Finnegan, et al. v. VBenx Corporation, et al. (Lawyers Weekly No. 09-049-17)
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
SUCV2009-03772-BLS1
J. BRENT FINNEGAN, and others
Plaintiffs
vs.
VBENX CORPORATION, and others
Defendants
VBENX CORPORATION, and others
Plaintiffs-in–Counterclaim
vs.
J. BRENT FINNEGAN, and others
Defendants-in-Counterclaim
INTERIM ORDER ON DEFENDANTS’ MOTION FOR AN AWARD OF FEES AND COSTS UNDER G.L. c. 231, §6F
Still pending in this action is the G.L. c. 231, § 6F motion brought by the defendants VBenx Corporation, Richard Baker, Peter Marcia, Walter Smith and D. Michael Sherman (collectively, VBenx)1 in which they seek an award of reasonable counsel fees and other costs incurred in defending the claims asserted against them by the plaintiffs J. Brent Finnegan, Kenneth F. Phillips, Karen W. Finnegan and Back Bay Ventures, LLC (collectively, Finnegan
1 The Court recognizes that VBenx is not actually a party to either the § 6F motion or the counterclaim for malicious prosecution as it was not a defendant in the claims prosecuted by Finnegan et al. However, the Court believes this is a convenient way to collectively refer to the defendants/plaintiffs-in-counterclaim.
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and the Finnegan claims). An abbreviated review of the prolix proceedings in this eight year litigation (there are 291 docket entries) is necessary to place this motion in context.
BACKGROUND
Finnegan filed his claims on September 4, 2009; VBenx filed its counterclaims on October 28, 2009. After much pretrial sparring, the Finnegan claims were severed from VBenx’ counterclaims and proceeded to trial, without a jury, on April 25, 2011 (Lauriat, J. presiding). The case was tried over twenty-five days, concluding on June 5, 2011. 819 exhibits were entered in evidence (6.5 feet of paper according to Judge Lauriat’s Memorandum of Decision). On October 19, 2012, the Court issued extensive Findings of Fact and Rulings of Law finding in favor of VBenx with respect to all claims asserted against it. After further motions and hearings, on March 26, 2013, the Court entered a Separate and Final Judgment based upon its Findings and Rulings which dismissed all of the Finnegan claims. On May 3, 2013, Finnegan appealed; the Superior Court’s Judgment was affirmed by the Appeals Court on August 14, 2015. See Finnegan v. Baker, 88 Mass. App. Ct. 35 (2015).
In the meantime, the parties commenced litigation of VBenx’ counterclaims. Of relevance to the motion now before the court, on May 6, 2013 the parties filed a Rule 9A package including both Finnegan’s motion to dismiss the counterclaims and VBenx’ cross-motion for an award fees and costs under §6F based on the outcome of the jury-waived trial.2 It
2 It is notable that this § 6F cross-motion is based on orders entered following the trial of the Finnegan claims, the entry of a Separate and Final Judgment on those claims, and the filing of a Notice of Appeal with respect to that Final Judgment. It is nonetheless filed in response to a motion to dismiss the VBenx counterclaims, which had been severed from the Finnegan claims. This is at least odd, if not inappropriate. In any event, several of Judge Lauriat’s findings of fact suggest that there could be a factual basis for a § 6F motion. For example:
Error! Main Document Only.Further, while Finnegan maintained, under oath, up to the eve of trial, that the defendants had failed to include a “standard formula” in Smith’s Notes which required the conversion of the Notes to stock at a pre-determined price, there is no credible evidence to support that assertion. . . .
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is that cross-motion which is still undecided. On October 23, 2013, the Court (Billings, J.) issued an order on these cross-motions. The Court dismissed a few of the many counterclaims asserted against Finnegan, but allowed the majority of the claims to proceed. The Court referred the § 6F motion to Judge Lauriat “for such action as he deems appropriate.” On December 20, 2013, Judge Lauriat unfortunately decided that he must recuse himself from any further involvement in this case and therefore declined to rule on the § 6F motion.
The Court (Kaplan, J. presiding) was therefore left to address the § 6F motion; although he had not presided over the jury-waived trial that was the predicate for VBenx’s claim. § 6F provides, in relevant part, that:
Upon motion of any party in any civil action in which a finding, verdict, decision, award, order or judgment has been made by a judge or justice or by a jury, auditor, master or other finder of fact, the court may determine, after a hearing, as a separate and distinct finding, that all or substantially all of the claims, defenses, setoffs or counterclaims, whether of a factual, legal or mixed nature, made by any party who was represented by counsel during most or all of the proceeding, were wholly insubstantial, frivolous and not advanced in good faith. The court shall include in such finding the specific facts and reasons on which the finding is based.
The Court concluded that it could not make a “finding of specific facts and reasons on which the finding is based,” as required by the statute, without effectively retrying the factual issues which Judge Lauriat decided following a twenty-five day trial.3 This is because the case was not one in which the legal theories underpinning Finnegan’s claims were without any basis, but rather the issued raised by the §6F motion was whether the facts alleged in support of these theories had been “advanced in good faith.”
Finnegan’s sworn testimony, verified complaints and signed affidavits notwithstanding, he is simply not credible on many important issues.
3 See Katz v. Savitsky, 10 Mass. App. Ct. 792, 793 n. 2 (1980) (Where the Appeals Court stated that “whenever proper resolution of a motion under § 6F requires an assessment of the credibility of witnesses” it should be resolved by the judge who heard the testimony.)
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Following further discovery and other pretrial proceedings, Finnegan moved for summary judgment on all of the remaining counterclaims. On May 13, 2016, the Court (Kaplan, J.) ruled on this motion. It dismissed some of VBenx counterclaims but allowed several to proceed to trial—including Baker, Marcia, Smith, and Sherman’s claims against Finnegan and Phillips for malicious prosecution for having prosecuted the claims tried and dismissed by Judge Lauriat. As to the still unresolved § 6F motion the Court ruled that: “[this motion] shall be heard by the court simultaneously with the claims tried to the jury under this count.” The counterclaims were scheduled for trial on December 6, 2016, Leibensparger, J. to preside. Unfortunately, Judge Leibensparger also concluded that he must recuse himself. The trial was therefore rescheduled to begin on May 17, 2017, Kaplan J. presiding.
The trial began on the scheduled date and proceeded for nine days. Two claims were submitted to the jury for its verdict: breach of fiduciary duty and malicious prosecution. The jury found the defendants liable under both and awarded monetary damages. With respect to the claim of malicious prosecution the jury was instructed that, to find Finnegan liable, it must among other things, find that he had brought the claims previously tried to Judge Lauriat “without probable cause.” The jury was provided with the following instruction on “probable cause:”
Turning first to the question of “probable cause,” the standard for probable cause is that the defendants reasonably believed that there was a sound chance that their claims would be held valid when the case was decided. This means that the plaintiffs must either prove (1) that Finnegan and Phillips did not believe that their claims would be held valid, or (2) that their belief was not reasonable under the circumstances. Finnegan’s and Phillip’s conduct in bringing the suit against the plaintiffs must be judged by their honest and reasonable belief at the time they filed their suit and not by what may turn out later to have been the actual state of things. In deciding whether they actually believed in the validity of their claims and whether, if they did, it was reasonable for them to hold that belief, you may consider the information known to them at the time they filed the complaint and whether it was reasonable for the defendants to rely on that information given its quality, quantity and the availability of additional, available information.
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The damages that the jury awarded on this count included all of the reasonable attorneys’ fees and costs incurred by the individual defendants in defending against the Finnegan claims. Thereafter, Finnegan filed a number of post-trial motions. A motion for remittitur was allowed and the remittitur accepted by VBenx. Motions for judgment notwithstanding the verdict and a new trial on liability were denied. The remittitur was not directed to the amount of attorneys’ fees and costs incurred in defending the Finnegan claims. Final Judgment entered on June 15, 2017. On July 5, 2017, Finnegan filed a Notice of Appeal from that judgment. The Appeal has been docketed in the Appeals Court, but no briefs have yet been filed.
THE § 6F MOTION
The Court concludes that it should delay ruling on the § 6F motion until the pending appeal of the Final Judgment on the counterclaims is decided. It does this for the following reasons.
First, the principal damages awarded to VBenx on its counterclaims were the fees and costs incurred in defending the Finnegan claims, which the jury awarded in the full amount requested by VBenx. Although there does not appear to be any case law addressing the issue, the Court finds that § 6F does not contemplate the award of attorneys’ fees incurred in defending claims not asserted in good faith, where the same fees have been awarded pursuant to a claim of malicious prosecution predicated on the very same judicial proceeding. Stated differently, the Court finds that § 6F and claims of malicious prosecution may not be stacked to provide a double recovery. See, e.g., Masterpiece Kitchen & Bath, Inc. v. Gordon, 425 Mass 325, 328 (1997) (Where the Supreme Judicial Court found that a purpose of § 6F was to “ameliorate the American Rule” regarding attorneys’ fees incurred in certain cases.) Moreover, the award of
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attorneys’ fees as damages for malicious prosecution will entitle the plaintiff to prejudgment interest. Therefore, as a practical matter, if the jury’s damages verdict is affirmed on appeal, this will result in a substantially greater financial recovery than a § 6F award.
Also, under G.L. c. 231, § 6G, “[t]he payment of any award made pursuant to section six F shall be stayed until the completion of all appeals relating to the civil action in which the award was made.” Arguably, since a Separate and Final Judgment was entered with respect to the Finnegan claims, that language might not encompass the pending appeal from the VBenx counterclaims. However, the evidence presented with respect to the counterclaims is the evidence on which the Court would have to base its factual findings required under § 6F, as Judge Lauriat tried the Finnegan claims. Further, while the standard for the award of attorneys’ fees and costs under § 6F is not identical to the facts the jury must find to return a plaintiff’s verdict on a claim for malicious prosecution, they are functionally extreemly similar. Compare instruction quoted above and Hahn v. Planning Board of Stoughton, 403 Mass. 332, 339 (1998) (where the court held that a “frivolous undertaking” based on poor judgment rather than insincerity or ill will does not support a § 6F award.) In consequence, the Appeals Court’s decision on the appeal from the judgment on the VBenx counterclaims might well inform the Court’s analysis of the § 6F cross-motion. Also, a § 6F award can only be appealed under G.L. c. 231, § 6G to a single justice of the Appeals Court within ten days from receiving notice of the award. It seems ill advised to force the parties to engage in further, separate appellate litigation under these circumstances. See Bailey v. Striberg, 31 Mass. App. Ct 277, 282-283 (1991) (holding that appeals from a judgment and § 6F award are separate proceedings).
Finally, after appellate review is completed, the Court will still have another issue to address. VBenx is a Delaware corporation. VBenx advanced funds to Finnegan under the
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relevant provisions of the VBenx by-laws to cover the costs of defending claims asserted against him by reason of his position as a director and officer of VBenx. Given the jury’s verdicts on the counterclaims, VBenx demands repayment of the funds so advanced. That demand can be addressed only after the appeal of the jury’s verdict and judgment entered pursuant thereto has been completed. See Sun-Times Media Group, Inc. v. Black, 954 A.2d 380 (Del. Ch. 2008) (where then Vice Chancellor Strine engages in an exhaustive review and analysis of Delaware law in concluding that the appropriate point at which to address whether and how much of funds previously advanced by a corporation under § 145 (e) of the DGCL must be repaid is after there has been “a final, non-appealable conclusion to [the] proceeding” which gave rise to the duty to indemnify.) Id. at 405. If it is still necessary for the Court to rule on the § 6F motion after rescript from the Appeals Court, it will do so in conjunction with the resolution of § 145 issue.
ORDER
For the foregoing reasons, the court will rule on the VBenx cross-motion under § 6F after rescript from the Appeals Court enters.
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Mitchell H. Kaplan
Justice of the Superior Court
Dated: November 20, 2017