Commonwealth v. Gomes (Lawyers Weekly No. 10-022-18)

Read more...

Posted by Stephen Sandberg - February 5, 2018 at 4:13 pm

Categories: News   Tags: , , , ,

Kushner v. Wallace, et al. (Lawyers Weekly No. 09-005-18)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT.
1784CV02473-BLS2
____________________
EVAN M. KUSHNER
v.
ROBERT V. WALLACE, JR.; WALLACE CAPITAL, LLC; and WALLACE LENDING CORPORATION f/k/a Wallace Property Company, Inc.
____________________
MEMORANDUM AND ORDER ON DEFENDANT’S MOTION TO DISMISS THE AMENDED COMPLAINT IN PART, PLAINTIFF’S MOTION TO FILE A SECOND AMENDED COMPLAINT, and PLAINTIFF’S MOTION TO COMPEL DISCOVERY
This decision resolves three pending motions. First, Defendants have moved to dismiss most of the claims asserted by plaintiff Evan M. Kushner in his first amended complaint. The Court will allow this motion in part. It will dismiss so much of Count IV that asserts claims against Robert Wallace and Wallace Lending Corporation to enforce a promissory note entered into by Wallace Capital, LLC. Mr. Kushner may assert that claim against Wallace Capital, but not against the other two defendants. The Court will also dismiss any claim that Wallace Lending Corporation acted in concert with Robert Wallace to divert income from Wallace Capital LLC, because any such claim must be brought as a derivative action on behalf of Wallace Capital and not as a personal claim by Mr. Kushner. And the Court will also allow the motion to the extent that it seeks a more definite statement of the claims for breach of fiduciary duty, and will order that Kushner is bound by the more definite statement that his counsel provided during the hearing and clarified in a subsequent written submission. The rest of the motion to dismiss Kushner’s remaining claims is denied. Second, the Court will deny Kushner’s motion for leave to file a second amended complaint because the proposed second amended complaint would not provide a “short and plain statement” of Kushner’s claims as required by Mass. R. Civ. P. 8(a), and because Kushner has not shown that there is any good reason to allow this further amendment.1 Third, the Court will also deny Kushner’s motion to compel discovery.
1 Plaintiff ignored his obligation under Rule 8(a) to file “a short and plain statement” of his claims in his first amended complaint as well. He instead filed an amended complaint that is 38-pages long, has 202 numbered paragraphs, and is very
– 2 –
1. Defendant’s Motion to Dismiss the First Amended Complaint.
1.1. Note Claim. Count IV of the amended complaint is a claim to enforce and collect under a $ 1.25 million promissory note. Kushner asserts this claim against all three defendants—Wallace Capital, Robert Wallace, and Wallace Lending. The latter two argue to dismiss this claim as against them, arguing that they cannot be held liable on a note that by its terms is payable only by Wallace Capital.
The Court agrees that the amended complaint does not allege any facts plausibly suggesting that Mr. Wallace or Wallace Lending can be held liable under this promissory note, and that Count IV must therefore be dismissed to the extent that it asserts a claim against these two defendants. See generally Lopez v. Commonwealth, 463 Mass. 696, 701 (2012) (standard for dismissal under Mass. R. Civ. P. 12(b)(6)); Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008) (same).
The note provides that Wallace Capital, LLC, was the sole borrower and thus the only party that Kushner can sue for repayment. Mr. Wallace and Wallace Lending are not parties to the note, either as borrowers or guarantors. The complaint therefore fails to state a viable claim against those two defendants for repayment of the note.2
Although Kushner alleges in paragraph 161 of the amend complaint that Mr. Wallace and Wallace Lending guaranteed repayment of this note, that conclusory allegation does not state a claim against these defendants.
Unsupported and conclusory allegations that a defendant is liable for damages are not enough to state a claim. In deciding the motion to dismiss, the Court must
difficult to parse. Defendants could have moved to dismiss the first amended complaint without prejudice on the ground that it is so prolix that it fails adequately to inform Defendants “of the nature of [each] claim and the grounds on which [the plaintiff] relies.” Schaer v. Brandeis Univ., 432 Mass. 474, 477 (2000), quoting Garrity v. Garrity, 399 Mass. 367, 369 (1987), quoting in turn Druker v. Roland Wm. Jutras Assocs., 370 Mass. 383, 385 (1976). They chose not to do so.
2 Defendants attached a copy of this “subordinated promissory note” to their answer. The Court may consider this document in deciding the motion to dismiss even though it was not attached to the complaint, because it was referenced in the complaint, was used by Kushner in framing the complaint, and its authenticity is not in dispute. See Johnston v. Box, 453 Mass. 569, 581 n.19 (2009) (documents referenced in complaint) (dictum); Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 224 (2011) (documents used by plaintiff in framing complaint); Simmons v. Galvin, 575 F.3d 24, 30 n.5 (1st Cir. 2009), cert. denied, 131 S.Ct. 412 (2010) (“documents the authenticity of which is not disputed”).
– 3 –
“look beyond the conclusory allegations in the complaint and focus on whether the factual allegations plausibly suggest an entitlement to relief.” Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 473 Mass. 336, 339 (2015), quoting Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 676 (2011). The amended complaint alleges no facts plausibly suggesting that either Wallace or Wallace Lending ever did anything to guarantee repayment of this note by Wallace Capital.
At oral argument, Kushner argued that he could cure this by further amending his complaint. More specifically, Kushner asserted that the guarantees he relies upon are set forth in a separate “Amended and Restated Subordination Agreement,” a copy of which is attached to Defendants’ answer. This assertion is without merit.3
The subordination agreement provides that certain specified debts owed by Wallace Capital to various creditors would be subordinated to other debts owed by Wallace Capital to other lenders that were represented by their agent CSE Mortgage LLC. It appears to be undisputed Mr. Kushner signed this agreement as a “Subordinated Creditor,” and thereby agreed that the amounts owed to him by Wallace Capital would be subordinated to the senior debt managed by CSE Mortgage.
Nothing in the subordination agreement made either Mr. Wallace or Wallace Lending a guarantor of the debt owed by Wallace Capital to Mr. Kushner under their promissory note. Kushner notes that the paragraph 12 of the subordination agreement addresses claims against any “Credit Party,” and paragraph 1 defines that
3 The interpretation of the parties’ unambiguous written contracts “is a question of law” that the court may resolve when deciding whether a party has asserted a viable claim for breach of contract. See, e.g., Eigerman v. Putnam Investments, Inc., 450 Mass. 281, 287 (2007) (affirming dismissal of complaint for failure to state a viable claim for breach of contract). Similarly, whether language used in a contract “is ambiguous is also a question of law for the court.” Berkowitz v. President & Fellows of Harvard College, 58 Mass. App. Ct. 262, 270, rev. denied, 440 Mass. 1101 (2003) (ordering dismissal of complaint for failure to state a viable claim for breach of contract). Where the material provisions of a contract are unambiguous, as they are here, a court “cannot accept the bare assertion in the plaintiff’s complaint,” or made in support of an oral motion to amend a complaint, that the opposing party violated the contract, when that assertion is based on a misreading of the contract. Eigerman, supra; accord Flomenbaum v. Commonwealth, 451 Mass. 740, 751-752 & n.12 (2008) (granting motion to dismiss contract claim because plain language of contract made clear that Commonwealth could terminate chief medical examiner before completion of full five year term).
– 4 –
terms to include Wallace Capital as well as “any other Person who is obligated under any of … the Subordinated Debt Documents, including, without limitation, Wallace Property Company, Inc. and Robert V. Wallace, Jr.” But this definition does not create any legally enforceable rights. Since Wallace Lending (the former Wallace Property) and Mr. Wallace have no obligation under the terms of Kushner’s promissory note, they are not “credit parties” with respect to that note for the purposes of the subordination agreement.
Since the subordination agreement does not make Wallace or Wallace Lending a guarantor of Kushner’s promissory note, it would be futile to allow Kushner to further amend his complete to make such an allegation. The Court therefore denies Kushner’s oral motion to amend his complaint to allege that the subordination agreement made Wallace and Wallace Lending guarantors of the obligations of Wallace Capital to Kushner under their promissory note. See generally Johnston v. Box, 453 Mass. 569, 583 (2009) (“Courts are not required to grant motions to amend prior [pleadings] where ‘the proposed amendment … is futile.’ ” (quoting All Seasons Servs., Inc. v. Commissioner of Health & Hosps. of Boston, 416 Mass. 269, 272 (1993)); Thermo Electron Corp. v. Waste Mgmt. Holdings, Inc., 63 Mass. App. Ct. 194, 203 (2005) (affirming denial of motion for leave to assert counterclaim that would have been futile); Mancuso v. Kinchla, 60 Mass. App. Ct. 558, 572 (2004) (if amendment to add claim could not survive motion to dismiss, allowing amendment would be exercise in futility).4
4 The Court is not convinced by Defendants’ argument in the alternative that the claims against Wallace and Wallace Lending based on their alleged guaranty of the promissory note must be dismissed because the complaint does not identify any writing signed by those defendants that would satisfy the statute of frauds. See G.L. c. 259, § 1, clause Second (statute bars action brought “[t]o charge a person upon a special promise to answer for the debt, default, or misdoings of another” unless promise “is in writing and signed by the party to be charged” or by their agent).
The statute of frauds is generally not a basis for dismissing a claim under Mass. R. Civ. P. 12(b)(6). “The statute of frauds has not altered the rules of pleading.” Price v. Weaver, 79 Mass. (13 Gray) 272, 273-274 (1859). In other words, it does not require that a complaint must allege that a contract was in writing if the alleged contract would fall within the scope of the statute. Id.; accord Fiedler v. Smith, 60 Mass. (6 Cush.) 336, 340 (1850).
On the other hand, where a “complaint sets out with clarity and precision the detailed factual allegations [that] the plaintiff contends entitle him to relief,”
– 5 –
1.2. Fiduciary Duty Claims. Defendants’ argued, quite correctly, that it is well-nigh impossible to tell from the First Amended Complaint which Defendants are alleged to have breached, or aided in the breach, of what fiduciary duties.
Mr. Kushner has in effect provided a more definite statement that fixes this problem. His counsel first provided a somewhat clearer statement of the fiduciary duty claims during oral argument. Kushner then reduced this more definite statement to writing, in his post-hearing supplemental brief. As specified in the following order, the Court rules that Kushner is bound by this clarification and that the claims for breach of fiduciary duty and aiding and abetting a breach of fiduciary duty are as restated in the Court’s order.5
The Court is satisfied that the facts alleged in the first amended complaint, if true, plausibly suggest that Mr. Kushner may be entitled to relief on the theories articulated in Kushner’s restated fiduciary duty claims. Those claims are therefore not subject to dismissal under Mass. R. Civ. P. 12(b)(6). See, e.g., Lopez, 463 Mass. at 701; Iannacchino, 451 Mass. at 636.
1.3. Direct versus Derivative Action. Defendants also argue that the claims asserted in the First Amended Complaint must be brought as derivative claims on behalf of Wallace Capital LLC rather than individual claims asserted by Mr. Kushner on his own behalf.
The Court agrees with Defendants in part. Paragraph 4 of the first amended complaint alleges that Wallace Lending Corporation acted in concert with Robert
dismissal is appropriate “if [those] allegations ‘clearly demonstrate that plaintiff does not have a claim.’ ” Fabrizio v. City of Quincy, 9 Mass. App. Ct. 733, 734 (1980), quoting 5 Wright & Miller, Federal Practice and Procedure: Civil § 1357 at 604 (1969); accord Harvard Crimson, Inc. v. President and Fellows of Harvard Coll., 445 Mass. 745, 748 (2006).
As a result, the statute of frauds provides a second reason why it would be futile for Kushner to amend his complaint to allege that the subordination agreement has the effect of making Wallace and Wallace Lending guarantors of Wallace Capital’s obligations under the promissory note. The subordination agreement was not signed by Wallace or Wallace Lending. A specific allegation that it made them guarantors would therefore fail as a matter of law under the statute of frauds.
5 The separate count for “acting in concert”—in other words, conspiracy—to breach fiduciary duty does not appear to add anything of substance to the claims for breach of fiduciary duty and aiding and abetting those alleged breaches.
– 6 –
Wallace to divert income from Wallace Capital LLC. That appears to be part of the basis for the fiduciary claim as stated in the complaint. Any claim that income was diverted from Wallace Capital, if proved, resulted in harm to Wallace Capital and not to Mr. Kushner individually. Under these circumstances, Kushner is “required to file a derivative claim” rather than sue on his own behalf with respect to any claim that Defendants stole money from Wallace Capital. Fronk v. Fowler, 456 Mass. 317, 333 n.23 (2010) (emphasis in original).
Now that Kushner has clarified the nature of his claims for breach of fiduciary duty, it appears that the rest of those claims and the related claim for breach of the promissory note all seek compensation for economic injury suffered personally by Kushner, rather than a claim that may only be asserted derivatively. With respect to the Nantucket and Worcester Investments, Kushner claims that the relevant breaches of fiduciary duty were the alleged failures to distribute Kushner’s full share of profits. With respect to the Promissory Note, Kushner’s primary claim is that Wallace Lending breached the promissory note by failing to repay Kushner. His breach of fiduciary duty claim with respect to the Promissory Note is a claim in the alternative; it alleges that Kushner was personally harmed by the alleged failure to disclose to him that the promissory note was non-recourse.
Similarly, the claims for a declaratory judgment that the note purchase agreement is unenforceable, for violation of the Massachusetts version of the Uniform Securities Act, under G.L. c. 93A, for an equitable accounting, and for a constructive trust all seek relief personal to Kushner. Defendants have not shown that any of those claims may only be brought as a derivative action on behalf of some corporate or other legal entity.
1.4. Statute of Limitations. Finally, the Court is not convinced that the statute of limitations defense raised by Defendants can be resolved on a motion dismiss. Given the various fiduciary duties allegedly owed to Kushner by the Defendants, the normal discovery rule does not apply.
A claim for breach of fiduciary duty accrues once the “plaintiff has ‘actual knowledge’ that she has been injured by the fiduciary’s conduct.” Doe v. Harbor Schools, Inc., 446 Mass. 245, 254 (2006), quoting Lattuca v. Robsham, 442 Mass. 205, 213 (2004), and Demoulas v. Demoulas Super Markets, Inc., 424 Mass. 501, 521
– 7 –
(1997). And the statute of limitations on Kushner’s other claims was tolled so long as Defendants concealed the existence of those claims in violation of their fiduciary duties. Harbor Schools, supra, at 254-255.
The Court cannot determine based on the allegations in the first amended complaint when Kushner learned he was injured by the alleged breaches of fiduciary duty and when he learned of the existence of his other claims. As a result these statute of limitations issues may be not resolved on Defendant’s motion to dismiss. Paragraphs 51 and 59, read together, allege that Wallace Capital never provided Kushner with any original promissory notes or copies of any such agreements, until December 2015, when Wallace Capital finally (and for the first time) gave Kushner copies of the promissory note, a “note purchase agreement,” and the subordination agreement discussed above. Assuming that these allegations are true, as the Court must at this stage of the case, Defendants are not entitled to dismissal on the ground that the note made clear on its face that Wallace Capital was the only entity from which Kushner could seek repayment.
2. Plaintiff’s Motion for Leave to File a Second Amended Complaint. While Defendants’ motion to dismiss the first amended complaint was pending, Kushner moved for leave to file a second amended complaint that would run some 40-pages long and include 236 numbered paragraphs.
A motion to amend a complaint “should be allowed unless some good reason appears for denying it.” Afarian v. Massachusetts Elec. Co., 449 Mass. 257, 269 (2007), quoting Castellucci v. United States Fid. & Guar. Co., 372 Mass. 288, 289 (1977).
The Court is convinced that there is a good reason not to allow Kushner to file yet another version of his complaint. The proposed second amended complaint would violate the requirement in Rule 8(a) that a complaint set forth a “short and plain statement” of the plaintiff’s claims. It would be unfair to force Defendants to respond to a further amended complaint that is even longer and even harder to parse than the current complaint unless there is some good reason for allowing a further amendment.
Kushner has not identified any good reason for allowing the proposed further amendment. Kushner states in his motion that the proposed amendment would not
– 8 –
make “any substantive changes to the legal theories asserted against the Defendants.” He only articulates two justifications for seeking to further amend his complaint, neither of which is convincing.
Kushner says he wants to revise his complaint to state more clearly that he was not aware of the actual terms of the promissory note until December 2015, in order to respond to Defendants’ statute of limitations argument. As discussed above, however, the current version of the complaint already makes that allegation, which is why the Court has declined to dismiss any part of the current complaint on statute of limitations grounds.
In addition, Kushner says that he wants to further amend the complaint so that he can attach as exhibits various documents that are referred to in the complaint. That is unnecessary as well. As explained above, documents referred to in the complaint may be considered in deciding a motion to dismiss, and the Court has done so. And documents may be proved at trial, or in connection with any pre-trial motion, whether or not they were attached to the complaint.
3. Plaintiff’s Motion to Compel Discovery. Mr. Kushner’s motion to compel discovery is without merit.
Defendants represent that they have already produced all non-privileged documents that are responsive to request 1 through 32 that they have been able to located after a duly diligent search. This part of the motion is therefore moot.
The Court will not compel a further response to request no. 37 because responding to the request as written would be unduly burdensome. Mr. Kushner points out that his right of recovery under the promissory note is limited to a non-recourse pro rata share of a certain pool of assets based upon the initial contributions of each investor. That does not mean that Kushner needs to obtain all documentation identifying the dollar amount invested by every other individual investor in the pool. Kushner’s pro rata share can be calculated by knowing how much Kushner invested and dividing it by the total investment pool. There is no apparent reason to compel Defendants to locate 18 years’ worth of documentation regarding every other individual’s investment in the pool.
The Court will not compel a further response to request no. 46 because Mr. Wallace’s federal income tax returns “are subject to a qualified privilege” and Mr.
– 9 –
Kushner has not met his burden of “showing a substantial need” for those documents. See Mass. Guide to Evidence § 519(b).
The Court will not compel a further response to request nos. 41, 42, or 43 because Mr. Kushner has not shown that those requests are reasonably calculated to lead to the discovery of admissible evidence. Kushner argues in his reply that he wants to look at the voluminous documentation regarding the “Senior Debt” to learn whether anywhere in there Robert Wallace or Wallace Lending Corporation guaranteed the obligations of owed by Wallace Capital LLC to Mr. Kushner under their promissory note. But Kushner provides absolutely no reason to believe that Wallace or Wallace Lending may have guaranteed a debt owed to Kushner in documents that had nothing to do with Kushner. As a result, compelling Defendants to search for, gather, and produce the requested mass of documents would be unduly burdensome.
To the extent that Mr. Kushner is seeking to compel further responses to any other document requests, that aspect of the motion is denied for failure to comply with Superior Court Rule 9C(b).
ORDERS
(1) Defendants’ motion to dismiss parts of the first amended complaint, or in the alternative for a more definite statement of Plaintiff’s claims for breach of fiduciary duty or aiding and abetting a breach of fiduciary duty, is ALLOWED IN PART and DENIED IN PART.
The motion is allowed to the extent that it seeks dismissal of so much of the Action on a Promissory Note (Count IV) that asserts claims against Robert Wallace and Wallace Lending Corporation. That part of Count IV is hereby dismissed with prejudice. Count IV shall proceed only against Wallace Capital LLC.
The motion to dismiss is also allowed to the extent that it seeks dismissal of so much of the breach of fiduciary duty claims that are based on the allegation in paragraph 4 of the first amended complaint that Wallace Lending Corporation acted in concert with Robert Wallace to divert income from Wallace Capital LLC. Any such claim is hereby dismissed without prejudice.
– 10 –
In addition, the motion is allowed to the extent that it seeks a more definite statement of the fiduciary duty claims. Plaintiff is and shall be bound by its stipulation during oral argument, as clarified in Plaintiff’s supplemental brief in opposition to Defendants’ motion to dismiss, that Count I of the first amended complaint asserts the following claims and no others: (i) with respect to the so-called “Nantucket Investment,” a claim against Wallace Capital LLC for breach of fiduciary duty by allegedly withholding Kushner’s final distribution, and a claim against Robert Wallace for aiding and abetting that alleged breach of fiduciary duty by Wallace Capital; (ii) with respect to the so-called “Worcester Investment,” a claim against both Wallace Lending Corp. and Robert Wallace for breach of fiduciary duty by allegedly allocating income to Mr. Wallace that should have been allocated to Mr. Kushner and by failing to make proper distributions to Kushner, and a claim against Robert Wallace for aiding and abetting that alleged breach of fiduciary duty by Wallace Lending Corp.; and (iii) with respect to the “Subordinated Promissory Note,” a claim against both Wallace Capital LLC and Robert Wallace for breach of fiduciary duty by allegedly failing to disclose to Kushner that the promissory note was a non-recourse debt of Wallace Capital LLC, and a claim against Robert Wallace and Wallace Lending Corp. for aiding and abetting that alleged breach of fiduciary duty.
The motion to dismiss is denied to the extent that it seeks dismissal of the fiduciary duty claims as restated in this order, or of any other claims asserted in the first amended complaint.
(2) Plaintiff’s motion for leave to file a second amended complaint is DENIED.
(3) Plaintiff’s motion to compel discovery is DENIED.
January 29, 2018
___________________________
Kenneth W. Salinger
Justice of the Superior Court read more

Read more...

Posted by Stephen Sandberg - February 4, 2018 at 3:09 pm

Categories: News   Tags: , , , ,

Commonwealth v. Fernandes (Lawyers Weekly No. 10-018-18)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

SJC-10610

COMMONWEALTH  vs.  ODAIR FERNANDES.

Suffolk.     October 6, 2017. – February 2, 2018. read more

Read more...

Posted by Stephen Sandberg - February 2, 2018 at 11:48 pm

Categories: News   Tags: , , , ,

Commonwealth v. Ballard (Lawyers Weekly No. 11-011-18)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

17-P-411                                        Appeals Court read more

Read more...

Posted by Stephen Sandberg - February 2, 2018 at 8:13 pm

Categories: News   Tags: , , , ,

Acushnet Company v. Beam, Inc. (Lawyers Weekly No. 11-012-18)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

16-P-1611                                       Appeals Court read more

Read more...

Posted by Stephen Sandberg - February 2, 2018 at 4:39 pm

Categories: News   Tags: , , , , , ,

Massachusetts Bay Transportation Authority v. Clear Channel Outdoor, Inc. (Lawyers Weekly No. 09-006-18)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT.
1884CV00268-BLS2
____________________
MASSACHUSETTS BAY TRANSPORTATION AUTHORITY
v.
CLEAR CHANNEL OUTDOOR, INC.
____________________
MEMORANDUM AND ORDER DENYING CLEAR CHANNEL’S MOTION FOR A TEMPORARY RESTRAINING ORDER
In 2003 the Massachusetts Bay Transportation Authority granted Clear Channel Outdoor, Inc., a 15-year license to operate billboards on MBTA property. That license will expire in early March 2018.1 The MBTA recently issued a request for responses by parties willing to enter into a six month license to operate the same billboards beginning after the Clear Channel license expires. The MBTA received bids from Outfront Media LLC, which agreed to enter into a six-month license, and Clear Channel, which refused to accept a term that short. The MBTA disqualified Clear Channel. It intends to award a six-month license to Outfront Media.
The MBTA brought this action. It seeks declarations that its recent request for responses is lawful, Clear Channel is not entitled to enforce a right of first refusal contained in its 2003 license, and neither of these disputes is subject to the arbitration clause in the 2003 license. It also seeks certain preliminary injunctive relief to enforce terms of the parties’ existing license. The parties agreed upon a schedule for the filing of cross-motions for a preliminary injunction, with a hearing on those motions now scheduled for February 22.
Clear Channel has filed an emergency motion seeking a temporary restraining order that would bar the MBTA from taking any steps to license its billboards to or contract with Outfront Media, or from “interfering in any way with Clear Channel’s rights in the billboards themselves or the permits necessary to operate those billboards.”
The Court will DENY this motion for a TRO because Clear Channel has not met its burden of showing that it is entitled to the requested relief. “A preliminary
1 The parties have submitted two different versions of their license. One states that it terminates on March 3, the other says March 5.
– 2 –
injunction [or a TRO] is an extraordinary remedy never awarded as of right.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). To the contrary, “the significant remedy of a preliminary injunction should not be granted unless the plaintiffs [have] made a clear showing of entitlement thereto.” Student No. 9 v. Board of Educ., 440 Mass. 752, 762 (2004). Clear Channel has not yet made such a showing.
1. Clear Channel Has Asserted No Claims. Clear Channel’s request for injunctive relief is premature because Clear Channel has not asserted any counterclaims or any other kind of affirmative claim against the MBTA.
To obtain preliminary injunctive relief, “the applicant must show a likelihood of success on the merits of the underlying claim; actual or threatened irreparable harm in the absence of injunction; and a lesser degree of irreparable harm to the opposing party from the imposition of an injunction.” Wilson v. Commissioner of Transitional Assistance, 441 Mass. 846, 860 (2004). Since Clear Channel seeks to enjoin governmental action, the Court must also consider whether the requested injunctive relief will promote or at least not adversely affect the public interest. See Siemens Bldg. Technologies, Inc. v. Division of Capital Asset Management, 439 Mass. 759, 762 & 765 (2003) (affirming denial of injunction sought by disappointed bidder because injunction would adversely affect the public interest).
Thus, the filing of a meritorious claim or counterclaim is a condition precedent to seeking injunctive relief. See, e.g., Litton Industries, Inc. v. Colon, 587 F.2d 70, 74 (1st Cir. 1979) (injunction “must be based on a valid cause of action alleged in the complaint”); Goerlitz v. City of Maryville, 333 S.W.3d 450, 455 (Mo. 2011) (en banc) (“an injunction is a remedy and not a cause of action; therefore, it must be based on some recognized and pleaded legal theory”). “[A]ny motion or suit for either a preliminary or permanent injunction must be based upon a cause of action…. ‘There is no such thing as a suit for a traditional injunction in the abstract. For a traditional injunction to be even theoretically available, a plaintiff must be able to articulate a basis for relief that would withstand scrutiny under’ ” a motion to dismiss for failure to state a claim. Alabama v. U.S. Army Corps of Engineers, 424 F.3d 1118, 1127 (11th Cir. 2005), quoting Klay v. United Healthgroup, Inc. 376 F.3d 1092, 1097 (11th Cir.2004).
– 3 –
The Court will not deny the TRO motion on this basis, however. Instead, it will assume that Clear Channel is prepared to assert counterclaims consistent with the legal theories outlined in its motion papers. In its memorandum, Clear Channel asserts two distinct theories under which it seeks relief against the MBTA. As explained below, neither theory supports the issuance of the requested TRO.
2. Claim that the MBTA Sought Commercially Unreasonable Terms. Clear Channel asserts that “the MBTA has violated its own contractual obligation to Clear Channel to afford it a right to bid on a solicitation that does not include terms that are commercially unreasonable or intended to defeat Clear Channel’s option,” meaning its right of first refusal.
Clear Channel has not demonstrated that such a claim is likely to succeed. And Clear Channel is not entitled to preliminary injunctive relief if it cannot prove that it is likely to succeed on the merits of its claims. See Fordyce v. Town of Hanover, 457 Mass. 248, 265 (2010) (vacating preliminary injunction on claim brought under public bidding statutes).
It seems unlikely that Clear Channel can prevail on a claim that it had some contractual right to have the opportunity to bid on a new billboard license on terms that Clear Channel considers to be commercially viable. To the contrary, the license agreement between Clear Channel and the MBTA specifies, in the same right-of-first-refusal provision upon which Clear Channel relies, that the MBTA could “publish a solicitation of bids” to license the billboards after Clear Channel’s contract expires “under such terms and conditions deemed to be in the best interests of the MBTA.” The only commercially reasonable interpretation of this unambiguous provision is that the MBTA retained the discretion to decide what terms and conditions for a new billboard license would be in its best interests. Clear Channel has no contractual right to dictate to the MBTA what license terms would be acceptable to Clear Channel, and then require the MBTA to grant a license on those terms. See generally Robert and Ardis James Foundation v. Meyers, 474 Mass. 181, 188 (2016) (court must construe contracts in manner that gives them “effect as … rational business instrument[s] and in a manner which will carry out the intent of the parties”) (quoting Starr v. Fordham, 420 Mass. 178, 192 (1995)); Seaco Ins. Co. v. Barbosa, 435 Mass. 772, 779 (2002) (“If a
– 4 –
contract … is unambiguous, its interpretation is a question of law that is appropriate for a judge to decide on summary judgment.”); Eigerman v. Putnam Investments, Inc., 450 Mass. 281, 287 (2007) (“Whether a contract is ambiguous is also a question of law.”); Indus Partners, LLC v. Intelligroup, Inc., 77 Mass. App. Ct. 793, 795 (2010) (“ambiguity is not created simply because a controversy exists between parties, each favoring an interpretation contrary to the other’s.”) (quoting Jefferson Ins. Co. v. Holyoke, 23 Mass. App. Ct. 472, 475 (1987)).
Clear Channel could not circumvent the provision quoted above by invoking the implied covenant of good faith and fair dealing, which “is implied in every contract.” See Weiler v. PortfolioScope, Inc., 469 Mass. 75, 82 (2014), quoting Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376, 385 (2004). The implied covenant “does not create rights or duties beyond those the parties agreed to when they entered into the contract.” Boston Med. Ctr. Corp. v. Secretary of Executive Office of Health & Human Servs., 463 Mass. 447, 460 (2012) (affirming dismissal of claim), quoting Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 680 (2011). Instead, the implied covenant only governs “the manner in which existing contractual duties are performed.” Eigerman v. Putnam Investments, Inc., 450 Mass. 281, 289 (2007).
Nor is Clear Channel likely to be able to prove that the MBTA crafted unreasonable terms in a deliberate effort to nullify Clear Channel’s right of first refusal, and thereby violated the implied covenant. Cf. Weiler, 469 Mass. at 82, (“The implied covenant provides ‘that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract….’ ”) (quoting Druker v. Roland Wm. Jutras Assocs., Inc., 370 Mass. 383, 385 (1976)).
It appears to be undisputed that Outfront Media is able to perform and is prepared to accept the terms proposed by the MBTA. Although Clear Channel insists that those terms are not commercially reasonable, Outfront Media apparently disagrees. Under these circumstances it will be hard for Clear Channel to establish that the MBTA’s request for responses was a charade, rather than a good faith effort to enter into a short, six-month lease of the billboards for reasons that make sense to
– 5 –
the MBTA and Outfront even if they make no sense to Clear Channel. In any case, Clear Channel has not made any such showing yet.
3. Claim that Clear Channel has a Right of First Refusal. Clear Channel’s other legal theory is that the MBTA has breached the parties’ license agreement by refusing to give Clear Channel any chance to exercise its right of first refusal.
This claim cannot justify issuing a temporary restraining order because Clear Channel has not shown that it will suffer any irreparable harm if the TRO does not issue.2 As the moving party, Clear Channel has the “burden of showing it would suffer an irreparable harm absent an injunction.” GTE Products Corp. v. Stewart, 414 Mass. 721, 726 (1993). A party may not obtain preliminary injunctive relief without proving that it will suffer irreparable harm in the absence of such an order, and that such harm to the plaintiff from not granting the preliminary injunction would outweigh any irreparable harm that defendants or the public interest are likely to suffer if the injunction issues. See, e.g., American Grain Products Processing Institute v. Department of Pub. Health, 392 Mass. 309, 326-329 (1984) (vacating preliminary injunction on this ground); Nolan v. Police Comm’r of Boston, 383 Mass. 625, 630 (1981) (same).
The right-of-first-refusal provision in the parties’ existing license provides that: (1) before the MBTA awards any bid or accepts any proposal to license its billboards for a term beginning after the termination of Clear Channel’s license, the MBTA shall provide notice to Clear Channel “of all material terms and conditions offered by and such third person’s bid or proposal;” and (2) Clear Channel will then “have the right for a period of three calendar days to notify the MBTA that it accepts each and every term and condition offered by such third person.”
The current factual record suggests that the MBTA’s failure to give Clear Channel three days to exercise its right of first refusal will never cause Clear Channel
2 As a result the Court need not address the MBTA’s arguments or Clear Channel’s counterarguments regarding whether the right-of-first-refusal provision is void and unenforceable because it is against public policy as reflected in the Commonwealth’s public bidding statutes, or whether Clear Channel has forfeited any right of first refusal by failing to submit a responsive bid expressing a willingness to accept the terms and conditions proposed by the MBTA.
– 6 –
any harm. That is Clear Channel has made clear that it is unwilling to accept all of the material terms that Outfront Media is prepared to accept. Clear Channel did so first in its own response to the MBTA’s request for responses. It reiterated the point in the declaration filed in support of its TRO motion. In all of these submissions Clear Channel has expressly stated that it refuses to enter into a six-month license, or to agree to other terms that the MBTA considers to be material. Clear Channel cannot show that it will be harmed if it never has the opportunity to exercise its right of first refusal without showing that Clear Channel is in fact willing to do so on the terms specified in its license. To date Clear Channel has not made such a showing.
Even assuming that Clear Channel may change its mind and agree to accept all the material terms agreed to be the winning bidder if given the opportunity to do so, however, Clear Channel is unlikely to suffer any irreparable harm if the Court denies the request for a TRO and waits to address the same issues in a few weeks on the parties cross-motions for a preliminary injunction and with the benefit of a more complete record.
The mere fact that the MBTA is moving forward execute a contract with Outfront Media and to make plans to transition its billboard license away from Clear Channel is unlikely to cause Clear Channel any irreparable harm in the next few weeks. If the Court is convinced at the preliminary injunction stage that any new license with Outfront Media is unlawful because the MBTA has breached its contractual obligation to give Clear Channel a right of first refusal, it can grant Clear Channel appropriate relief that will prevent any irreparable harm. The execution of a contract with Outfront Media, or work by Outfront Media to apply for billboard permits that would take effect after Clear Channel’s current license expires, would not interfere with any of Clear Channel’s existing rights in the billboards or its existing permits to operate those billboards. It appears to be undisputed that if Clear Channel’s existing license from the MBTA expires on the current termination date then Clear Channel’s existing permits will in effect be void.
The mere fact that Clear Channel finds itself in limbo, uncertain as to whether it will still be the MBTA’s billboard licensee after its current license expires, is not causing Clear Channel any irreparable harm. Clear Channel has known from the
– 7 –
moment it entered into the current 15-year license that its rights under that agreement would terminate in early March 2018 and may not be renewed. Although the current license provides that the MBTA must give Clear Channel three days to exercise its right of first refusal, the MBTA could comply with that provision by triggering the refusal period four days before the current license expires. The mere fact that Clear Channel finds itself facing a period of uncertainty that was clearly contemplated in its existing license is not the sort of irreparable harm that would justify issuing the requested TRO.
Although Clear Channel also argues that it will suffer irreparable loss of good will and harm to existing customer relationships if it is unable to enter into a new billboard license with the MBTA, that claim is not relevant to the pending motion for a temporary restraining order. The parties have agreed upon a schedule for the briefing and hearing of cross-motions for a preliminary injunction that will give the Court some time before the current license expires to decide whether the MBTA should be allowed to transfer its billboard license from Clear Channel to Outfront Media. If the Court were to rule in Clear Channel’s favor, it could grant relief that would prevent this kind of alleged irreparable harm. As a result, Clear Channel will not suffer this kind of allegedly irreparable harm merely because it does not obtain a TRO. Cf. Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 617 n.11 (1980) (“Irreparable harm is absent if trial on the merits can be conducted before the injury occurs.”).
Finally, Clear Channel has not met its burden of showing that the proposed TRO would promote or at least would not be inconsistent with the public interest. If the MBTA is correct in its view that Clear Channel is not entitled to enforce its contractual right of first refusal, or if Clear Channel remains unwilling to accept all the material terms and conditions that the one successful bidder is prepared to accept, then the MBTA needs to be prepared to have its successor licensee in place and ready to manage the MBTA billboards. The requested TRO would prevent the MBTA from doing the planning and preparations needed effectively to manage this part of its physical plant.
– 8 –
Since Clear Channel has not shown that it will suffer irreparable harm over the next few weeks if the MBTA continues to move forward with its plans to contract with Outfront Media, and the public interest may be harmed if the Court bars the MBTA from doing so, the Court will exercise its discretion to deny Clear Channel’s request for a TRO. Cf. Lightlab Imaging, Inc. v. Axsun Technologies, Inc., 469 Mass. 181, 194 (2014) (“Trial judges have broad discretion to grant or deny injunctive relief.”).
ORDER
Defendant’s motion for a temporary restraining order is DENIED.
January 31, 2018
___________________________
Kenneth W. Salinger
Justice of the Superior Court read more

Read more...

Posted by Stephen Sandberg - February 2, 2018 at 1:04 pm

Categories: News   Tags: , , , , , , , , ,

Bennett v. R.J. Reynolds Tobacco Company (Lawyers Weekly No. 09-007-18)

Read more...

Posted by Stephen Sandberg - February 2, 2018 at 9:29 am

Categories: News   Tags: , , , , , , ,

MHM Correctional Services, Inc., et al. v. Darwin Select Insurance Company, et al. (Lawyers Weekly No. 09-008-18)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss SUPERIOR COURT
CIVIL ACTION
NO. 2017-01825-BLS2
MHM CORRECTIONAL SERVICES, INC.,
CENTURION OF MINNESOTA, LLC, CENTURION OF MISSISSIPPI, LLC &
MASSACHUSETTS PARTNERSHIP FOR CORRECTIONAL HEALTHCARE, LLC,
Plaintiffs
vs.
DARWIN SELECT INSURANCE COMPANY N/K/A
ALLIED WORLD SURPLUS LINES INSURANCE COMPANY &
ALLIED WORLD ASSURANCE COMPANY,
Defendants
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANTS’ MOTION TO DISMISS
This case concerns six separate claims for coverage brought by insureds against their insurers. The plaintiffs are MHM Correctional Services, Inc. (MHM), Centurion of Mississippi, LLC (Centurion-MS), Centurion of Minnesota, LLC (Centurion-MN), and Massachusetts Partnership for Correctional Healthcare, LLC (MPCH), each of which provides healthcare services to inmates housed in state prison facilities. Plaintiffs have been sued or are the subjects of indemnification demands in connection with six class action lawsuits alleging that the health care rendered to inmates in those facilities is so inadequate as to violate their constitutional rights. In the instant case, plaintiffs seek declaratory and injunctive relief as to the coverage obligations of the defendants Darwin Select Insurance Company n/k/a Allied World Surplus Lines Insurance Company (Darwin) and Allied World Assurance Company (Allied World) in relation to these six lawsuits. Defendants now move to dismiss, relying on the language of the underlying policies, all of which are before the Court. In the event that this Court does not
2
dismiss certain counts, the defendants ask this Court to stay the proceedings. For the reasons that follow, the Motion to Dismiss is Denied.
BACKGROUND
Plaintiffs have contracts with various Departments of Corrections (DOCs) throughout the United States to provide medical and mental healthcare services to their prisoner populations. MHM provides mental healthcare services for the Alabama DOC (ADOC). Centurion-MS provides medical and mental healthcare services for the Mississippi DOC (MSDOC). Centurion-MN provides medical and mental healthcare services for the Minnesota DOC (MNDOC). MPCH provides medical and mental healthcare services for the Massachusetts DOC (MADOC).
These DOCs are currently defendants in six federal class action lawsuits filed between 2010 and 2015 on behalf of incarcerated individuals. Those lawsuits are: Dunn v. Thomas (Dunn), No. 2:14-cv-00601-MHT-TFM; DePriest v. Walnut Grove Correctional Authority (DePriest), No. 3:10-cv-663 DPJ-FKB; Dockery v. Epps (Dockery), No. 3:13-cv-326-TSL-JMR; Ligons v. Minnesota Department of Corrections (Ligons), No. 15-cv-2210, PJT/BT; Paszko v. O’Brien (Paszko), No. 1:15-cv-12298-NMG; and Briggs v. Massachusetts Department of Corrections (Briggs), No. 1:15-cv-40162-GAO. Each of these lawsuits seeks injunctive and declaratory relief as well as attorney’s fees.
Both the MNDOC and Centurion-MN are defendants in Ligons. Both the MADOC and MPCH are defendants in Paszko and Briggs. The ADOC is a defendant in Dunn and the MSDOC is a defendant in DePriest and Dockery. MHM and Centurion-MS are not named defendants in Dunn, DePriest, or Dockery. However, pursuant to indemnification provisions in their service contracts with these DOCs, MHM and Centurion-MS have agreed to defend and indemnify them for losses arising from the lawsuits.
3
The language of these indemnification provisions is relevant to the issues before the Court. The indemnification provision in the ADOC’s agreement with MHM (the ADOC Contract) provides that:
MHM will indemnify and hold harmless . . . the ADOC . . . from and against all claims, losses, or costs arising out of MHM’s negligence, gross negligence, wantonness, deliberate indifference, or criminal negligence, or from willful disregard of proper or lawful written instructions from the Commissioner of the ADOC and Associate Commissioner of Health Services. . . .
MHM will indemnify and hold harmless . . . the ADOC . . . from and against any and all loss or damage, including court costs and attorney fees, for liability claimed against or imposed upon the ADOC because of bodily injury, death, or property damage, real or personal, including the loss or the use thereof, arising out of or as a consequence of the breach of any duty or obligation of MHM included in this Agreement, negligent acts, errors or omissions, including engineering and/or professional error, fault or mistake, or negligence of MHM . . . . MHM’s obligation, under this Section, will not extend to any liability caused by the negligence of ADOC. . . .
ADOC Contract at § 10.3. In other words, the indemnification obligation extends only to those losses that arise out of MHM’s negligence or breach of its duties. The indemnification provision in the MSDOC’s agreement with Centurion-MS (MSDOC Contract) provides that:
To the fullest extent allowed by law, Centurion shall indemnify, defend, save and hold harmless, protect, and exonerate the [MSDOC] . . . from and against all claims, demands, liabilities, suits, actions, damages, losses, and costs of every kind and nature whatsoever, including without limitation, judgments, court costs, investigative fees and expenses, and attorney’s fees, arising out of or caused by Centurion . . . in the performance of or failure to perform this Agreement. . . . Centurion’s obligations, duties, and responsibilities under this section include, but are not limited to, the duty to defend and indemnify [MSDOC] . . . in [DePriest and Dockery].
MSDOC Contract at § 10.1. Centurion-MS entered the MSDOC Contract on July 1, 2015, several years after DePriest and Dockery were initiated, and the MSDOC tendered DePriest and Dockery pursuant to Section 10.1 on the same day. However, Centurion-MS specifically
4
disclaimed any obligations to defend and indemnify the MSDOC for any actions that occurred prior to July 1, 2015, when there was no contractual relationship between the two. Section 10.1 also arguably limits liability to Centurion-MS’s failure to perform its own obligations and duties. Thus, like the indemnification provision in the ADOC Contract, the indemnification provision in the MSDOC Contract would appear to be limited to those losses arising out of acts and omissions of Centurion-MS and not for those acts or omissions of a third party.
From 2013 through 2016, plaintiffs were insured by primary Locum Tenens and Contract Staffing Professional Liability Insurance Policies issued by Evanston Insurance Company (Evanston). Evanston has declined to provide coverage in connection with Dunn, DePriest, Dockery, and Briggs. It has provided a partial defense in connection with Ligons under a reservation of rights. Plaintiffs have filed a separate coverage action in Illinois state court against Evanston regarding coverage for the class action lawsuits. The Illinois action remains pending.
In addition to the coverage provided by Evanston, plaintiffs were also insured for the years 2013 through 2016 by several Healthcare Excess and Umbrella Liability Insurance Policies issued by Darwin and Allied World to MHM Health Professionals, Inc. and MHM Services, Inc., two entities affiliated with plaintiffs but not themselves parties to this action. For each policy year, MHM Health Professionals and MHM Services were issued separate and identical policies. Plaintiff MHM is an insured under 2013 and 2014 Darwin Policies and a 2015 Allied World Policy issued to MHM Services. Plaintiffs MPCH and Centurion-MN are insureds under a 2014 Darwin Policy and a 2015 Allied World Policy issued to MHM Health Professionals. Plaintiff Centurion-MS is insured under the 2015 Allied World MHM Health Professionals Policy. After
5
Evanston largely denied coverage in connection with the six class action lawsuits, plaintiffs sought coverage under these Policies. Defendants, however, declined to provide it.
Each of the Policies at issue in this case contains two “Insuring Agreements,” described as “Insuring Agreement I.A” and “Insuring Agreement I.B.” Insurance Agreement I.A provides Umbrella “Claims Made” Professional Liability coverage; Insuring Agreement I.B provides Umbrella “Occurrence Based” General Liability coverage. With regard to Insuring Agreement I.A, the Policies provide, in relevant part, that:
The Insurer will pay on behalf of the Insured . . . Loss and Defense Expenses. . . which the Insured becomes legally obligated to pay as a result of a Claim alleging a Medical Professional Incident, provided always that: 1. such a Claim is first made against the Insured during the Policy Period . . . ; and 2. notice of such Claim is given to the Insurer in accordance with . . . this Policy….
(Boldface in original). With regard to Insurance Agreement I.B, the Policies provide, in relevant part, that:
The Insurer will pay on behalf of the Insured . . . Loss and Defense Expenses. . . which the Insured becomes legally obligated to pay as a result of a Claim alleging Bodily Injury, Property Damage, or Personal or Advertising Injury caused by an Occurrence, provided always that: 1. such Bodily Injury, Property Damage, or Personal or Advertising Injury occurs during the Policy Period . . . ; and 2. notice of such Claim is given to the Insurer in accordance with . . . this Policy….
(Boldface in original). The relevant terms and conditions of the Policies are in most respects the same. To the extent there are differences, those differences will be discussed below.
DISCUSSION
The claims for which plaintiffs seek coverage fall into two categories. First, MHM and Centurion-MS seek coverage from defendants for the contractual indemnification demands made by the ADOC and MSDOC in connection with Dunn, DePriest, and Dockery. As noted above, neither MHM nor Centurion-MS are named as defendants in those actions. Second, Centurion-MN and MPCH seek a declaration that the defendants have both a duty to defend and indemnify
6
them in connection with Ligons, Paszko and Briggs. Centurion-MN and MPCH are named defendants in the underlying complaints in those three cases. As to both categories, plaintiffs maintain they are entitled to coverage under both Insuring Agreement I.A and Insuring Agreement I.B. This Court concludes the Complaint survives the defendants’ Motion to Dismiss under Insuring Agreement I.A. It concludes that there is no coverage for any of the class actions under Insuring Agreement I.B.
A. Insuring Agreement I.A
1. ADOC and MSDOC Indemnification Demands for Dunn, DePriest, and Dockery
MHM seeks coverage under Insuring Agreement I.A of the 2013 Darwin MHM Services Policy (the 2013 Darwin Policy) for its contractual obligation to indemnify ADOC in the Dunn lawsuit. Centurion-MS seeks coverage under Insuring Agreement I.A of the 2015 Allied World MHM Health Professionals Policy (the Allied World Policy) for its contractual indemnification obligations to MSDOC, named as a defendant in DePriest and Dockery. The Court concludes that, based on the documents before me now, MHM and Centurion-MS would appear to be entitled to coverage under Insuring Agreement I.A of these Policies, provided that MHM and Centurion-MS indemnify the DOCs (and seek coverage for that indemnification) only as to losses that arose from their own conduct.1
In support of their motion to dismiss, defendants argue that they are entitled to deny coverage as to the underlying class action complaints because neither MHM nor Centurion-MS has been named as a defendant in those actions and therefore no “Claim” has been made against an insured so as to trigger coverage for those lawsuits. That does not dispose of the issue,
1 It is important to note that these issues are raised by way of a motion to dismiss. The underlying lawsuits remain pending and the indemnification obligations have not been finally decided. This Court therefore makes no final determination in favor of plaintiffs as to coverage. Rather, the only question before the Court at this point is whether the plaintiffs have stated a claim upon which relief may be granted.
7
however. The question is rather whether the indemnification demands made against MHM and Centurion-MS as a result of those lawsuits constitute a “Claim” within the meaning of the policies and whether such a claim is covered.
The indemnification demands seek to recoup from MHM and Centurion-MS costs and expenses the DOCs incur as a result of any finding of liability against them in the class action lawsuits and that can be shifted to MHM and Centurion under their service contracts. As to whether that is covered, the applicable policies require the insurer to pay, on behalf of the insured, any “Losses or Defense Expenses” which the insured becomes legally obligated to pay “as a result of a Claim alleging a Medical Professional Incident….” A “Medical Professional Incident” means, among other things, “an actual or alleged act, error, or omission in the Insured’s rendering of or failure to render Medical Professional Services.” (Boldface in original). Dunn, DePriest and Dockery all allege a failure to render adequate medical care to inmates – medical care which MHM and Centurion-MS agreed to provide pursuant to their contracts with the DOCs. In demanding indemnification, the DOCs are seeking to shift liability to MHM and Centurion-MS for costs and expenses incurred by any determination in those lawsuits that inmate medical care was inadequate. As the Court construes the contractual indemnification provisions that form the basis for that demand, the DOCs will be able to shift those costs (and Centurion-MS and MHM are seeking coverage for) only those losses that arose from MHM’s or Centurion-MS’s acts or omissions in rendering inadequate medical services. In other words, it will be for losses incurred as a result of an “act, error or omission in the Insured’s rendering of or failure to render Medical Professional Services.” Accordingly, the indemnification demand would be a “Claim” that triggers coverage.
8
Defendants argue that the indemnification provisions are broader than that, however, and allow the DOCs to shift costs for acts or omissions in which the plaintiff insureds played no part. This Court disagrees. As to the ADOC Contract, MHM’s indemnity obligation extends only to losses incurred by the ADOC “arising out of or as a consequence of the breach of any duty or obligation of MHM … including negligent acts, errors or omissions” on MHM’s part. Similarly, the MSDOC Contract permits the MSDOC to seek reimbursement from Centurion-MS for any costs or expenses “arising out of or caused by Centurion . . . in the performance of or failure to perform this Agreement.” Although that contract was entered into after the DePriest and Dockery lawsuits began, Centurion-MS has specifically disclaimed any obligation to defend and indemnify the MSDOC for any actions that occurred prior to July 1, 2015, when there was no contractual relationship between Centurion-MS and MSDOC. In any event, the question before the Court at this juncture in the case is whether the plaintiffs have stated a claim for coverage. If it turns out that the DOCs seek to be indemnified for costs that arise out of acts and omissions by other entities (and a court determines that the DOC is entitled to do that), then the defendants might well be correct to deny coverage. To assume that would occur, however, would be premature, particularly where the contractual indemnification provisions at issue could be more narrowly construed, and (as this Court understands it) plaintiffs are not seeking coverage for costs and expenses which are attributable to the acts or omissions of others.
Defendants next contend that coverage for the indemnification demands are excluded under the Policies’ contractual liability exclusion. The contractual liability exclusion provides that:
This Policy shall not apply to any Claim based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving . . . any Bodily Injury, Property Damage, Personal or Advertising Injury, or a Medical Professional Incident for which the Insured is legally obligated to pay damages
9
by reason of the assumption of liability of another in any Express Contract or Agreement.
(Boldface in original). There are two exceptions to the exclusion. First, it does not apply to liability for damages “that the Insured would have in the absence of the contract or agreement.” (Boldface in original) (Exception A). Second, the contractual liability exclusion does not apply to liabilities “assumed in a contract or agreement that is an Insured Contract, provided the Bodily Injury or Property Damage occurs subsequent to the execution of such contract or agreement.” (Boldface in original) (Exception B). This Court concludes that the indemnification demands arguably fall within Exception A, so that the contract exclusion provision would not apply.
The allegations in the underlying complaints suggest that, as the entities that carried out the DOCs’ healthcare-related policies, MHM and Centurion-MS played a role in the alleged failures to deliver adequate care. Moreover (as already noted above) the contractual indemnification provisions can be construed to permit a shifting of costs and expenses only as to MHM’s and Centurion-MS’s own failure to provide the medical care that they promised to the DOCs pursuant to their contracts. Thus, the demands concern conduct for which MHM and Centurion-MS could be liable even absent the indemnification provisions, and therefore fall within Exception A. In short, these claims for coverage are not so clearly outside the scope of the relevant policies as to be subject to dismissal at this stage of the case.
2. Ligons, Paszko, and Briggs
In connection with these three cases, plaintiffs seek coverage not based on an indemnification demand but because they are themselves named as defendants in the underlying complaints. Specifically, Centurion-MN seeks coverage for Ligons under the 2014 Darwin MHM Health Professionals Policy (the 2014 Darwin Policy). MPCH seeks coverage for Paszko
10
under that same policy and as to Briggs, under the 2015 Allied World MHM Health Professionals Policy (the Allied World Policy). Defendants make three arguments as to why plaintiffs’ coverage claims have no merit and must be dismissed. First, they contend that MPCH and Centurion-MN did not provide them with timely notice in connection with either the Paszko or Ligons litigation. Under the 2014 Darwin Policy, “prompt” notice is required. Second, the defendants argue that MPCH cannot make a claim for coverage under the Allied World Policy as to the Briggs lawsuit because the claim was not “first made” under that policy. Third, the defendants assert that they are not required to provide coverage to MPCH or Centurion-MN under either the 2014 Darwin Policy or under the Allied World Policy because the underlying complaints in Paszko and Briggs request only declaratory and injunctive relief, which is not a covered “Loss.” This Court will discuss each of these arguments in turn.
As to the notice issue, this Court must decide as an initial matter whether to apply Massachusetts or Virginia law, since there is a material difference between those two states on this issue. Under Massachusetts law, an insurer can prevail on a defense of late notice only if it proves both that the late notice was in breach of the policy’s notice provision and that the breach resulted in actual prejudice. Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 282 (1980); Darcy v. Hartford Ins. Co., 407 Mass. 481, 485 (1990). Under Virginia law, however prejudice to the insurer is only a factor that a court should consider; it is not in and of itself determinative. State Farm Fire and Cas. Co. v. Wallace, 997 F. Supp. 2d 439, 446-447 (W.D. Va. 2014).2 That is, an insurer may deny coverage even in the absence of actual prejudice.
2 Plaintiffs suggest that there is potentially no conflict between Massachusetts and Virginia law because Virginia law has yet to determine whether this rule applies to excess carriers. Plaintiffs emphasize that the Virginia cases on this issue all involve primary insurance policies. However, this Court fails to see why defendants should be treated any differently than the primary insurer, especially since plaintiffs are seeking coverage under the applicable policies under a theory that they should “drop down” to provide a defense of these actions. In other words, plaintiffs are asking that the defendants effectively assume the primary insurer’s obligations.
11
In determining which law is applicable, the Court looks to the conflict-of-law rules of the forum state – here, Massachusetts. OneBeacon America Ins. Co. v. Narragansett Elec. Co. (OneBeacon), 90 Mass. App. Ct. 123, 125 (2016). Massachusetts applies a functional choice-of-law analysis, guided by the Restatement (Second) of Conflict of Laws (Restatement). Id. In insurance cases, the first step is to ascertain whether Section 193 of the Restatement will resolve the matter. Clarendon Nat’l Ins. Co. v. Arbella Mut. Ins. Co. (Clarendon), 60 Mass. App. Ct. 492, 496 (2004). Under Section 193, “the rights created by a contract of casualty insurance are to be determined by the local law of the State that the parties to the insurance contract understood would be the principal location of the insured risk during the term of the policy, unless some other State has a more significant relationship under the principles of § 6.” Id. The insured risk will typically be located in the state where the policyholder is domiciled. OneBeacon, 90 Mass. App. Ct. at 125. Where the principal location of the risk cannot be ascertained, the next step is to apply Section 188 of the Restatement. Clarendon, 60 Mass. App. Ct. at 496. Under Section 188, “the rights and duties of the parties, with respect to a contract issue, [are to] be determined by the local law of the State which, as to that issue, has the most significant relationship to the transaction and to the parties under the principles of § 6.” Id. at 497.3 In applying Sections 193 and 188, the Court looks to the circumstances surrounding the procurement and issuance of the policy, not the circumstances that prompted the claim for which coverage is sought. See OneBeacon, 90 Mass. App. Ct. at 126-127.
3 Section 6(2) of the Restatement provides seven factors relevant to the choice of applicable law: “(a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested [S]tates and the relative interests of those [S]tates in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied.”
12
In the present case, the Court cannot locate the principal location of the insured risk in one state because the relevant policies cover multiple insureds that provide services to prisons in multiple states. See Restatement §193, Comment b, para. Third (noting that the location of the insured risk cannot be determined “where the policy covers a group of risks that are scattered throughout two or more states.”). Accordingly, this Court looks to the law of that state which has the most significant relationship to the notice issue, which is Virginia. The policyholders (MHM Services and MHM Health Professionals) have their principal place of business in that state and the policies were delivered there. See W.R. Grace Co. v. Hartford Accident & Indem. Co., 407 Mass. 572, 585-586 (1990) (holding that New York law governed coverage of nationwide asbestos claims, where most of the policies were negotiated in New York and the insured, which had multistate operations, was incorporated and domiciled in New York); General Elec. Co. v. Lines, 2008 Mass. Super. LEXIS 284 (Mass. Super. July 10, 2008) (Gants, J.) at *6-*13 (applying law of insured’s domicile to late notice issue arising out of more than a hundred different environmental claims nationwide in scope). The Court is also mindful of the fact that in the Evanston coverage litigation, plaintiffs have taken the position that, if a conflict of law arose, Virginia law would control. See MHM Insureds’ Memorandum of Law in Support of Their Re-Filed Motion for Summary Judgment on the Duty to Defend and Indemnify at 9, n.4.
Under Virginia law, untimely notice constitutes a breach of the policy only if the failure to notify is substantial and material. Wallace, 997 F. Supp. 2d at 446. “Three factors bear upon the materiality of a breach of the notice provision of a policy: (1) the reasonableness of the delayed notice, (2) the amount of prejudice suffered by the insurer as a result of the delay, and (3) the length of time that elapsed before notice was given.” Id. at 447 (internal quotes omitted). In evaluating the reasonableness of the delayed notice, the Court applies “an objective standard,
13
requiring that an insurer be notified whenever it should reasonably appear to the insured that the policy may be implicated.” Penn-America Ins. Co. v. Mapp, 461 F. Supp. 2d 442, 453 (E.D. Va. 2006). In most cases, the reasonableness of the delay is an issue to be resolved by a fact finder. Wallace, 997 F. Supp. 2d at 447.
Defendants contend that the failure to notify was substantial and material because Paszko was reported to the defendants approximately ten months after the action was filed and Ligons was reported almost twelve months after the action was filed. However, defendants do not assert that they suffered any prejudice as a result of the delay and plaintiffs may be able to show that any delay was reasonable. In particular, plaintiffs maintain that the delay can be explained because they reasonably believed that Evanston would provide a complete defense for these actions and that Evanston would notify the defendants of the lawsuits. This argument could have merit. See Munchenbach v. Nationwide Mut. Fire Ins. Co., 2007 WL 6002108 at *5 (Va. Cir. Feb. 13, 2007) (“If there is a reasonable explanation for the insured’s delay in notifying the insurance company, the insured is not barred from a recovery because of the delay.”); Mount Vernon Realty, Inc. v. St. Paul Ins. Co., 1990 WL 10039273 at *1 (Va. Cir. Mar. 26, 1990) (“Prompt notice under an insurance contract means notice within a reasonable time, and compliance is measured by reference to the facts and circumstances.”). At the very least, this fact-specific determination requires the development of an evidentiary record and cannot be decided on a motion to dismiss.
The defendants’ second argument relates only to Briggs and raises the question of when the claim was “first made.” The Briggs lawsuit was filed on November 24, 2015 and MPCH provided notice of that action to the defendants on April 20, 2016. Both dates are within the period covered by the Allied World policy, which runs from July 1, 2015 to July 1, 2016.
14
Defendants, however, argue that the claim was first made on March 20, 2015 – before the Allied World Policy took effect. On that date, the MPCH and the MADOC received a letter from Prisoners’ Legal Services (PLS) accusing them of mistreating or inadequately treating deaf and hard of hearing prisoners in violation of their constitutional and statutory rights. This Court concludes that the PLS letter cannot constitute a “Claim” within the meaning of the Policy.
A Claim is defined under the Allied World Policy as “a written notice received by an Insured that a person or entity intends to hold an Insured responsible for a Medical Professional Incident.” (Boldface in original). The PLS letter came from a prisoners’ advocacy group, which on its own has no standing to bring a lawsuit against MPCH. Without standing, there was no legal mechanism for PLS to hold MPCH “responsible for a Medical Professional Incident.” Moreover, the letter did not state that any prisoners intended to file a lawsuit. Rather, it urged the MADOC and MPCH to take remedial measures and to contact PLS to “discuss a resolution to this matter.” In short, that MPCH received this letter and did not notify defendants of it does not bar its claim for coverage under Allied World Policy.4
Turning to the defendants’ final argument that the complaints in Paszko and Briggs do not involve a “Loss” within the meaning of the Policies, this Court looks to the policy language. Neither one of these lawsuits seeks compensatory damages. They do, however, seek injunctive and equitable relief that will likely require the expenditure of funds if a court determines that the medical care provided to inmates was indeed deficient. They also seek an award of attorney’s fees. Both the 2014 Darwin Policy and the 2015 Allied World Policy define Loss as “any monetary amount paid on account of an award, judgment or settlement which the Insured is
4 Plaintiffs argue in the alternative that if the letter were a “Claim,” then MPCH can seek coverage under the 2014 Darwin Policy. Because this Court agrees with the plaintiffs that the PLS letter is not a Claim, this alternative avenue of coverage is not available to MPCH in connection with the Briggs litigation.
15
legally obligated to pay as a result of a Claim.” (Boldface in original). Each of the Policies expressly states that certain things are excluded from this definition and therefore do not constitute a “Loss.” The Policies differ, however, as to what is excluded.
Under the 2014 Darwin Policy, “non-monetary relief or redress in any form other than monetary compensation or damages, including, but not limited to, injunctive, declaratory and administrative relief” does not constitute a “Loss” and therefore is not covered. In other words, non-monetary relief is not a covered Loss. Although that is stated to include injunctive relief, this Policy language does not expressly exclude monetary costs associated with such relief. Keeping in mind that exclusions from coverage must be strictly construed, this Court concludes that this exclusion would not prevent coverage for expenditures that plaintiffs would be required to make to comply with any equitable relief that is ordered. Both Ligons and Paszko seek an injunction ordering defendants to implement and adhere to a comprehensive treatment protocol with regard to prisoners who are infected with the Hepatitis C virus. Because this will likely require the expenditure of money, this Court concludes that Centurion-MN and MPCH’s claims for coverage under the 2014 Darwin Policy in connection with these two lawsuits state a claim upon which relief may be granted.
The exclusion in the 2015 Allied World Policy is broader and makes clear what the 2014 Darwin Policy did not. That is, it does not provide coverage for “non-monetary relief or redress in any form other than monetary compensation or damages, including but not limited to the costs to comply with an order granting injunctive, declaratory, or administrative relief.” (Emphasis added). 5 Thus, there is no coverage obligation with respect to any out-of-pocket expenditures in
5 That this language was included in the Allied World Policy supports this Court’s conclusion that the 2014 Darwin Policy does cover costs associated with injunctive relief. That is, had the parties intended to exclude those costs, they clearly knew how to do that.
16
the Briggs litigation that are incurred by MPCH as a result of its compliance with any equitable order. However, the Briggs lawsuit also seeks attorney’s fees, and those costs are arguably covered.
In contending that such costs are not covered, defendants rely on a policy provision which excludes “Defense Expenses” from the definition of Loss so that these expenses are not covered. The Allied World Policy defines Defense Expenses, however, as “reasonable fees, costs and expenses incurred by or on behalf of the Insured in connection with the defense of a Claim.” (Boldface in original, underline added). An award of attorney fees whereby the insured (here MPCH) is required to pay the inmate plaintiffs’ attorney’s fees is therefore not a “Defense Expense.” As to whether attorney’s fees are covered, the Allied World Policy (like the other policies) provide coverage if it is for “Losses or Defense Expenses” which the insured becomes legally obligated to pay “as a result of a Claim alleging a Medical Professional Incident.” Plaintiffs in the Briggs litigation ask the court to require MPCH to pay their attorney’s fees (as required by statute for constitutional violations). This is therefore a claim that seeks monetary compensation. If the Court then ordered MPCH to pay those fees as a result of its failure to provide adequate medical care, then that would fall within the definition of a Loss as defined by the Policy. See UnitedHealth Group Inc. v. Hiscox Dedicated Corp. Member Ltd., 2010 WL 550991 at *10-*11 (D. Minn. Feb. 9, 2010) (applying similar policy language, court concluded that attorney’s fees awarded against the insured in underlying litigation come within insurer’s coverage obligations).
B. Insuring Agreement I.B
Plaintiffs alternatively maintain that they are entitled to coverage under Insuring Agreement I.B because the indemnification demands and the complaints in Paszko, Ligons, and
17
Briggs allege “Bodily Injury.” This Court disagrees. Under the Policies, Bodily Injury means “physical injury, sickness or disease sustained by a person other than a Patient, including mental anguish, emotional distress or death resulting therefrom.” (Boldface in original, underline added). Patient, in turn, means “any persons or human bodies admitted or registered to receive Medical Professional Services from an Insured, whether on an inpatient, outpatient or emergency basis.” (Boldface in original). In each of the underlying actions, the prisoner plaintiffs allege that they did not receive adequate medical and/or mental health services. The complaints also allege – either explicitly or implicitly – that plaintiffs were complicit in that failure. The services the prisoner-plaintiffs claimed they should have received were those that plaintiffs were contractually obligated to provide them. Thus, the prisoners-plaintiffs are properly viewed as plaintiffs’ Patients. Accordingly, there is no coverage under Insuring Agreement I.B.
That there is no coverage is made clearer when Insuring Agreements I.A and I.B are read together. Insuring Agreement I.A provides coverage for a Medical Professional Incident, which is defined as, “an actual or alleged act, error, or omission” connected to the “rendering of or failure to render” Medical Professional Services. (Emphasis added). Thus, it envisions coverage for situations where individuals do not receive any medical care. Insuring Agreement I.B is intended to provide coverage for conduct that lies entirely outside the provision of medical care. The underlying lawsuits (and the indemnification demands that arise from them) stem from the failure to render proper medical care. Any coverage obligations would therefore fall under Insuring Agreement I.A.
18
CONCLUSION AND ORDER
For the forgoing reasons, Defendants’ Motion to Dismiss is DENIED in that plaintiffs have stated a claim for coverage under Insuring Agreement I.A, at least with respect to some portion of the monetary losses they could incur as a result of the six class action lawsuits. This matter is scheduled for a Rule 16 conference on January ___, 2018 at 2:00 p.m. at which time the defendants can (if they choose) raise the issue of whether this litigation should be stayed pending resolution of the Evanston action.
________________________
Janet L. Sanders
Justice of the Superior Court
Dated: January 8, 2018 read more

Read more...

Posted by Stephen Sandberg - February 2, 2018 at 5:55 am

Categories: News   Tags: , , , , , , , , ,

Juliand v. Stanley Services, Inc. (Lawyers Weekly No. 09-010-18)

1
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
NO. 2017-01570-BLS2
CHARLES JULIAND, on behalf of himself
And all others similarly situated,
Plaintiff
vs.
STANLEY SERVICES, INC.,
Defendant
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANT’S MOTION TO DISMISS
In this putative class action, plaintiff alleges that the defendant Stanley Services Inc., (Stanley) unlawfully assesses a fuel surcharge on the motor vehicles that it tows. The Amended Complaint contains multiple counts, including a claim under G.L.c. 93A. Stanley now moves to dismiss on the grounds that the case is moot in light of Stanley’s proffer of an amount to the individual plaintiff that was more than enough to cover any out-of pocket loss to him. More generally, Stanley argues that the Complaint fails to state a claim upon which relief may be granted. This Court concludes that the Motion must be DENIED.
Briefly summarized, the Complaint states the following. On December 1, 2016 and then again on March 24, 2017, Stanley removed plaintiff Charles Juliand’s car from a street in Jamaica Plain, Massachusetts and towed the car to Stanley’s Jamaica Plain facility. On both occasions, Stanley assessed a fuel charge for the tow — $ 1.80 on December 1 and $ 2.25 on March 24. Massachusetts regulations permits a fuel charge only where the tow in question exceeds five miles and then only if certain information is provided on the tow slip. These tows did not exceed five miles and the tow slips did not provide the requisite information.
2
The Complaint alleges that Stanley has engaged in a practice of assessing these unlawful charges for years; it seeks relief on behalf of Juliand individually as well as others similarly situated. In addition to seeking certification of the class, the Complaint seeks damages as well as injunctive and declaratory relief. On May 19, 2017, two days before this suit was instituted, plaintiff’s counsel sent a Demand Letter to Stanley pursuant to G.L .c. 93A. Plaintiff amended the Complaint on July 19, 2017 to include a 93A count.
Defense counsel made a formal response to plaintiff’s Demand Letter by letter dated June 21, 2017 (the Response). Its contents are relevant to the issues before the Court. It begins by stating that it is being “provided in the interest of settlement only, and subject to a full reservation of Stanley Service’s rights.” It goes on at some length to outline why the individual and class claims are legally and factually defective. To the extent that there were any omissions of information regarding the fuel surcharge, the Response says that they were the result of “individual oversight” and do not reflect a general policy. On a more conciliatory note, the Response says that it “has taken steps to prevent any future omissions of information to the extent necessary.” It also encloses two checks payable to Juliand “without any conditions and/or restrictions,” each in the amount of $ 380.40. The Response states that this sum represents a full refund, both for the disputed and the “undisputed” amounts of Juliand’s tow bills, with the actual amount trebled to account for the 93A claim. Finally, the Response makes a “full and final” settlement offer on the class claims. Juliand did not cash the checks.
The primary basis for defendant’s motion is that Juliand no long has standing to assert these claims, depriving the Court of subject matter jurisdiction. Juliand lacks standing, the defendant argues, because Stanley has essentially paid (or at least attempted to pay) Juliand more than he could individually recover. In support, it relies on an unpublished decision of a federal
3
district court. Demmler v. ACH Food Companies, Inc., 2016 WL 4703875 (D. Mass. 2016). In Demmler, plaintiff brought a class action alleging that defendant misrepresented its barbecue sauce as “all natural” when in fact it contained caramel color. Before suit was filed, the defendant, in response to a 93A demand letter from plaintiff’s counsel, tendered to plaintiff $ 75 which represented treble the amount of statutory damages that the individual plaintiff was seeking under 93A. The Court determined that this mooted his claim, noting in particular that the Complaint did not seek injunctive relief or declaratory relief, perhaps because the defendant had discontinued the products at issue.
Putting aside the fact that Demmler has no precedential value, this Court concludes that it is readily distinguishable form the instant case, if only because this case, unlike Demmler, does request injunctive and declaratory relief. Thus, plaintiff’s claim cannot be moot, because the proffered monetary amount does not give the individual plaintiff all that he seeks. See Johansen v. Liberty Mutual Group, Inc., 2016 WL 7173753 (D. Mass. December 8, 2016) (distinguishing Demmler, court applies the same reasoning in denying motion to dismiss on mootness grounds). Defendant argues that it has already agreed to discontinue the policy that is at issue in this case, citing the Response. But the Response says only that Stanley “has taken steps to prevent any future omissions of information to the extent necessary.” This statement – clearly ambiguous as to precisely what has been done — appears in a letter written by counsel that otherwise denies any wrongdoing. In short, it is clearly not enough to render plaintiff’s request for injunctive relief moot.1
Defendant’s remaining arguments require little discussion, since they generally involve
1 There are other reasons for rejecting defendant’s mootness argument; these reasons are set forth in Johansen and in plaintiff’s opposition. This Court finds these other reasons to be persuasive but ultimately unnecessary to support the Court’s ruling.
4
fact questions that cannot be resolved at this early stage in the case. To the extent the facts ultimately do not support one or more of the counts alleged, that can be dealt with by way of a motion for summary judgement, keeping in mind the BLS’s procedural rule regarding partially dispositive motions.
__________________________________
Janet L. Sanders
Justice of the Superior Court
Dated: January 16, 2018 read more

Read more...

Posted by Stephen Sandberg - February 2, 2018 at 2:20 am

Categories: News   Tags: , , , , , ,

The Hanover Insurance Group Inc. v. Raw Seafoods, Inc. (Lawyers Weekly No. 09-011-18)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss SUPERIOR COURT
CIVIL ACTION
NO. 12-03503-BLS2
THE HANOVER INSURANCE GROUP INC.,
Plaintiff
vs.
RAW SEAFOODS, INC.,
Defendant
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT
This case concerns a dispute over coverage between an insured and its insurer. Defendant Raw Seafoods, Inc. (RSI) is a seafood processor. In 2012, an RSI customer, Atlantic Capes Fisheries, Inc. (Atlantic), filed an action in federal court alleging that RSI’s negligent processing of its scallops resulted in their premature spoilage. RSI’s insurer, plaintiff Hanover Insurance Group, Inc. (Hanover), agreed to defend RSI under a reservation of rights and then filed the present action, seeking a declaration that it had no duty to indemnify RSI for any judgment Atlantic obtained. After the federal court judge granted summary judgment in favor of Atlantic and entered judgment against RSI, the parties filed cross motions for partial summary judgment in the instant action. This Court (Roach, J.) granted summary judgment in favor of Hanover but the Appeals Court reversed. 91 Mass.App.Ct. 401 (2017). RSI now renews it Motion for Partial Summary Judgment. For the reasons that follow, the Motion is Allowed.
2
BACKGROUND
RSI is a seafood processing facility in Fall River. Atlantic, a seafood company that sells scallops and other seafood, regularly uses RSI to apportion, pack, and freeze the fresh scallops that it purchases from fishing vessels. Upon delivery of Atlantic’s scallops, RSI staff inspects the scallops for quality, reports the results to Atlantic, and receives processing instructions. After processing, the scallops are transported to a third-party cold storage facility, Arctic Cold Storage (Arctic), from which Atlantic ships its customers’ orders.
In July 2011, a batch of scallops that RSI had processed made their way through customs in Denmark where it was observed that the scallops were decomposed and emitting a strong smell of ammonia. They were deemed unacceptable for human consumption and sent back to the United States. Once in the United States, the Food and Drug Administration tested the batch and confirmed that it was spoiled. The batch of scallops was then returned to Arctic’s facility, where representatives from Atlantic and RSI jointly inspected the shipment and again confirmed the damage. They also inspected another batch of scallops processed by RSI around the same time as the rejected batch, and discovered more damaged scallops.
At the time, Hanover insured RSI through a Commercial General Liability (CGL) Policy. The Policy provides in relevant part that Hanover “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The Policy applies to “property damage” that is caused by an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Policy contains several exclusions as well as a “special broadening endorsement,” which modifies the scope of certain exclusions.
3
In June 2012, Atlantic sued RSI in the United States District Court for the District of Massachusetts, alleging that the damage to the scallops was caused by RSI’s negligence. Hanover agreed to defend RSI under a reservation of rights. Shortly thereafter, Hanover filed the present lawsuit, seeking a declaratory judgment that either the damage to the scallops was not caused by an “occurrence” within the meaning of the Policy, or that certain Policy exclusions applied, such that it had no duty to indemnify RSI for any judgment Atlantic obtained. RSI asserted counterclaims for breach of contract and violations of G.L. cc. 93A and 176D, and further alleged that it was entitled to a declaration that the damage was covered. Upon motion by RSI, the Court stayed discovery pending resolution of the federal litigation.
While the stay was in place, discovery proceeded in the federal action. In deposition testimony, the president of RSI, Jason Hutchens, conceded that the scallops were delivered to RSI in good condition, but that “somewhere in [RSI’s] system, the product got messed up.” Hutchens testified: “[I]n almost the seventeen years we’ve been doing this, we’ve never seen anything like this before . . . we beat our heads against the wall for, it seemed like months, trying to figure this out. We have never seen anything like it and have not seen anything after this problem. But we can’t put our hands around it, how it happened and why it happened . . . we don’t know.” Hutchens agreed, however, that the damage occurred while the scallops were in RSI’s custody and was “the result of some, as yet, unknown failure on the part of [RSI’s] processing people or handling people within [RSI’s] plant.” The precise cause of the damage remains unknown.
In June 2014, Atlantic moved for summary judgment in the federal action, relying on the doctrine of res ipsa loquitur. Atlantic argued that the undisputed facts showed that it had delivered the scallops to RSI in good condition, that RSI had exclusive control over the scallops
4
until they were delivered to Arctic in a frozen state, and that nothing occurred after that delivery that would have caused the damage. Agreeing with this reasoning, the federal court allowed Atlantic’s motion.
After judgment entered against RSI, the parties in the instant case filed cross motions for partial summary judgment on the issue of coverage. Judge Roach granted summary judgment in favor of Hanover, concluding that RSI could not meet its burden of proving that the loss was caused by an “occurrence” because “there was no demonstrated accident distinct from [RSI’s] performance of its work.” In reaching that conclusion, Judge Roach relied on Pacific Indemnity Co. v. Lampro (Lampro), 86 Mass. App. Ct. 60, 65 (2014), reasoning that the possibility that raw seafood could be spoiled or damaged during handling is a “normal, foreseeable and expected incident” of the seafood processing business and is therefore not an accident.
RSI appealed and in April 2017, the Appeals Court set aside the judgment in Hanover’s favor and remanded the case. In doing so, the Court made several observations relevant to the renewed motion presently before this Court. First, the Appeals Court noted that, in allowing Atlantic’s motion for summary judgment in the federal action, the court had necessarily determined that the only explanation for the damage to the scallops was that RSI was negligent in handling the product. Hanover could not relitigate this factual issue. In other words, Hanover could not take the position in this litigation that the damage could have been the result of intentional conduct. 91 Mass.App.Ct. at 407. Second, the Appeals Court concluded that Lampro was distinguishable, and that the instant case was instead similar to Beacon Textiles Corp., v. Employers Mut.Liab. Ins. Co., 355 Mass. 643 (1969), which supported RSI’s position. 91 Mass.App.Ct. at 409-410. The Court remanded the case “for further proceedings consistent with this opinion regarding (1) the applicability of the exclusions, (2) Hanover’s duty
5
to defend and (3) RSI’s counterclaims for breach of contract and violations of G. L. cc. 93A and 176D.” Id. at 411.
DISCUSSION
As the insured, RSI bears the initial burden of proving that its claim falls within the scope of coverage provided by the Policy. See Boazova v. Safety Ins. Co., 462 Mass. 346, 351 (2012). That means that RSI must demonstrate that the claimed loss (here the damage to Atlantic’s scallops) was caused by an “occurrence.” In moving for summary judgment, RSI argues that the undisputed facts and the legal principles set forth in the Appeals Court’s decision in this case establish that RSI’s liability to Atlantic arose out of an “occurrence” within the meaning of the Policy. This Court agrees, in large part based on the reasoning of the Appeals Court.
Hanover argues, however, that the Appeals Court did not hold that RSI was entitled to judgment as a matter of law and that there may be facts which would show this was not an accident. Because discovery has been stayed, Hanover has had little opportunity to determine if such facts exist. Hanover contends that it needs more information regarding the procedures that RSI followed in processing the scallops, the materials it used, the purpose of processing and any communications regarding this issue. But the Appeals Court made it quite clear that Hanover was bound by the federal court’s decision that the damage to the scallops was due to RSI’s negligence, not as part of the ordinary work process and not the result of any intentional conduct. Hanover cannot relitigate this factual determination. Accordingly, there is no basis to seek this additional discovery.
6
It is also clear from the Appeals Court’s decision that that the damages for which RSI seeks coverage arose out of an “occurrence.”1 Hanover relied (and continues to rely) on Lampro in support of its position that this was not an occurrence, but the Appeals Court made it clear that Lampro was different. In that case, the insured was hired to cut down trees. The harm for which it sought coverage arose because it cut down too many trees, not because it cut down the trees in an improper manner. The harm thus did not arise because of a fortuitous or unexpected event but because of an intentional decision that occurred in the course of the insured’s ordinary work process, which was cutting down trees. In contrast, damaging scallops was not part of RSI’s ordinary work process; rather, it was an “unexpected happening without intention or design” and thus an “accident.” See Liberty Mut. Ins. Co. v. Tabor, 407 Mass. 354, 358 (1990) (construing that term in an auto policy to find that there was coverage for an auto accident caused by the insured’s negligence). The Appeals Court reasoned that the instant case was controlled not by Lampro but by Beacon Textiles, 355 Mass. at 646, where it was held that a loss sustained by the insured as a result of yarn changing color was an “accident” and therefore covered by the insurance policy. Although the precise cause for the change in color was never determined, it took place while in the insured’s possession and therefore was an “accident.” The same conclusion is compelled here.
In remanding the case, the Appeals Court did leave open the question of whether any exclusions to coverage apply.2 On this issue, Hanover bears the burden of proof. Hanover relies on three exclusions: Exclusion (j) (“Damage to Property”), Exclusion (k) (“Your
1 Indeed, in remanding the case, the Appeals Court did not suggest that there continued to be an issue regarding whether this was an “occurrence,” instead instructing this Court to determine whether any exclusions to the policy applied.
2 In doing so, however, the Appeals Court acknowledged that this was a question of law.
7
Product”), and Exclusion (n) (“Recall of Products, Work or Impaired Property”). This Court concludes that, as a matter of contract interpretation, these exclusions do not apply.
Exclusion (j) precludes coverage for certain types of property damage, including personal property in the care, custody or control of the insured. The Broadening Endorsement, however, alters the scope of the exclusion and expressly provides that the exclusion does “not apply to ‘property damage’ to ‘customer goods’ while on your premises . . . .” It defines “customer goods” as “property of your customer on your premises for purposes of being a) worked on; or b) used in your manufacturing process.” Reading Exclusion (j) and the Broadening Endorsement together, this Court concludes that this exclusion cannot apply because the damaged scallops were the property of Atlantic and they were damaged while they were in RSI’s facility “for the purpose of being . . . worked on.”
Exclusion (k) precludes coverage for property damage to “Your Product arising out of it or any part of it.” The Policy defines “Your Product” as “Any goods or products, other than real property, manufactured sold, handled, distributed or disposed of by . . . You.” “The purpose of the exclusion is to prevent the insured from using its product liability coverage as a form of property insurance to cover the cost of repairing or replacing its own defective products or work.” Commerce Ins. Co. v. Betty Caplette Builders, Inc., 420 Mass. 87, 92 (1995), quoting 2 R. Long, Liability Insurance Section 11.09(2) (1993). It does not apply when the insured’s liability results from the provision of services. See Todd Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d 401, 420 (5th Cir. 1982). Here, the exclusion does not apply because the undisputed facts demonstrate that RSI was hired to perform a service for Atlantic and the damage occurred when it processed the scallops as part of that service. The scallops themselves were not RSI’s product.
8
Hanover contends that it would be unfair to draw that conclusion without knowing more about RSI”s processing procedures. This assumes that this processing necessarily turns the raw scallops that it received from Atlantic into something else entirely. Regardless of the processing procedures utilized by RSI, it is undisputed that Atlantic harvested and delivered the scallops to RSI and that after processing, those same scallops went to Arctic’s facility. RSI did not turn the scallops into a fundamentally different product — for example, by incorporating them into a scallop chowder. Contrast Holsum Food Div. of Harvest States Cooperatives v. Home Ins. Co., 162 Wis. 2d 563, 566-567 (1991) (insured hired to mix ingredients supplied by customer to make customer’s barbeque sauce); Nu-Pak, Inc. v. Wine Specialties Int’l, Ltd., 253 Wis. 2d 825, 828 (Wis. Ct. App. 2002) (insured hired to blend ingredients supplied by customer to make customer’s alcoholic beverage).
Finally, Exclusion (n), commonly referred to as the “sistership exclusion,” provides that the Policy does not apply to: “Damages claimed for any loss, cost, or expense incurred by you or others for the loss or use, withdrawal, recall, inspection, repair, replacement, adjustment or disposal of: (1) Your product; (2) Your work; or (3) Impaired Property; If such product, work or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it. . .” The exclusion “only applies ‘in cases where, because of the actual failure of the insured’s product, similar products are withdrawn from use to prevent the failure of these other products, which have not yet failed but are suspected of containing the same defect.’ It does not apply when the product has already failed and caused property damage.” Amtrol, Inc. v. Tudor Ins. Co., 2002 WL 31194863, at *10 (D. Mass. Sept. 10, 2002), quoting United States Fidelity & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 81–82 (1991). Here RSI is not seeking
9
coverage for costs associated with the removal of non-damaged products but rather for costs connected to the recall of products that were actually damaged. Accordingly, this exclusion does not apply.
Hanover asserts that there is a material dispute of fact as to whether all of the scallops were actually spoiled. In the federal action, however, the evidence presented to the court on the summary judgment motion was that the weight of the damaged scallops was 58,824 pounds and that the value of those scallops was $ 463,735.86. The federal court entered judgment in favor of Atlantic for that amount, thus implicitly determining that 58,824 pounds of scallops were actually damaged. Hanover is bound by those figures.
CONCLUSION AND ORDER
For the forgoing reasons, Raw Seafoods, Inc.’s Renewed Motion for Partial Summary Judgment is ALLOWED with regard to the question of coverage. This matter is scheduled for a status conference on February ____, 2018 at 2:00 to set a schedule for resolution of what remains of the case.
________________________
Janet L. Sanders
Justice of the Superior Court
Dated: January 22, 2018 read more

Read more...

Posted by Stephen Sandberg - February 1, 2018 at 10:45 pm

Categories: News   Tags: , , , , , , ,

« Previous PageNext Page »