokerage whose website states that it “seeks to provide risk management services to corporations, non-profit organizations, and high-net-worth individuals and families” with a multinational client base “located throughout the globe.”
Mark Edward is registered to do business in Massachusetts with the Secretary of State and is licensed by the Division of Insurance to act as a nonresident insurance producer. The Company’s Massachusetts license allowed it to sell property & casualty, accident, health, and sickness, and surplus lines insurance in Massachusetts.
The Company’s founder, owner, and CEO, Mark Freitas, also held a nonresident producer license in Massachusetts as a person authorized to place insurance for Mark Edward in Massachusetts.
While Mark Edward had locations in New York, California, and Florida, it did not have any Massachusetts locations or producers in Massachusetts.
Beginning early in 2021, Mark Freitas and Andrew Guerin, the Company’s Executive Vice President, decided to “create a presence” in Massachusetts by hiring a producer to focus on the area. An executive recruiter introduced them to Post, who worked in the Massachusetts insurance industry as a producer.
Post was vetted by Freitas and Guerin to work at Mark Edward and “create a presence” for it in Massachusetts between late April and early May 2021. Post interviewed for this position with Mark Edward while he was in Massachusetts. Freitas and Guerin conducted the interview using Zoom video conferencing.
To develop Mark Edward’s Massachusetts presence, Freitas and Guerin agreed that Post would work from his Acton home office using his own computer and mobile phone with its Massachusetts number to make personal calls to potential Massachusetts insurance prospects.
On May 7, 2021, Freitas sent Post an offer letter for employment with Mark Edward. The offer stated that his title would be vice president, and he would report to Guerin. The letter also stated that Post was “eligible to receive a draw against commissions from May 2021 through December 2021 in the amount of $105,000.”
The offer letter did not state whether the draw against commissions would be recovered in the event that Post did not receive sufficient commissions.
Based on Post’s claimed understanding of his discussions with Freitas and Guerin, he believed that the agreement was for $6,500 on a biweekly basis until the end of 2021, plus commissions at a rate of 35% for any commissions received over an initial threshold of $300,000.
Post signed the offer letter and started working for Mark Edward on May 15, 2021. He began contacting his potential clients from his home office, all of whom also were located in Massachusetts. He subsequently received from Guerin Mark Edward business cards with his phone number and Boston as an office location.
Starting at the end of May, Post began to receive biweekly payments of $6,500 from Mark Edward. His Massachusetts pay stubs designated the compensation paid as “salaried” and subtracted Massachusetts income taxes from the biweekly payments.
Four months after starting with Mark Edward, however, Post had only produced commissions of $1,859.50 for his efforts on behalf of Mark Edward.
On September 20, 2021, Guerin informed Post that he and Freitas had decided to stop paying him the biweekly $6500 he had been receiving under the offer letter. Instead, they advised Post that the Company would “reimburse his back wages and resume payment of his wages prospectively once he obtained broker of record letters or booked policies with clients that had annual commissions of $160,000.”
Although Post continued working for Mark Edward after September 20, 2021, he did so without getting any payments for the work conducted between September 20, 2021, and November 29, 2021.
On November 29, 2021, Guerin terminated Post’s employment with Mark Edward, claiming that Post had “abandoned” his job and further demanding that Post pay back the $52,500 in wages that Post had been paid between May 15, 2021, and September 15, 2021.
Post files a lawsuit against Mark Edward, Freitas, and Guerin
On December 1, 2021, Post sued Mark Edward, Freitas, and Guerin in the Middlesex Superior Court “for wrongfully failing and refusing to pay wages due and owing to him and for breaching the terms of the parties’ employment contract.”
In his Superior Court lawsuit, Post asserted six claims against the three Defendants, alleging:
- Violation of the Massachusetts Wage Act, G.L. c. 149, §148, 150 (Count I),
- Violation of the Massachusetts Minimum Wage Law, G.L. c. 151, §1 (Count II)
- Breach of Contract (Count III)
- Promissory Estoppel (Count VI)
- Breach of the Covenant of Good Faith and Fair Dealing (Count V), and
- Quantum Meruit (Count VI).
On January 27, 2022, the Defendants exercised their right to remove Post’s lawsuit to the Federal Court in Boston based upon diversity of citizenship, with Mark Edward, a New York limited liability company, Freitas, a resident of Florida, and Guerin, a resident of New Jersey.
Mark Edward, Freitas, and Guerin file motions to dismiss Post’s suit in Federal Court
Once Mark Edward, Freitas, and Guerin had Post’s lawsuit in Federal Court, they filed two motions to dismiss.
The motion to dismiss for lack of personal jurisdiction
The first motion sought to have Mr. Post’s case thrown out of Massachusetts, claiming that they all had been wrongfully sued in Massachusetts because they did not have sufficient contact with Post in Massachusetts to allow any Massachusetts state or Federal Court to exercise jurisdiction over them.
Under United States Supreme Court decisions, it is unconstitutional for a court located in one state to adjudicate a lawsuit against a person in another state unless that person has had sufficient material contacts with the first state. A common material contact allowing Massachusetts to exercise jurisdiction in its courts over a person or business domiciled in another state is that the claim before the Massachusetts court has arisen from that person or business “transacting any business in the Commonwealth.”
The Defendants claim Post’s employment was not Massachusetts-based
The motion to dismiss filed by Mark Edward, claiming minimal Massachusetts contacts, asserted that Post’s employment had nothing to do with Massachusetts based on the fact that Mark Edward is a company incorporated in New York and has its main place of business there.
In the same vein, the Defendants made the following assertions in support of their motion to dismiss:
- Although Mark Edward has offices in New York, Beverly Hills, Palm Beach, and London, Mark Edward provides insurance all around the world.
- Mark Edward did not own any property or operate any branch offices in Massachusetts, nor did it have any corporate directors there.
- Regarding Post’s Massachusetts complaint, Mark Edward only had a link to the state because it entered into a job agreement with Post, who just so happened to live in Massachusetts and worked remotely for Mark Edward from his Massachusetts residence.
- Mark Edward claimed it did not recruit or hire Post in Massachusetts. It recruited Post with no regional or territorial constraints on Post’s capacity to generate business, as stated in Post’s employment agreement.
- Mark Edward expected Post to bring in business from throughout the nation, and Post’s business card identified Mark Edward’s New York address as his point of contact.
- Mark Edward signed the job contract with Post In New York and did not provide Post with office space or equipment to conduct remote operations in Massachusetts.
- Likewise, Freitas and Guerin did not have substantive contacts in Massachusetts. Mr. Freitas is a resident of Florida, and Mr. Guerin is a resident of New Jersey. Neither Freitas nor Guerin traveled to Massachusetts to meet with Post at any point. As to Mr. Guerin, Post’s Complaint only states that Mr. Guerin made certain representations to Plaintiff in the course of the employment negotiations and that Mr. Guerin suspended Mr. Post’s draw after Mr. Post failed to bring in any business, as supposedly allowed under Post’s employment agreement.
The Court rules it has personal jurisdiction over the Defendants based on contacts with Post
Notwithstanding the above allegations, the Court denied the Defendants’ motion to dismiss for lack of sufficient contacts with Massachusetts regarding Post’s lawsuit.
The Court ruled that Post’s claims for unpaid wages and breach of contract stemmed directly from the claimed employment, firing, and recruitment of Post by the Defendants, all of which allegedly took place while Post was working for Mark Edward in Massachusetts.
Furthermore, the judge ruled by hiring Post to “create a presence” for Mark Edward in Massachusetts, the Company, Freitas, and Guerin willfully took advantage of “the privilege of conducting activities” in the Commonwealth.
Thus, the Commonwealth has a strong interest in resolving claims for unpaid wages allegedly earned in Massachusetts.
The Defendants also move to dismiss all of Post’s claims as not stating legal grounds upon which the court can give relief
Besides their jurisdictional motion to dismiss, the Defendants filed a second motion to dismiss, alleging that all of Post’s counts “failed to state claims upon which relief may be granted.”
While such motions are allowed, they are usually only allowed where an obvious legal impediment appears on the face of the complaint. e.g., a complaint states the date of an incident, and based on the date cited; the court can determine that a statute of limitations has tolled the claim.
In Post’s lawsuit, the Defendants ran up against the legal requirement that in deciding a motion to dismiss for failure to state a claim, the judge must take as true the allegations of the complaint no matter how unlikely they may appear.
The grounds cited by the Defendants for dismissing each Count and the Court’s ruling
1 Post’s first count alleged that Mark Edward, Freitas, and Guerin violated the Massachusetts Wage Act. Violations of this Act mandate treble damages and the award of attorney fees if a jury finds that the employer failed to pay agreed on wages to an employee.
Mark Edward claimed that it had no liability under this statute because it claimed that a “draw on commissions” did not constitute wages under the Act. The Court disagreed as it had already ruled the opposite in other cases: A draw on commission is “a payment within the meaning of the Wage Act.”
On Freitas and Guerin’s claim that they had no personal liability under the Wage Act, the Court applied the rule that the allegations of the complaint are taken as true for purposes of a motion to dismiss. Here the Court ruled Post’s complaint had sufficiently alleged that Freitas and Guerin had “major management responsibilities,”, especially with regard to negotiating, deciding the amount of, and suspending Post’s salary.
2 Post’s second count alleged that Mark Edward, Freitas, and Guerin violated the Massachusetts Minimum Wage Act. Violations of this Act also mandate treble damages and the award of attorney fees if a jury finds that the employer failed to pay minimum wages to an employee.
Here, all the Defendants argued that Post’s claim was barred under the statute because he was considered an “outside salesman,” and outside salespersons do not have any rights under the Minimum Wage Act.
The Court denied dismissing this Count, noting that under the analogous Federal Fair Labor Standards Act, “Any ‘fixed site,’ including a home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business.”
Therefore, the Court reasoned, “Accepting [Post’s] factual allegations as true and drawing all reasonable inferences in his favor, as the court must do at the motion to dismiss stage, [Post] is not exempted from the protections of the Minimum Wage Act because his home office could be considered an extension of his “employer’s place of business.”
3 Post’s third count alleged breach of contract against Mark Edward. It claimed Post’s complaint failed to allege a breach of contract because it did not claim that Post had generated over $300,000 in commissions as required by Mark Edward’s interpretation of Post’s employment agreement.
Again, applying the rule that all well-pleaded allegations in a complaint are assumed true for deciding whether a ground for relief has been stated, the Court denied the motion on this Count.
The Court ruled, “Defendant’s motion to dismiss the claim for breach of contract is denied, because none of the parties dispute that the May 7, 2021 letter created an employment agreement, [Post] alleges that he performed under the contract, and he alleges that Defendants failed to pay the entirety of the wages and vacation time he had earned.”
4 Post’s fourth count alleged promissory estoppel. Under Massachusetts law, promissory estoppel arises from ‘a promise that becomes enforceable because of the promised person’s reasonable and detrimental reliance upon the promise.’ However, claims for promissory estoppel and breach of contract are mutually exclusive under Massachusetts law, as Mark Edward alleged.
However, the Court denied the motion to dismiss on this Count because “at the motion to dismiss stage, a plaintiff may assert a claim for promissory estoppel as an alternative theory of recovery.”
5 Post’s fifth count alleged a Breach of the Covenant of Good Faith and Fair Dealing against Mark Edward.
Mark Edward claimed that based on its argument that Post had failed to adequately allege a breach of contract claim (Count III) that Mark Edward could not breach the implied covenant in every contract of good faith and fair dealing.
The Court denied this argument to dismiss this Count because it had found, contrary to Mark Edward’s claim, that Post had adequately alleged a breach of contract.
6 Post’s sixth count alleged a claim for quantum meruit against Mark Edward. Quantum meruit allows a plaintiff to recover for service rendered where no contract applies.
The Court dismissed this Count because it does not state a claim upon which relief can be granted. Quantum meruit is a remedy that a Court may employ to prevent unjust enrichment, but it is not an independent cause of action.
Mark Edward files a counterclaim against Post seeking a return of $52,500
On October 22, 2022, the Defendants filed a joint answer to Post’s complaint. Mark Edward filed a five-count counterclaim against Post, claiming:
- Breach of Contract (Count I)
- Unjust enrichment (Count II)
- Negligent Misrepresentation (Count III)
- Fraudulent Misrepresentation (Count IV), and,
- Conversion (Count V)
All of the counts revolve around Mark Edward’s claims that Post allegedly induced Mark Edward to hire him by representing that “he had potable (sic) business in the amount of approximately $825,000.”
The further claim is that Mark Edward may recover the $52,500 paid to Post because, per Mark Edward, the $105,000 identified in the employment letter was a pure draw against commissions earned.
Agency Checklists will keep you posted
Agency Checklists will monitor this case and keeps its readers posted as to any further developments. Reprints, or use of this article in any way on another website should include an attribution to Owen Gallagher and a link to Agency Checklists. Thank you.
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
Connect with me directly, by calling me at 617-598-3801.