Posts tagged "Corporation"

Boston Scientific Corporation v. Takahashi, et al. (Lawyers Weekly No. 09-060-17)

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SUFFOLK, so                                                                                            SUPERIOR COURT


  1. 2017-02976 BLS 2













This is an action against three former employees of the plaintiff Boston Scientific Corporation (Boston Scientific) and their current employer, the  Nuvectra Corporation (Nuvectra) alleging misappropriation of confidential information and violations of a nonsolicitation clause in the individual defendants’ employment agreements with plaintiff.  Each  of those agreements contains clauses designating Massachusetts as the forum and Massachusetts law as the governing law for any legal disputes arising from the agreements.  The defendants now move to dismiss the action based on the doctrine of forum non conveniens.   This Court concludes that the Motion must be Denied. read more


Posted by Stephen Sandberg - January 9, 2018 at 1:02 pm

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Santiago, et al. v. Rich Products Corporation, et al. (Lawyers Weekly No. 11-158-17)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.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;

16-P-504                                        Appeals Court


No. 16-P-504.

Middlesex.     September 8, 2017. – December 28, 2017.

Present:  Milkey, Hanlon, & Shin, JJ.

Negligence, Spoliation of evidence, School.  Food.  School and School Committee, Liability for tort.  Practice, Civil, Instructions to jury, Summary judgment.

Civil action commenced in the Superior Court Department on August 21, 2006. read more


Posted by Stephen Sandberg - December 28, 2017 at 6:24 pm

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Finnegan, et al. v. VBenx Corporation, et al. (Lawyers Weekly No. 09-049-17)

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


Posted by Stephen Sandberg - December 6, 2017 at 4:53 pm

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OneBeacon America Insurance Company v. Celanese Corporation (Lawyers Weekly No. 11-134-17)

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;

16-P-203                                        Appeals Court


No. 16-P-203.

Suffolk.     November 18, 2016. – October 16, 2017.

Present:  Trainor, Meade, & Hanlon, JJ.

Insurance, Defense of proceedings against insured, Insurer’s obligation to defend.  Contract, Insurance.  Conflict of Interest.  Practice, Civil, Summary judgment, Attorney’s fees.

Civil action commenced in the Superior Court Department on March 2, 2010. read more


Posted by Stephen Sandberg - October 16, 2017 at 5:18 pm

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Boston Scientific Corporation v. Takaahashi, et al. (Lawyers Weekly No. 09-012-17)

NO. 2017-02976 BLS 2
This is an action against three former employees of the plaintiff Boston Scientific Corporation (Boston Scientific) and their current employer, the defendant Nuvectra Corporation. The three individual defendants all reside in California and performed work for Boston Scientific in California until they resigned from the company on September 7, 2017. Boston Scientific alleges that upon their departure, the three took with them proprietary information relating to customer pricing and solicited least one Boston Scientific employee to join them at Nuvectra. Boston Scientific now seeks a court order prohibiting the employees from using or disclosing this information or from soliciting any other Boston Scientific employees. The request also seeks to prevent the individuals from doing any work for Nuvectra for some undefined period of time while an “accounting” is done of the information they allegedly took, even though their employment agreements with Boston Scientific do not include any provisions preventing them from working for a competitor or from soliciting Boston Scientific customers.
In connection with this request, the Court has considered various affidavits, including those of the three employees who specifically deny taking any confidential information. This
Court has also considered the fact that Nuvectra itself took certain steps in advance of any litigation to ensure that the individuals returned all electronic devices they used while working at Boston Scientific, and has temporarily sidelined (or “benched”) them during this process. Based on these submissions as well as the memoranda and arguments of the parties, this Court concludes that the plaintiff has not demonstrated that it has a reasonable likelihood of success on the merits, or that it would suffer any irreparable harm if the injunction did not issue. Packaging Industries v. Cheney, 380 Mass. 609, 616, 617 (1980). Of particular importance to the Court’s conclusion is the following:
1. The information that Boston Scientific alleges was wrongfully taken were Product Billing Forms, which contain serial numbers of the products sold together with their price. In order for a nondisclosure agreement to be enforceable, the information it protects must be confidential, however. See Dynamic Research Corp. v. Analytic Scis. Corp., 9 Mass.App.Ct. 254, 278 (1980). Conceding that the forms contain no trade secrets, Boston Scientifics argues that they are nevertheless worthy of protection because they include “pricing packages” that are customized to meet the needs of its individual customers. Clearly, this pricing information has been shared with each customer, however, since the forms are generated in order to bill the customer; because the defendants are not prohibited from soliciting Boston Scientific customers, they could easily obtain the same information from the customer himself. Moreover, the defendants have produced evidence that product descriptions together with the identities of those who use such products are publicly available.
2. Even if these Product Billing Forms were confidential and proprietary, this Court is not convinced that the plaintiff will be able to prove that the individual defendants actually took the forms with them so that they could use them at Nuvectra. The individual defendants admit
that they accessed these forms in the days leading up to their departure from Boston Scientific, but they state that they did so as part of their regular work duties — specifically in order to invoice customers who had already bought a product. They explain that it was important to finish that work before they left, because their commissions are based on the invoices they generate. In short, they did not “steal” anything from Boston Scientific.
3. Upon being contacted by Boston Scientific about the prospect of this lawsuit, Nuvectra immediately took steps to ensure that the individual defendants returned all Boston Scientific devices and information in their possession, thus diminishing any claim by the plaintiff that it is at risk of suffering irreparable harm. Each individual has also pledged not to solicit any Boston Scientific employee. Boston Scientific insists that it still needs a court order in place to ensure that they keep their word. Speculative harm cannot justify an injunction, however.
4. Finally, it does appear to this Court that what is truly motivating Boston Scientific is its hope that it can delay if not outright prevent its former employees from soliciting Boston Scientific customers – something that they are clearly permitted to do. Significantly, this lawsuit arises from events that occurred almost entirely in California, which prohibits noncompetition and nonsolicitation agreements. A court order would essentially make an end-run around that prohibition.
For these reasons together with other reasons set forth in the defendants’ Opposition, the plaintiff’s Motion for a Preliminary Injunction is DENIED.
Janet L. Sanders
Justice of the Superior Court
Dated: September 26, 2017
4 read more


Posted by Stephen Sandberg - October 5, 2017 at 5:48 am

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Kelly v. Waters Corporation, et al. (Lawyers Weekly No. 09-013-17)

No. 17-00064-BLS1
Plaintiff, Douglas M. Kelly, filed this action against defendants, Waters Corporation and
NuGenesis Technologies Corporation (referred to collectively as “NuGenesis”). The dispute
involves Kelly’s claim that NuGenesis owes him millions of dollars in compensation related to
software he created, developed, and later sold to NuGenesis. Kelly asserts the following five
claims against NuGenesis in his Complaint: fraud (Count I), breach of contract (Count II),
violation of Chapter 93A (Count III), audit and accounting (Count IV), and piercing the corporate
veil (Count V). NuGenesis now moves to dismiss all claims pursuant to Mass. R. Civ. P.
12(b)(6). For the reasons stated below, NuGenesis’s motion to dismiss is allowed.
The facts as revealed by Kelly’s Complaint and the documents referenced in the
Complaint are as follows.
Kelly, a professional computer software developer and distributor, is a resident of Spring
Lake, New Jersey. Waters is a Delaware corporation with a principal place of business in
1 NuGenesis Technologies Corporation.
Milford, Massachusetts. In February 2004, Waters acquired NuGenesis and assumed all of
NuGenesis’s liabilities and contractual obligations to Kelly. Complaint at para. 2. NuGenesis is
a Delaware corporation with a principal place of business in Milford. It has operated as a wholly
owned subsidiary of Waters since February of 2004.
From 1987 to 1999, Kelly developed the computer software product lines called
TriRidian, also known as Archive, and VP Office. Kelly designed Archive to meet the needs of
companies obligated to comply with regulations promulgated by the Food and Drug
Administration (FDA) in 1997, that specified the criteria that had to be met for the FDA to accept
electronic records/signatures as the equivalent of paper records/signatures from drug makers and
other FDA-regulated industries. Archive also allows users to collect and store raw data from
laboratory instruments and retrieve the data on demand by FDA inspection teams. VP Office
allows lab users to work directly with data from laboratory instruments using Microsoft Office’s
Word and Excel products.
NuGenesis was founded in 1997. In 1999, NuGenesis was still a start-up company that
had one viable product, UNIFY & VISION (UV), an efficiency tool that performed the same
function as VP Office. NuGenesis executives wanted to present the company to underwriters and
potential investors as a two-product software company. They approached Kelly about
developing and selling Archive and VP Office. NuGenesis represented to Kelly that it was well
qualified and had sufficient financial, personnel, sales, and technical resources. Kelly asserts in
his Complaint that NuGenesis lacked these resources to develop and sell Archive or VP Office.
NuGenesis, known as Mantra Software Corporation in 1999, entered into an Asset
Purchase Agreement (Agreement), dated February 23, 1999, with Kelly. Under the Agreement,
NuGenesis purchased all rights, title, and interest in the Archive and VP Office products. Kelly
was not represented by counsel in any of his negotiations with NuGenesis or in the closing of his
sale of the software to NuGenesis. Until 2004, NuGenesis enjoyed a market essentially free of
competing products to Archive.
The Agreement required NuGenesis to pay Kelly sixty percent of all Archive sales
revenue from certain customers, thirty percent of all Archive revenue from other customers or
resellers, and twenty percent of Archive revenue for maintenance licenses for the Archive
products. The Agreement also contained certain revenue caps on royalty payments for Archive
and VP Office products.
In addition, Article 9.13 of the Agreement contains the following language:
Agreement at 23-24 (emphasis added).
On November 19, 2001, the parties executed an amendment to the Agreement (the “2001
Amendment”). Under Section 5(b) of the 2001 Amendment, “[t]he provisions of Article IX of
the Agreement are incorporated by this reference and made a part hereof.” Thus, the forum
selection clause language contained in Article 9.13 of the Agreement, quoted above, was
incorporated in the amended agreement.
In addition, the 2001 Amendment reduced the percentage of revenue payable to Kelly on
all sales of Archive, VP Office, and maintenance licenses to five percent. Also, the 2001
Amendment capped the aggregate amount payable to Kelly at $ 1 million per year, beginning with
the 2002 calendar year. According to NuGenesis executives, Archive sales were falling well
below the expected amounts, and most of NuGenesis’s sales were of UV, not Archive.
NuGenesis executives implied that NuGenesis would develop an alternative to Archive and pay
Kelly nothing unless he cooperated by reducing his royalties under the 2001 Amendment.
Following the 2001 Amendment, NuGenesis’s royalty payments to Kelly continued at a low
level, indicating that its Archive sales remained relatively low and that it was making no VP
Office sales at all.
In 2003, NuGenesis and Waters announced that Waters planned to acquire NuGenesis.
Soon after this announcement, Kelly began to receive reports from various NuGenesis employees
indicating that NuGenesis might have engaged in malfeasance in the administration of the
Agreement. Kelly sent an e-mail to Waters and others about this possible malfeasance. More
specifically, Kelly inquired about Archive maintenance license sales that NuGenesis never
invoiced to its customers.
On January 28, 2004, Waters announced the closing of its acquisition of NuGenesis.
Thereafter, Kelly sent a letter dated February 17, 2004 to Jonathan Karis, then counsel to
NuGenesis, about the allegations he previously raised in the e-mail discussed above.2 Karis
responded that Waters would honor the Agreement.
From April 2004 through January or February of 2005, Waters failed to report Archive
sales or pay royalties to Kelly. In numerous e-mails and phone calls, Kelly contacted Judy
Jackman in Waters’s accounting department about this failure. Jackman responded that the
reports and payments were merely delayed as a result of the acquisition and that Waters fully
intended to honor the Agreement. In early 2005, Jackman provided Kelly with the late royalty
payments and reports. Waters reported low levels of sales of Archive and maintenance licenses.
Kelly asked Jackman for an explanation, but she did not provide a substantive explanation.
In the following years, until the end of December, 2007, Kelly and Waters were engaged
in a dispute as to whether Waters was properly reporting and paying Kelly royalties under the
Agreement. Waters conducted an internal investigation of the sales practices of NuGenesis and
concluded that: (a) NuGenesis used various tactics to boost revenue numbers for UV relative to
Archive; (b) numerous customers did not use UV and had no interest in purchasing maintenance
licenses for UV; and (c) Waters would need to greatly change its own sales procedures and
2 NuGenesis attached a copy of this letter to its Reply Memorandum. This Court may
properly consider the letter, which is referenced in Kelly’s Complaint, and any other documents
referenced in the Complaint. See Harhen v. Brown, 431 Mass. 838, 839-840 (2000) (recognizing
that on a motion to dismiss, court may consider documents incorporated or referenced in
complaint). See also Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 45 n.4 (2004). At
the hearing on NuGenesis’s motion, the parties did not dispute the authenticity of any of the
documents attached to the pleadings or memoranda.
royalty reporting and payment practices to Kelly in order to comply with the Agreement.
The dispute between Kelly and Waters continued. On October 31, 2008, Kelly and
Waters entered into an agreement tolling the statute of limitations (the “Tolling Agreement”).
The Tolling Agreement applied to “Claims,” defined as “any and all claims and/or causes of
action, if any, known or unknown, of Kelly against the Waters Parties arising from the
Agreement.” The “Tolling Period,” is defined as “the period from and including the Effective
Date of this Agreement until and including the Expiration Date . . . .” The Effective Date of the
Tolling Agreement is October 31, 2008.
Shortly after entering into the Tolling Agreement, Waters provided Kelly with 4,000
pages of sales records from 1999 through 2004 regarding seven of its most significant customers.
Kelly, with the assistance of forensic accountants, examined and analyzed the sample of
customer data.
Through his examination and analysis of the records and after communicating with
NuGenesis system engineers and salesmen, Kelly determined that NuGenesis engaged in
fraudulent sales and accounting tactics, which Kelly details in his Complaint. See Complaint at
paras. 49-76. Kelly asserts, among other things, that NuGenesis fabricated UV sales and gave
away free or unlicensed copies of Archive. NuGenesis fraudulently recorded its customers as
having paid for purchases of UV that the customers did not want or need. NuGenesis also sold
copies of Archive to numerous customers, but falsely designated those as sales of UV. In
addition, NuGenesis inflated UV’s sales to fabricate demand for UV and deprive Kelly of sales
royalties from Archive. Moreover, NuGenesis failed and refused to develop or sell VP Office.
Waters continued these same sales and reporting practices after it acquired NuGenesis, which
deprived Kelly of his share of Archive and VP Office sales revenue.
To survive a motion to dismiss, the plaintiff’s “[f]actual allegations must be enough to
raise a right to relief above the speculative level . . . [based] on the assumption that all the
allegations in the complaint are true (even if doubtful in fact) . . . .” Iannacchino v. Ford Motor
Co., 451 Mass. 623, 636 (2008), citing Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964-1965
(2007). In other words, “[w]hile a complaint attacked by a . . . motion to dismiss does not need
detailed factual allegations . . . a plaintiff’s obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’ requires more than labels and conclusions . . . .” Iannacchino, 451 Mass.
at 636, quoting Bell Atl. Corp., 127 S. Ct. at 1966. Dismissal under Mass. R. Civ. P. 12(b)(6) is
proper where a reading of the complaint establishes beyond doubt that the facts alleged do not
support a cause of action which the law recognizes, such that the plaintiff’s claim is legally
insufficient. Nguyen v. William Joiner Center for the Study of War and Social Consequences,
450 Mass. 291, 295 (2007).
NuGenesis asserts two grounds for dismissal of the Complaint. With respect to the fraud
and c. 93A claims, NuGenesis contends that the claims are barred by the applicable statutes of
limitation. With respect to the breach of contract and audit claims, NuGenesis points to the
parties’ forum selection provision in the Agreement and argues that the claims should be
dismissed without prejudice in favor of being recommenced in federal court.
I. Statute of Limitations
NuGenesis moves to dismiss the fraud claim in Count I on the basis of the applicable
statute of limitations. The Complaint, however, alleges fraud in two different time periods. Kelly
alleges in Count I that NuGenesis fraudulently induced him to sell Archive and VP Office to
NuGenesis in 1999, and then fraudulently induced him to amend the Agreement in 2001.3 In
addition, Kelly alleges that the fraud continued post-Agreement. NuGenesis allegedly continued
to misrepresent the true amount of revenues from the sales of Archive licenses and maintenance
agreements and fraudulently provided him with false and misleading sales and royalty reports.
These two periods of alleged fraud must be analyzed separately.
A. Count I (Fraud in the Inducement)
A claim of fraudulent inducement requires a plaintiff to provide evidence of
“misrepresentation of a material fact, made to induce action, and reasonable reliance on the false
statement to the detriment of the person relying.” Okoli v. Okoli, 81 Mass. App. Ct. 381, 391
(2012), quoting Hogan v. Riemer, 35 Mass. App. Ct. 360, 365 (1993). See Commerce Bank &
Trust Co. v. Hayeck, 46 Mass. App. Ct. 687, 692 (1999) (noting that to establish fraudulent
inducement, plaintiff is required to establish elements of common law deceit).
In Massachusetts, fraud claims “shall be commenced only within three years next after
the cause of action accrues.” G.L. c. 260, § 2A. In general, a cause of action accrues on the date
a person suffers a loss or injury. A “discovery rule”, however, operates to toll a limitations period
until a prospective plaintiff learns or should have learned that he has been injured, and “may arise
3 Paragraph seventy-eight of the Complaint states that: “As set forth above, NuGenesis
fraudulently induced Kelly to sell both Archive and VP Office to NuGenesis by knowingly and
intentionally misrepresenting material facts respecting its willingness and ability to develop and
market the software and maintenance agreements, and respecting its intentions fairly and
properly to allocate revenues from the sales of software licenses and maintenance agreements and
to compensate Kelly in accordance with the terms of the Agreement.” Kelly further claims that,
“NuGenesis, through its CEO, fraudulently misrepresented the sales revenues for Archive
licenses and maintenance agreements in order to induce Kelly to amend the Agreement.”
Complaint at para. 80.
in three circumstances: where a misrepresentation concerns a fact that was ‘inherently
unknowable’ to the injured party, where a wrongdoer breached some duty of disclosure, or where
a wrongdoer concealed the existence of a cause of action through some affirmative act done with
the intent to deceive.” Patsos v. First Albany Corp., 433 Mass. 323, 328 (2001), citing
Protective Life Ins. Co. v. Sullivan, 425 Mass. 615, 631-632 (1997). See Albrecht v. Clifford,
436 Mass. 706, 714-716 (2002) (discussing “inherent unknowability” and application of statute
of limitations to fraud claim on a motion for summary judgment). See also Creative Playthings
Franchising, Corp. v. Reiser, 463 Mass. 758, 764 (2012) (discussing discovery rule and inherent
unknowability). “Inherent unknowability is not a fact, but rather a conclusion to be drawn from
the facts.” Melrose Hous. Auth. v. New Hampshire Ins. Co., 402 Mass. 27, 31-32 n.4 (1988).
Under the discovery rule, the limitation period accrues when the plaintiff has “sufficient notice of
two related facts: (1) that [he] was harmed; and (2) that [the] harm was caused by the defendant’s
conduct.” Harrington v. Costello, 467 Mass.720, 725 (2014). A plaintiff may be put on “inquiry
notice” where he is informed of facts that would suggest to a reasonably prudent person in the
same position that an injury has been suffered as a result of the defendant’s conduct. Szymanski v.
Boston Mutual Life Ins. Co., 56 Mass. App. Ct. 367, 371 (2002). Inquiry notice triggers the
obligation of a reasonable person to investigate the possible claim and assert a cause of action
within the period provided by the statute of limitations. This is especially true when the facts of
the potential claim are not inherently unknowable. Id.
Kelly’s fraud in the inducement claim is time barred. Kelly sent a lengthy letter dated
February 17, 2004 to Jonathan Karis, then counsel to NuGenesis, detailing information he
obtained about NuGenesis and its management that was “deeply troubling” to him. See
Complaint at para. 30. See also NuGenesis’s Reply Brief at Exhibit 1. Kelly states that “a great
deal of new information has come to my attention–from a wide variety of sources–over the past
four to five weeks.” The information included that the company had employed a large number of
techniques to reduce the amounts to be paid to Kelly under the Agreement. Moreover, Kelly
alleged that NuGenesis was aware that pharma-centered companies wanted “little to do with the
NuGenesis sales organization” and that this was “hidden from me during my due diligence.” The
letter included a calculation of damages that Kelly alleged he had suffered as a result of conduct
by NuGenesis. The letter invited NuGenesis to enter into negotiations to resolve Kelly’s claims
as to “all issues past, present, and future.” Otherwise, Kelly threatened litigation.
The February 17, 2004 letter unquestionably shows that Kelly was on inquiry notice of a
fraud by NuGenesis. Kelly knew that he was harmed and knew that NuGenesis’s conduct caused
this harm. By that date, Kelly knew that the harm stemmed from the Agreement and the 2001
Amendment. Consequently, Kelly was required to file his claim for fraudulent inducement
against NuGenesis within three years of February 17, 2004, or by February 17, 2007. Because no
claim was filed, Kelly’s claim for fraudulent inducement is barred.
B. Count I (Continuing Fraud)
Kelly alleges that NuGenesis concealed the true amount of revenues from the sales of
Archive licenses and maintenance agreements and fraudulently provided him with false and
misleading sales and royalty reports. Complaint at para. 79. Thus, Kelly contends that
NuGenesis engaged in a continuing fraud.
Kelly and NuGenesis entered into a Tolling Agreement on October 31, 2008. Under the
Tolling Agreement, the “Tolling Period,” is defined as “the period from and including the
Effective Date of this Agreement until and including the Expiration Date . . . .” The Effective
Date of the Tolling Agreement is October 31, 2008. The Tolling Agreement applied to “Claims,”
defined as “any and all claims and/or causes of action, if any, known or unknown, of Kelly
against the Waters Parties arising from the Agreement.” This language is broad enough to
include a fraud claim arising from the parties conduct under the Agreement. As a result, Kelly’s
claim for the continuing fraud by NuGenesis for the three years before the Tolling Agreement
(and thereafter) appear to be saved from the running of the statute of limitations by the Tolling
Agreement. In any event, such claims of continuing fraud are not subject to dismissal by this
court at this time.
C. Count III (Violation of Chapter 93A)
Chapter 93A claims are subject to a four-year statute of limitations. G.L. c. 260, § 5A.
NuGenesis argues that: Kelly’s c. 93A claim is time barred; the Tolling Agreement does not
apply to the c. 93A claim because it does not arise from the Agreement; and that the intraenterprise
dispute doctrine bars the claim as a matter of law to the extent that it relates to conduct
after the parties entered into the Agreement. See Selmark Assocs., Inc. v. Ehrlich, 467 Mass.
525, 549-551 (2014) (explaining that Chapter 93A does not cover internal employment or intraenterprise
disputes). See also Szalla v. Locke, 421 Mass. 448, 451 (1995) (“It is well established
that disputes between parties in the same venture do not fall within the scope of G.L. c. 93A, §
To the extent that Kelly’s c. 93A claim is based on his allegations of fraud in the
inducement of Kelly to enter into the Agreement and the 2001 Amendment, the claim is barred
by the applicable statute of limitations. As described, the statute of limitations clock began to run
on the fraud in the inducement claim by no later than February 17, 2004. Thus, the c. 93A claim
based on alleged fraud in the inducement was required to be filed by February 17, 2008. The
Tolling Agreement, effective October 31, 2008, does not save the c.93A claim based on fraud in
the inducement.
Also as described above, Kelly alleges that NuGenesis engaged in unfair or deceptive acts
or practices in violation of c. 93A on a continuing basis. To the extent that such claims for
continuing violations occurred four years before the Tolling Agreement (and thereafter), the
Tolling Agreement appears to save the claims for continuing violations from the running of the
statute of limitations. The c. 93A claims come within the broad scope of the Tolling Agreement.
Finally, NuGenesis asks that the c. 93A claims be dismissed because the dispute comes
within the intra-enterprise dispute doctrine. Whether the doctrine applies is particularly fact
dependent. Because, as described in the next section, Kelly’s claims must be dismissed pursuant
to the parties’ forum selection agreement, it is more appropriate for the federal court to resolve
the applicability of the intra-enterprise dispute doctrine to the c. 93A claims based on the alleged
continuing unfair and deceitful acts.
II. Forum Selection
Having dismissed Kelly’s claims of fraud and c. 93A violations based on pre-Agreement
conduct by NuGenesis, the next issue is whether all claims based on post-Agreement conduct
must be resolved in federal court because of the forum selection provision in the Agreement.4
NuGenesis argues that the U.S. District Court for the District of Massachusetts has exclusive
4 Had Kelly’s fraud in the inducement claim, and the related c. 93A claim, survived the
statute of limitations bar, such claims would arguably not be subject to the forum selection
provision in the Agreement.
jurisdiction over the claims. Article 9.13 of the Agreement states, in part:
NuGenesis contends that any action or proceeding brought to enforce the rights or obligations of
any party under the Agreement is required to be file in federal court in Massachusetts.
Kelly, however, argues that the forum selection clause is internally inconsistent. The
forum selection clause states that an action to enforce rights under the Agreement “may be
commenced and maintained in any court of competent jurisdiction located in Massachusetts.”
Kelly contends that the second part of the forum selection clause regarding the exclusive
jurisdiction of the U.S. District Court for the District of Massachusetts contradicts, or nullifies,
the first part of the clause. Kelly argues that the forum selection clause is ambiguous and should
not be enforced by this Court. He also argues, for various reasons, that it would be unreasonable
to enforce the forum selection clause under the circumstances of this case.
“Massachusetts courts enforce forum selection clauses so long as they are fair and
reasonable.” Melia v. Zenhire, Inc., 462 Mass. 164, 182 (2012). See Jacobson v. Mailboxes Etc.
USA, Inc., 419 Mass. 572, 574-575 (1995). A party opposing a forum selection clause bears the
substantial burden of showing that enforcement of a forum selection clause would be unfair and
unreasonable. Melia v. Zenhire, Inc., 462 Mass. at 182; Cambridge Biotech Corp. v. Pasteur
Sanofi Diagnostics, 433 Mass. 122, 133 (2000).
“A threshold question in interpreting a forum selection clause is whether the clause at
issue is permissive or mandatory.” Boland v. George S. May International Co., 81 Mass. App.
Ct. 817, 824 (2012) (citation omitted). “Permissive forum selection clauses, often described as
‘consent to jurisdiction’ clauses, authorize jurisdiction and venue in a designated forum, but do
not prohibit litigation elsewhere . . . . In contrast, mandatory forum selection clauses contain clear
language indicating that jurisdiction and venue are appropriate exclusively in the designated
forum.” Id. (citation and internal quotation marks omitted). “[W]hen the parties expressly state
in their contract that a court or the courts of one or more specific jurisdictions (State or Federal,
domestic or international) shall have exclusive jurisdiction over any disputes arising out of the
contract . . . courts will enforce such choices.” Id. at 826.
Here, Article 9.13 of the Agreement arguably contains both a permissive and mandatory
forum selection clause. That said, the mandatory, and more specific, forum selection clause
controls. Cf. Morey v. Martha’s Vineyard Comm’n, 409 Mass. 813, 819 (1991) (noting that
general language must yield to more precise language); Hennessey v. Berger, 403 Mass. 648, 651
(1988) (explaining that where “a general statute and a specific statute cannot be reconciled, the
general statute must yield to the specific statute”) (citation omitted); Boston Housing Auth. v.
Labor Relations Comm’n, 398 Mass. 715, 718 (1986) (observing that “in the case of conflicting
statutes, normally the more specific statute will prevail over the more general statute”). As
quoted above, the second portion of the forum selection clause in Article 9.13 states, “THE
PROCEEDING BROUGHT BY ANY OF THE PARTIES . . . .” Agreement at Article 9.13
(emphasis added). Under the plain and more specific language of the forum selection clause that
Kelly and NuGenesis agreed to, the U.S. District Court for the District of Massachusetts has
exclusive jurisdiction over the claims “BROUGHT TO ENFORCE THE RIGHTS OR
claims based on conduct by NuGenesis after entering into the Agreement, whether alleged as
contract, tort or c. 93A claims, are “brought to enforce the rights or obligations of [the parties] under” the Agreement.
The next issue is whether it would be fair and reasonable to enforce the forum selection
clause in the Agreement. Kelly argues that it would be unreasonable to dismiss this case and
require him to refile his claims in federal court because the claims might be time barred as a
result of the termination of the Tolling Agreement. Kelly also contends that “there is absolutely
no legitimate reason” to enforce the forum selection clause; he notes that the case involves
exclusively state law questions and that the forum Kelly selected in filing this action is one mile
from the federal court.
NuGenesis concedes that “[t]he Massachusetts savings statute ensures that Kelly will
suffer no prejudice from dismissal of his contract claims on procedural grounds.” NuGenesis’s
Reply Brief at 5. See G.L. c. 260, § 32 (“If an action duly commenced within the time limited in
this chapter . . . is dismissed . . . for any matter of form, . . . the plaintiff or any person claiming
under him may commence a new action for the same cause within one year after the dismissal or
other determination of the original action . . . .”). Moreover, there is simply nothing unfair about
requiring Kelly to proceed in the court which he specifically agreed to in the Agreement.
Accordingly, the forum selection provision in the Agreement shall be enforced and this action
shall be dismissed, without prejudice to Kelly re-asserting in federal court his claims based on
conduct by NuGenesis after the Agreement was entered into.
Kelly’s claims in Count I and Count III based on alleged fraud in the inducement of Kelly
to enter into the Agreement and the 2001 Amendment are dismissed with prejudice because they
are barred by the applicable statute of limitations. All remaining claims are dismissed without
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
September 26, 2017
-17- read more


Posted by Stephen Sandberg - October 4, 2017 at 7:04 pm

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Rush v. FastCAP Systems Corporation, et al. (Lawyers Weekly No. 09-006-17)

NO. 2017-02842-BLS2
This action alleges violations of the Massachusetts Wage Act, G.L.c. 149 §148B. Specifically, the plaintiff Jack Rush alleges that the defendant FastCAP Systems Corporation (FastCAP) misclassified and compensated him as an independent contractor when he should have been classified and paid as an employee within the meaning of G.L.c. 149 §148. It then terminated him when he complained about his compensation. Certain individuals are also named as defendants on the grounds that, because they exercised managerial control over FastCAP, they are personally liable for these violations. Cook v. Patient Ed LLC, 465 Mass. 548, 552-553 (2013). The case is now before the Court on the plaintiff’s motion to attach the bank accounts of FastCAP in the amount of $ 594,593, and to attach real property owned by the individual defendants. After hearing and careful review of the parties’ submissions, this Court concludes that, taking into account the likelihood of success on the merits, the balance of equities supports the denial of these motions, for the following reasons.
Whether seeking an attachment of real property or an attachment of funds by way of
trustee process, plaintiff must establish a reasonable likelihood that he will recover judgment against the defendant in an amount at least equal to the amount sought to be attached; he must further demonstrate that there is no liability insurance available that could satisfy any possible judgment. See Rules 4.1 and 4.2, Mass.R.Civ.P. Although there is no explicit requirement that the Court balance the relative harms to the parties, the Rules are based on the idea that there must be a need for the relief requested; moreover, because it is equitable nature, the Court can and should take into account the relative equities in denying or allowing the requested relief. In the instant case, FastCAP makes out a compelling case that a trustee process attachment would have a serious impact on its business. The Company is in the business of developing cutting edge power systems and has ongoing contracts with NASA and U.S. Department of Energy, with sales to top oilfield service companies. See Affidavit of Matthew Fenselau. With seventeen full time employees and the financial backing of a Boston investment firm, FastCAP is optimistic about its future. An attachment of its bank accounts, however, could cause FastCAP’s financial backing to be withdrawn and could trigger claims by other individuals and entities. If on the other hand, no attachment issues, the harm to plaintiff is that any judgment he obtains would be uncollectible, but that danger is neither imminent nor is it certain. Indeed, FastCAP has known about Rush’s claim and his threat to bring suit since April of this year, and yet has taken no action to dissipate or conceal its assets.
Given the harm that could befall the defendants from an attachment that was improvidently granted, this Court is inclined to require plaintiff to make a very strong showing on the merits. The problem is that that the allegations themselves are very fact driven, and the Court at this very early juncture in the case has very limited information before it. Moreover, that information that is before me suggests that liability is not clear cut.
In attempting to demonstrate a likelihood of success, the plaintiff relies on the Verified Complaint. Those allegations state that the plaintiff was a full time employee of FastCAP from January 2014 through October 2016 but was wrongfully classified and paid as an independent contractor. The defendants have submitted documents, however, showing that during most of that time, Rush was an employee of a consulting firm Momentum which in turn entered into a contract with FastCAP entitled “Independent Contractor Agreement.” Under that contract, FastCAP paid what is described as “commissions” to Momentum in return for the services of certain Momentum employees whose work Momentum directed and controlled and who Momentum (not FastCAP) paid. Although plaintiff may have been the only Momentum employee to actually provide services to FastCAP, it is not clear whether he did work for other Momentum clients at the same time. This Court also has no evidence before it as to why Rush worked through Momentum and not directly with FastCAP. These are all facts which may be relevant to plaintiff’s misclassification claim.
This Court understands that in a misclassification case, there is a presumption that an individual is an employee unless the business receiving the benefit of his services can satisfy three tests as set forth in G.L.c. 149 §148B. It is also cognizant of case law which makes it clear that individuals who provide services through a corporate entity may still be considered employees of the entity receiving those services; otherwise, it would be far too easy for an employer to misclassify its employees by setting up a separate corporate structure simply to avoid the employer’s statutory obligations. Chambers v. RDI Logistics, Inc. 476 Mass. 95, 109-110 (2016). Ultimately, however, there is no bright line rule defining who is an employee and who is an independent contractor: the inquiry turns on the particular facts. As those facts develop in the course of discovery, plaintiff may very well have a basis to renew his request for
security against a judgment, particularly since any victory on his part will also require the trebling of damages and attorney’s fees. At this point, however, his request is premature, particularly when this Court considers the harm that would be inflicted on FastCAP if its bank accounts were attached.
Accordingly, for all the foregoing reasons and for other reasons articulated in defendants’ Memoranda in Opposition, Plaintiff’s Motion for Attachment by Trustee Process is DENIED. Because the liability of the individual defendants depends on FastCAP itself being held liable, this Court also DENIES the plaintiff’s Motion for Real Estate Attachments.
Janet L. Sanders
Justice of the Superior Court
Dated: September 19, 2017 read more


Posted by Stephen Sandberg - October 4, 2017 at 4:45 am

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Massachusetts Bay Transportation Authority v. Boston and Maine Corporation, et al. (Lawyers Weekly No. 12-124-17)

No. 17-00153-BLS1
Plaintiff, Massachusetts Bay Transportation Authority (MBTA), filed this action for
declaratory and injunctive relief against defendants, Boston and Maine Corporation, Springfield
Terminal Railway Company, and Pan Am Southern LLC (referred to collectively as “Pan Am”).
The dispute involves the implementation of positive train control (PTC), a safety system aimed at
preventing train accidents. Pan Am alleged eleven counterclaims against the MBTA. MBTA
now moves to dismiss three of the counterclaims pursuant to Mass. R. Civ. P. 12(b)(6). The
three counterclaims allege misrepresentation (Count VIII), promissory/equitable estoppel (Count
IX), and violation of G.L. c. 93A, § 11 (Count X). For the reasons stated below, the MBTA’s
motion to dismiss is allowed.
The facts as revealed by Pan Am’s counterclaims are as follows.
The MBTA is a body politic and corporate and a political subdivision of the
1 Springfield Terminal Railway Company and Pan Am Southern LLC.
Commonwealth of Massachusetts. It operates bus, subway, commuter rail, and ferry systems in
and around Boston, Massachusetts. The Pan Am defendants operate freight lines over tracks
that, in some instances, are owned and/or used by the MBTA.
Since 2010, Pan Am worked closely and cooperatively with the MBTA to plan and
prepare for the implementation of PTC on tracks over which both parties operate. The parties
worked to comply with a 2008 federal mandate requiring that PTC be implemented on certain
rail lines, including lines that carry certain minimum levels of passenger traffic. PTC is designed
to prevent train-to-train collisions, derailments resulting from excessive speed, and other types of
accidents. Generally, PTC uses a combination of on-board and rail-side technology to track and
control train movements on the rail lines outfitted with this technology. In this dispute, the rail
lines affected include both MBTA-owned trackage, over which Pan Am operates freight trains
pursuant to a reserved freight easement, and Pan Am-owned trackage, over which the MBTA
initiated and expanded commuter rail operations at the end of 2016.
According to Pan Am, under federal law, PTC must be implemented on the rail lines at
issue because the MBTA operates passenger trains on them. Absent the MBTA’s use of these
rail lines, no PTC system is required. In addition, freight trains may not operate on tracks
handling passenger traffic that are required to have PTC unless those freight trains are equipped
with a PTC system that is compatible with the commuter rail’s PTC system.
After the federal government imposed the 2008 PTC requirements, Pan Am alleges that
the MBTA agreed that the MBTA would implement a dual-type PTC system on the jointly used
tracks. The MBTA wanted to use Advanced Civil Speed Enforcement System (ACSES) PTC, a
type of PTC that Amtrak uses on some MBTA tracks, but is generally not used for freight
operations. Throughout the country, freight rail operators almost exclusively use Interoperable
Electronic Train Management System (I-ETMS) PTC, a different type of PTC that is allegedly
more sophisticated and dynamic. Interstate freight trains exclusively equipped with I-ETMS
PTC are not able to pass over jointly used trackage if the MBTA only implements ACSES PTC.
Thus, it is alleged that the MBTA acknowledged that it needed to outfit the jointly used trackage
with I-ETMS PTC so that the MBTA’s own operations would not unduly interfere with Pan
Am’s operations.
In a 2010 filing with the Federal Railroad Administration, the MBTA described its plans
to implement a dual ACSES and I-ETMS PTC system. In 2010, Pan Am and the MBTA
discussed and agreed that the MBTA would implement a dual-type PTC system at the MBTA’s
expense. According to Pan Am, the MBTA was obligated to implement a dual-type PTC system
under a 1976 Deed and a 2011 Trackage Rights Agreement, which mandate that the MBTA is
responsible for ensuring, at the MBTA’s expense, that the MBTA’s services or operations do not
interfere with or impede Pan Am’s operations.
In reliance on the MBTA’s plans to implement a dual system, Pan Am waived a Capacity
Study as an accommodation to the MBTA. The study would have cost hundreds of thousands of
dollars and taken months to complete. A Capacity Study, however, would have demonstrated the
need for a dual PTC system to accommodate the MBTA’s commuter rail services without
unreasonably interfering with Pan Am’s freight services.
In July of 2014, the MBTA and Pan Am entered into an “Agreement for Pan Am
Southern to Support the MBTA Wachusett Extension Project.” This agreement detailed certain
construction necessary for the initiation of new commuter rail service on the Fitchburg commuter
rail line called the Wachusett extension. The agreement referenced the parties’ intention to
memorialize the final details of an agreed upon PTC system in a 2014 PTC agreement. Shortly
thereafter, the parties memorialized the final details of the PTC system in a 2014 PTC Agreement
in which the MBTA committed to install both an ACSES and I-ETMS PTC system on shared
trackage, as necessary, to allow both passenger and freight trains to operate without undue
interference. The MBTA’s General Manager, Beverly A. Scott, and the MBTA’s General
Counsel, Paige Scott Reed, signed the 2014 PTC Agreement. Both individuals expressly
represented to Pan Am that approval by the MBTA’s Board was not required. The 2014 PTC
Agreement provided for, among other things, “the installation of an ACSES PTC wayside system
on all portions of the jointly used rail lines, installation of an I-ETMS PTC wayside system on
certain specified sections of the jointly used rail lines, and the equipping of a specified number of
. . . [Pan Am’s] locomotives with ACSES compatible on-board systems and a specified number
of . . . [Pan Am’s] locomotives with I-ETMS compatible on-board systems.” Counterclaims at
After signing the 2014 PTC Agreement and until late 2016, the MBTA and Pan Am
worked cooperatively towards implementing the terms of the agreement. After the MBTA
completed construction work on the Wachusett extension, on September 30, 2016, Pan Am
permitted the MBTA to initiate limited commuter rail service on the new line (two round trips
per day). The MBTA planned to offer full commuter rail service shortly thereafter.
On October 26, 2016, however, once the MBTA initiated limited service and publicly
announced its planned expansion of the Wachusett extension, the MBTA “made an abrupt and
stunning reversal.” Counterclaims at 22, 39. Despite the 2014 PTC Agreement and public
representations, the MBTA announced to Pan Am that it was disavowing the 2014 PTC
Agreement. The MBTA refused to install the I-ETMS PTC system on shared trackage. The
MBTA sought to install only the ACSES PTC system, which means, according to Pan Am, that it
will be unable to use the shared trackage without substantial and prohibitive interference, delays,
and costs.
Pan Am asserts contract claims against the MBTA seeking to require the MBTA to install
both the I-ETMS and ACSES PTC systems on the shared trackage. Under the 2014 PTC
Agreement, the MBTA’s obligations are express and specific. Pan Am also asserts that the
MBTA’s obligation to implement the I-ETMS system exists independently from the 2014 PTC
Agreement. More specifically, Pan Am points to a 1976 Deed and a 2011 Trackage Rights
Agreement, which Pan Am explains in detail in its counterclaims. See Counterclaims at 23-38.
On November 21, 2016, over Pan Am’s objections, the MBTA expanded commuter rail
service on the Wachusett extension to include twenty-six daily round trip passenger trains. The
MBTA continues to refuse to install a dual PTC system on the shared tracks at issue, but
allegedly retains benefits of providing commuter rail service on the Wachusett extension.
The MBTA asserts that it is not bound by the 2014 PTC Agreement because its Board is
entitled, as a matter of law, to disavow the 2014 PTC Agreement. After the MBTA filed this
action for declaratory and injunctive relief seeking a declaration that the contracts do not bind the
MBTA to install dual systems, Pan Am filed eleven counterclaims against the MBTA. Pan Am
asserts contract claims arguing that the MBTA is bound by the 1976 Deed, the 2011 Trackage
Rights Agreement, and the 2014 PTC Agreement to perform. As an alternative, if the
agreements are unenforceable, Pan Am asserts that the MBTA is liable to perform pursuant to its
counterclaims alleging misrepresentation (Count VIII), promissory/equitable estoppel (Count
IX), and violation of G.L. c. 93A, § 11 (Count X). Those counterclaims are the subject of the
MBTA’s motion.
To survive a motion to dismiss, the counterclaimant’s “[f]actual allegations must be
enough to raise a right to relief above the speculative level . . . [based] on the assumption that all
the allegations in the . . . [counterclaims] are true (even if doubtful in fact) . . . .” Iannacchino v.
Ford Motor Co., 451 Mass. 623, 636 (2008), citing Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955,
1964-1965 (2007). In other words, “[w]hile a complaint [alleging counterclaims] attacked by a
. . . motion to dismiss does not need detailed factual allegations . . . a plaintiff’s obligation to
provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions
. . . .” Iannacchino, 451 Mass. at 636, quoting Bell Atl. Corp., 127 S. Ct. at 1966. Dismissal
under Mass. R. Civ. P. 12(b)(6) is proper where a reading of the counterclaims establishes
beyond doubt that the facts alleged do not support a cause of action which the law recognizes,
such that the counterclaims are legally insufficient. See Nguyen v. William Joiner Center for the
Study of War and Social Consequences, 450 Mass. 291, 295 (2007).
Estoppel (Count IX)
In Count IX, Pan Am claims that it reasonably relied, to its detriment, on the MBTA’s
repeated representations and promises that it would pay for and install a dual PTC system. The
MBTA, however, argues that the estoppel claim must be dismissed because estoppel cannot
apply to a claim against the government. As a governmental body, the MBTA asserts that its
agents, even its General Manager and General Counsel, cannot bind the MBTA, absent Board
approval. Pan Am argues that the MBTA is mischaracterizing its estoppel counterclaim and
explains that the counterclaim “is premised on its detrimental and good faith reliance on
MBTA’s representations that MBTA would implement I-ETMS on the jointly used tracks when
Pan Am agreed to the Wachusett Infrastructure Agreement, when it agreed not to insist upon
MBTA’s completion of a capacity study, and when it agreed to permit MBTA to commence
commuter rail service on the Wachusett Extension without having conducted a capacity study.”
Defendants’ Opposition at 10.
“Circumstances that may give rise to an estoppel are (1) a representation intended to
induce reliance on the part of a person to whom the representation is made; (2) an act or omission
by that person in reasonable reliance on the representation; and (3) detriment as a consequence of
the act or omission.” Bongaards v. Millen, 440 Mass. 10, 15 (2003). All three elements of
estoppel must be present, and the party asserting estoppel has a heavy burden to prove all three
elements. Sullivan v. Chief Justice for Admin. & Mgt. of the Trial Court, 448 Mass. 15, 28
(2006). “[T]he reliance of the party seeking the benefit of estoppel must have been reasonable.”
Turnpike Motors, Inc. v. Newbury Group, Inc., 413 Mass. 119, 125 (1992). “But the doctrine of
estoppel is not applied except when to refuse it would be inequitable.” Cleaveland v. Malden
Sav. Bank, 291 Mass. 295, 297 (1935), quoting Boston & Albany R.R. v. Reardon, 226 Mass.
286, 291 (1917) (“In order to work an estoppel it must appear that one has been induced by the
conduct of another to do something different from what otherwise would have been done and
which has resulted to his harm and that the other knew or had reasonable cause to know that such
consequence might follow”).
Massachusetts courts, however, “have been ‘reluctant to apply principles of estoppel to
public entities where to do so would negate requirements of law intended to protect the public
interest.’” Sullivan v. Chief Justice for Admin. & Mgt. of the Trial Court, 448 Mass. at 30,
quoting Phipps Prods. Corp. v. Massachusetts Bay Transp. Auth., 387 Mass. 687, 693 (1982).
“[T]he rule against applying estoppel to the sovereign continues almost intact where a
government official acts, or makes representations, contrary to a statute or regulation designed to
. . . ensure some . . . legislative purpose.” McAndrew v. School Comm. of Cambridge, 20 Mass.
App. Ct. 356, 361 (1985). The public’s interest in seeing that a governmental agency of the
Commonwealth adheres to legislative policies “overrides any equitable considerations.” Phipps
Prods. Corp. v. Massachusetts Bay Transp. Auth., 387 Mass. at 693. “A common thread
underlying . . . [the] reluctance . . . [of courts] to apply principles of estoppel to public entities
has been the idea that deference to legislative policy should trump individual acts or statements
of a government official that may be contrary to such policy. Otherwise, protections afforded the
public interest are thwarted.” Sullivan v. Chief Justice for Admin. & Mgt. of the Trial Court, 448
Mass. at 30-31.
In Massachusetts, public officials cannot make binding contracts without express
authority. Dagastino v. Commissioner of Correction, 52 Mass. App. Ct. 456, 458 (2001).
Authority to bind their governmental employer exists only to the extent conferred by the
controlling statute. Id. Entities that deal with a government agency, such as Pan Am, must
therefore “take notice of limitations upon that agency’s contracting power and cannot recover
upon a contract which oversteps those limitations.” Id. Under G.L. c. 161A, §§ 3(f) & 3(k), the
Legislature gave the MBTA’s Board, and not its managers, the authority to enter into contracts
and to provide for the construction and modification of mass transportation resources. The
counterclaim does not allege that the MBTA’s Board approved the 2014 PTC Agreement.
Pan Am’s claim of equitable estoppel fails on the element requiring reasonable reliance.
As a matter of law, Pan Am could not have reasonably relied on representations by the MBTA’s
employees as to their authority to enter into a contract binding the MBTA. Harrington v. Fall
River Hous. Authy., 27 Mass. App. Ct. 301, 309 (1989) (holding that “as matter of law” reliance
on representations of government employees is unreasonable). The Appeals Court in Harrington
quoted the following passage from the U.S. Supreme Court in Heckler v. Community Health
Servs., Inc., 467 U.S. 51, 63-64 (1984): “[T]hose who deal with the Government are expected to
know the law and may not rely on the conduct of government agents contrary to law . . . .”
Harrington v. Fall River Hous. Authy., 27 Mass. App. Ct. at 309. “In Massachusetts, also, one
relies at his peril on representations by a government official concerning legal requirements.” Id.
Consequently, Pan Am cannot rely on the doctrine of estoppel to force the MBTA to comply with
the PTC commitments or to recover damages from the MBTA. See Phipps Prods. Corp. v.
Massachusetts Bay Transp. Auth., 387 Mass. at 693-694 (refusing to apply estoppel to MBTA in
connection with the sale of a building). See also United States Leasing Corp. v. Chicopee, 402
Mass. 228, 229-232 & n.4 (1988) (refusing to apply estoppel, concluding that under city charter,
contract required mayoral approval; thus, contract executed and approved by school
superintendent and city solicitor could be disavowed). Accordingly, Pan Am’s estoppel
counterclaim in Count IX must be dismissed.
Misrepresentation (Count VIII)
The MBTA also moves to dismiss Pan Am’s misrepresentation counterclaim in Count
VIII.2 Pan Am asserts that the MBTA, through its General Manager and General Counsel,
negligently misrepresented their authority to bind the MBTA to an agreement to install a dualtype
PTC on jointly used track. Pan Am contends that the MBTA knew that Pan Am would rely
on the representations of the General Manager and General Counsel. Therefore, Pan Am
contends that it justifiably relied to its detriment on the MBTA’s negligent misrepresentations.3
“In order to recover for negligent misrepresentation a plaintiff must prove that the
defendant (1) in the course of his business, (2) supplied false information for the guidance of
others (3) in their business transactions, (4) causing and resulting in pecuniary loss to those
others (5) by their justifiable reliance on the information, and that he (6) failed to exercise
reasonable care or competence in obtaining or communicating the information.” Gossels v. Fleet
Nat’l Bank, 453 Mass. 366, 371-372 (2009).
As can be seen, Pan Am faces, again, the question of whether, as a matter of law, it could
justifiably and reasonably rely on representations of employees of a governmental body as to
their authority to enter into a contract binding the MBTA. As described previously,
Massachusetts law holds that such reasonable or justifiable reliance cannot be established, as a
matter of law, when a party is contracting with a governmental body.
The MBTA also argues that Pan Am cannot repackage its contract claim as a tort claim
2 Pan Am is not proceeding on a claim for intentional misrepresentation in Count VIII.
Instead, it seeks to assert a claim for negligent misrepresentation.
3 The MBTA also argues that Pan Am’s negligent misrepresentation claim should be
dismissed for lack of presentment under the Massachusetts Tort Claims Act, G.L. c. 258. Under
G.L. c. 258, § 4, however, the Massachusetts Tort Claims Act’s presentment requirements do not
apply to counterclaims. See G.L. c. 258, § 4 (“The provisions of this section shall not apply to
such claims as may be asserted by third-party complaint, cross claim, or counter-claim . . . ”).
based on negligent misrepresentation. “[F]ailure to perform a contractual duty does not give rise
to a tort claim for negligent misrepresentation . . . Plaintiffs who are unable to prevail on their
contract claims may not repackage the same claims under tort law.” Cumis Ins. Soc’y, Inc. v.
BJ’s Wholesale Club, Inc., 455 Mass. 458, 474 (2009). “[F]ailure to perform a contractual
obligation is not a tort in the absence of a duty to act apart from the promise made.” Anderson v.
Fox Hill Village Homeowners Corp., 424 Mass. 365, 368 (1997). Pan Am either has an
enforceable contract or it does not. If it does not, Pan Am cannot obtain enforcement of the
contract by asserting that the MBTA’s employees were negligent. Consequently, Pan Am’s
negligent misrepresentation counterclaim in Count VIII is dismissed.
Chapter 93A (Count X)
Finally, the MBTA moves to dismiss Pan Am’s Chapter 93A counterclaim in Count X.
In Count X, Pan Am claims that the MBTA violated G.L. c. 93A, § 11 because it was acting in
the course of trade or commerce when its employees misrepresented their authority with respect
to the implementation of PTC. Pan Am asserts that the MBTA’s conduct, as alleged in their
counterclaims, was unfair and deceptive. The MBTA argues that Count X should be dismissed
because: (1) the MBTA is not a suable “person” under Chapter 93A and (2) the conduct at issue
did not involve the MBTA engaging in trade or commerce. Pan Am argues, among other things,
that whether the MBTA was engaged in trade or commerce under Chapter 93A is a factual
inquiry that should not be decided on a motion to dismiss. Because it is clear, as a matter of law,
that the MBTA’s conduct was not in the context of trade or commerce, the motion to dismiss
must be granted.
Under Chapter 93A, “[u]nfair methods of competition and unfair or deceptive acts or
practices in the conduct of any trade or commerce are hereby declared unlawful.” G.L. c. 93A, §
2(a). See G.L. c. 93A, § 1(b) (defining “trade” and “commerce” as, “the advertising, the offering
for sale, . . . the sale, rent, lease or distribution of any services and any property, tangible or
intangible, real, personal or mixed . . . and any other article, commodity, or thing of value
wherever situate, and shall include any trade or commerce directly or indirectly affecting the
people of this commonwealth”). Under G.L. c. 93A, § 11, “[a]ny person who engages in the
conduct of any trade or commerce and who suffers any loss of money or property, real or
personal, as a result of the use or employment by another person who engages in any trade or
commerce of an unfair method of competition or an unfair or deceptive act or practice declared
unlawful by section two . . . may, as hereinafter provided, bring an action in the superior court
. . . .” A “person” under the statute, “shall include, where applicable, natural persons,
corporations, trusts, partnerships, incorporated or unincorporated associations, and any other
legal entity.” G.L. c. 93A, § 1(a).
“[T]he proscription in Section 2 of ‘unfair or deceptive acts or practices . . .’ must be read
to apply to those acts or practices which are perpetrated in a business context.” See Poznik v.
Massachusetts Med. Professional Ins. Ass’n, 417 Mass. 48, 50-53 (1994) (holding that
Massachusetts Medical Professional Insurance Association, a nonprofit joint underwriting
association established by Legislature, was not engaged in trade or commerce and was not
subject to suit under Chapter 93A),4 quoting Lantner v. Carson, 374 Mass. 606, 611 (1978).
4 After the Supreme Judicial Court’s decision in Poznik, the Legislature amended the
applicable statutes to include “any joint underwriting association established pursuant to law” as
a “person” under G.L. c. 176D, § 1. Wheatley v. Massachusetts Insurers Insolvency Fund, 465
Mass. 297, 300 (2013). The court subsequently determined that joint underwriting associations
were subject to a consumer action under Chapter 93A. Id.
“The question whether a transaction occurs in a business context must be determined by the facts
of each case.” Poznik v. Massachusetts Med. Professional Ins. Ass’n, 417 Mass. at 52. Courts
consider “the nature of the transaction, the character of the parties and their activities, and
whether the transaction was motivated by business or personal reasons.” All Seasons Servs., Inc.
v. Commissioner of Health & Hosps. of Boston, 416 Mass. 269, 271 (1993).
In this case, the MBTA cannot be subject to a claim for violation of Chapter 93A because
it was not engaged in trade or commerce when it engaged with Pan Am concerning the 2008
federal mandate regarding PTC. All of the conduct alleged in Pan Am’s counterclaims involves
the parties’ efforts to comply with the 2008 federal mandate regarding PTC, including their
negotiations as to how they would achieve such compliance. The MBTA was acting at all times
in furtherance of its statutory mission to provide mass transportation services to the public. Its
compliance with the federal mandate was necessary to further this mission. See Bretton v. State
Lottery Comm’n, 41 Mass. App. Ct. 736, 738-739 (1996) (concluding that State Lottery
Commission was not a “person” engaged in “trade or commerce” for purposes of Chapter 93A).
See also Rodriguez v. Massachusetts Bay Transp. Auth., 33 Mass. L. Rptr. 418, *14 (Mass.
Super. Ct. Mar. 31, 2016) (Kaplan, J.) (concluding that MBTA is not engaged in trade or
commerce when it performs its statutorily mandated task of providing mass transit services to
public). Because the MBTA’s activities were driven by legislative mandate, not by “business or
personal objectives,” Chapter 93A does not apply. Bretton v. State Lottery Comm’n, 41 Mass.
App. Ct. at 739. See Peabody N.E., Inc. v. Marshfield, 426 Mass. 436, 440 (1998) (“This court .
. . has repeatedly held that c. 93A does not apply to parties motivated by ‘legislative mandate, not
business or personal reasons’”)(citation omitted). For these reasons, Pan Am’s Chapter 93A
counterclaim against the MBTA must be dismissed.
Plaintiff Massachusetts Bay Transportation Authority’s Partial Motion to Dismiss
Defendants’ Counterclaims is ALLOWED. The Pan Am Defendants’ Counterclaims in Count
VIII (misrepresentation), Count IX (promissory/equitable estoppel), and Count X (violation of
G.L. c. 93A, § 11) are DISMISSED.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
Dated: August 18, 2017
-14- read more


Posted by Stephen Sandberg - September 7, 2017 at 1:36 am

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O’Connor Constructors, Inc. v. HVAC Compensation Corporation, et al. (Lawyers Weekly No. 12-099-17)

NO. 15-0205-BLS1
In this action, the plaintiff, O’Connor Constructors, Inc. (O’Connor), seeks to recover sums paid by the defendant HVAC Compensation Corporation (HVAC), a non-profit corporation established as a workers compensation self-insurance group or SIG, to purchase a loss portfolio transfer (LPT) insurance policy. O’Connor withdrew from HVAC at the end of 2009. It asserts that a substantial portion of the surplus that HVAC used to purchase the LPT policy should have been distributed to it as dividend. O’Connor also seeks to set aside an assessment that HVAC issued against O’Connor for additional funds to cover a liquidity deficit created by the purchase of the LPT policy. The additional defendants are the trustee/directors of HVAC (hereafter referred to as the Directors), each of whom are representatives of the companies that comprise the SIG, as well as the member companies themselves. While O’Connor’s complaint initially pled seven counts, four were previously dismissed. Three counts remain: breach of contract (Count I), breach of fiduciary duty (Count VI), and violation of G.L. c. 93A (Count VII). The
1 (i) Richardd Donohoe, William J. Lynch, Kevin R. Gill, James Morgan, Paul M. Level, Jr., and Shane B. Hamel, each sued individually and as Trustee/Director of HVAC, and (ii) Harrington Bros. Corporation, William V. Lynch Co., Inc., McCusker-Gill co., Inc., Worcester Air Conditioning, LLC, Le Bel, Inc., and Hamel & McAlister, Inc.
case is now before the court on the defendants’ motion for summary judgment. For the following reasons, the motion is DENIED as to Counts I and VI and ALLOWED as to Count VII.
The following facts are either undisputed or viewed in the light most favorable to O’Connor, the non-moving party.
In 1992, HVAC was organized to operate as a workers’ compensation SIG pursuant to G.L. c. 152, §§25E – 25U. Its members were companies principally engaged in the heating, ventilation, and air conditioning trades in Massachusetts. While a SIG is permitted to organize itself in various forms, HVAC was organized as a not-for-profit corporation under G.L. c. 180, § 4(n). Each HVAC member is required to enter into an Application and Indemnity Agreement (Indemnity Agreement) and is bound by HVAC’s by laws. Material to this case is a provision in G.L. c. 180, § 3 which provides that not-for-profit corporations, like HVAC, may not through their articles of organization or bylaws eliminate the personal liability of its directors “ (i) for any breach of the . . . director’s duty of loyalty to the corporation or its members, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) for any transaction from which the . . . director derived an improper personal benefit.” HVAC’s organizational documents do not purport to limit its Director’s liabilities in a manner inconsistent with this statutory requirement.
The Board of Directors of HVAC directs the management of its affairs including determining the contributions ( i.e., premiums) to be paid by the members each year for their workers’ compensation coverage in accordance with rates established by the Division of Insurance, administering and managing HVAC’s funds, including its reserves, and, of note in this
case, purchasing insurance and reinsurance. In practice, the Board retained a professional, third-party administrator, FutureComp, to manage its business and affairs.
Of importance to this case is the manner in which HVAC distributed its surplus, i.e., funds maintained by HVAC in excess of the reserves that its actuaries determined would be needed to pay claims that have been asserted by covered employees, as well as claims that are estimated to be asserted for incidents occurring during a “fund year” but which have not yet been reported, so-called IBNR. To the extent that premiums collected from members for a given year exceed claims paid and actuarially estimated claims that will have to be paid in the future, plus expenses incurred in operating the SIG, that year has a surplus. If claims paid and estimated to be paid and operating expenses with respect to a fund year exceed the premium collected, that year is running a deficit. According to Section 12 of the Indemnity Agreement (as amended),
Any Positive Balance of the Group resulting from overall loss experience may be available as a policyholder dividend . . . or used as a reserve in accordance with a Positive Balance Provisions Plan as set forth in Schedule 3 or as adopted and amended from time to time by the Board of Directors of the Group in its sole discretion. In accordance with Section 25P of Chapter 152 of the Massachusetts General Laws, a refund for any Fund Year shall be paid only to those employers who remain participants in the group until December 31st of the Fund year. Payment of a refund based on a previous Fund Year shall not be contingent on continued membership in the group after that Fund Year.
The Division of Insurance has issued regulations that create a formula pursuant to which a SIG may distribute surplus from any fund year to its members. In general, it permits the surplus to be distributed ratably in four installments over five years with the first distribution made two years after the close of the fund year. For a fund year with a surplus, each HVAC member receives a percentage of the surplus determined by the amount of the premium that it paid that year multiplied by that member’s loss ratio for that year—this is referred to as the member’s “combined ratio.” In consequence, the amount, if any, that any member receives for a surplus year is dependent on that member’s own premium amount and loss experience for that year.
If a fund year has a deficit, HVAC assesses the deficit to its members for that year using the same statutory formula that is used to calculate distributions. As with distributions, deficits begin to be collected two years after the close of a fund year. Once a year, usually in November or December, HVAC members who are in a negative position receive an invoice for payment due; members who have a net surplus are issued a dividend check in January. The amount of surplus or deficit for any given fund year may change from year to year as claims develop and are paid and IBNR recalculated. Surplus calculations vary most in the first two years following the end of the fund year, but they may continue to change in subsequent years.
HVAC has always calculated and paid dividends or assessed deficits based on individual fund year results. As noted above, a former member is entitled to the distribution of surplus for any year in which it was a member, if there is surplus available to distribute. Similarly, a former member could be required to contribute additional amounts to cover a deficit with respect to any period in which it was a member of the SIG. HVAC has also purchased reinsurance and charged its costs to its members on a fund year by fund year basis.
O’Connor became a member of HVAC in 1993, at that point HVAC had six members. By 2004, it had increased to ten members. Effective December 31, 2009, O’Connor withdrew from HVAC, at which point HVAC had only seven members. For the last several years that O’Connor was a member of HVAC, it paid significantly higher premiums than any other member. For example, in 2009 when HVAC had eight members, O’Connor’s premium was almost four times that of the next highest premium and amounted to approximately 44% of all premiums paid that year. After 2009, O’Connor no longer had a representative on the HVAC Board of Directors and, therefore, no vote on any matter affecting HVAC’s management or affairs.
In the years 2007 through 2010, O’Connor was required to pay substantial deficit
assessments in respect of earlier years, approximately $ 1 million in the aggregate. Thereafter, its accounts moved to surplus status, and it received a dividend in January, 2012. An internal memorandum prepared in May, 2012 suggested that O’Connor was in a surplus position of $ 450,000, a number which is, in effect, a snapshot of surplus at a given moment and was principally based on favorable development for 2008 and 2009, although these fund years were not then fully available for distribution under the formula described above. At the same time, the 2010 and 2011 fund years were developing adversely to the continuing HVAC members such that they reflected deficits of nearly $ 400,000 and $ 261,000, respectively, as of the end of 2011.
O’Connor’s departure and the deficits for 2010 and 2011 placed HVAC in a difficult situation in which its continuing viability was at issue. In consequence, it began to explore the option of purchasing an LPT to insure all additional claim exposure for HVAC. Quotes were received from Safety National Casualty Corporation (Safety) to purchase LPT for various years. “Option 1” sold off fund years 1992 through 2009. The cost of this policy was $ 1,899,104. HVAC, however, was holding reserves for those years only in the amount of $ 1,433,120. Therefore, this LPT would cost $ 465,984 in excess of the reserves determined by its actuaries as necessary to cover anticipated claims for those years. An analysis was done that determined the cost of the LPT for each fund year being sold, the amount by which that cost exceeded the reserves for that year, and then assigned a percentage of that cost to each member based on a fraction, the numerator of which was that member’s premium for that year and the denominator was the aggregate premiums collected for that year. The surplus for any year was left untouched and therefore available for distribution as dividends. One Director expressed concern that this approach would be very costly, essentially causing HVAC to incur an immediate expense of $ 465,984 (the cost of the LPT in excess of reserves for the years sold off) without addressing the
deficits that existed for fund years 2010 and 2011. FutureComp then requested additional quotes for LPTs that covered 2010 and 2011.
At a September, 2012 HVAC Board meeting, FutureComp presented the additional quotes and a new method for paying for the LPT policy. Under this payment approach, all of the surplus held in HVAC’s accounts would be used to purchase the policy, without regard to the fund year in which the surplus was accrued. Because this would effectively eliminate nearly all of HVAC’s assets, all members and former members for the years “sold off” would be assessed a liquidity deficit. No consideration was given to the fact that operating costs and payment of current claims would be with respect to years in which members who terminated prior to January 1, 2011 had no possible liability, as all of the years in which they had been members had been sold off. FutureComp referred to this method of purchasing the LPT policy as the “All Assets” approach, to be distinguished from the approach that looked at the costs of purchasing the LPT policy on a year by year and member by member basis, which it called the “Strict Assessment” approach.
On November 14, 2012, the Directors voted to purchase an LPT from Safety selling off fund years 1992 to 2010 using the “All Assets” approach, the policy to cover all claim payments due in respect of those years after July 27, 2012. The cost of the LPT was $ 1,855,938. Because this transaction was financed with surplus funds, it created a liquidity deficit of $ 164,750 for fund years 2011 and 2012 (which had not been sold). The Directors therefore assessed a liquidity deficit pro rata to members and former members. O’Connor’s assessment was $ 55,931. Because the LPT covered all claims paid after July 27, 2012 for fund years 1992-2010 and the policy could not be made operational until May 22, 2013, the LPT carrier refunded to HVAC $ 504,332 for claims that HVAC paid during that period in respect of claims now covered by the LPT.
O’Connor received no credit for that refund.
On January 13, 2013, the Division of Insurance approved the transaction. O’Connor was not informed about the transaction prior to its closing and was not given the opportunity to present its position to the Division concerning the inclusion of fund year 2010 in the LPT or the use of the All Asset method to purchase it. But for the purchase of the LPT, O’Connor would have been due a dividend of $ 185,647 in January, 2013 closing out all fund years through 2007, 50% of its surplus for 2008 and 33% of its surplus for 2009. If the LPT had been purchased using the Strict Assessment Approach, O’Connor would have been entitled to $ 290,000 return of its surplus, net of assessments for the cost of the LPT in excess of reserves for the years in which it had been a HVAC member. Conversely, in December, 2012, continuing HVAC members would have been assessed deficits because fund year 2010 was, as noted above, in a substantial deficit position. Following the transaction, an employee of FutureComp wrote in an email: “Overall, there is still a great story. The members were going to assess themselves anyway, with the end result of O’Connor getting a large dividend. This way, they are only assessing themselves to meet the payment of the LPT to get rid of all the ‘bad years.’”
Breach of Contract
O’Connor argues that while the By Laws authorized the Board to purchase insurance, and it concedes that the LPT is a form of insurance, the Indemnity Agreement effectively required that the cost of that insurance be charged to members on a fund year by fund year basis, which is the way reinsurance had been purchased by HVAC in the past. Furthermore, when the concept of purchasing the LPT was first investigated, the cost to each member was actually calculated
using the “Strict Assessment” method, i.e., year-by-year and member-by-member. It was only when one Director questioned the value of the proposed LPT to HVAC and his company that FutureComp asked for quotes that covered the “bad years” and came up with the “All Asset” option. O’Connor contends that use of the All Asset approach, and using those assets to purchase LPT for a year in which O’Connor was not a member, breached the Indemnity Agreement.
At oral argument on this motion, the court asked counsel for O’Connor to identify the contract provision that HVAC breached in purchasing the LPT using the All Asset approach. O’Connor pointed to Section 12 of the Indemnity Agreement (quoted above) and Schedule 3 appended to it. Schedule 3 states, in relevant part,
The Board of Directors of HVAC . . . will, after the end of each Fund Year, determine the Positive Balance available for distribution to the Members as a return of premium . . . . The Positive Balance shall be determined after appropriate allowance is made for contingency reserves.
The Positive Balance shall be distributed to Members based upon each Member’s combined ratio (losses and expenses/earned premium).
According to O’Connor, the Directors voted on the amount of surplus to be distributed for fund years through 2009, and were therefore contractually obligated to pay that surplus to O’Connor, when they decided to use the surplus to purchase the LTP, without regard to the cost of the LPT for each year being sold off. O’Connor argued that the language in Section 12 of the Indemnity Agreement that expressly stated that “Any Positive Balance of the Group resulting from overall loss experience may be available as a policyholder dividend, . . . or used as a reserve in accordance with a Positive Balance Provisions Plan as set forth I Schedule 3 or as adopted and amended from time to time by the [Directors] in its sole discretion,” did not authorize the Directors to decide to use surplus from one fund year to cover claim expenses with respect to another year, when the Directors had previously voted to distribute that surplus to the members
according to each member’s combined ratio. (emphasis added)
The court finds that the Indemnity Agreement and By Laws, which constitute the contract among the members, is ambiguous with respect to the question presented. See Citation Ins. Co. v. Gomez, 426 Mass. 379, 381 (1998). In particular, it is ambiguous when applied to the circumstances presented by this case in which LPT insurance was purchased in late 2012 with respect to all of HVAC’s years of operation through 2010. See, e.g., Nelson v. Cambridge Mut. Fire Ins. Co., 30 Mass. App. Ct. 671, 673-674 (1991) (Where the court noted that words that are otherwise clear may be ambiguous as applied to certain subject matter.) For example, it may be that the Directors have the authority to use all available surplus to respond to a catastrophic loss, but not to take surplus from one year to pay claims associated with another year that are not out of the ordinary. In this case, the purchase of the LPT created a substantial expense for HVAC, but it was the result of a business decision not, as this court understands the facts, a unique and unanticipated loss. While the court doubts that evidence exists as to the intention of the members when the Indemnity Agreement was drafted, evidence of the manner in which these provisions of the Indemnity Agreement were applied in the past or are being applied in a manner which is consistent with industry practices might elucidate contract meaning. See Browning-Ferris Ind. Inc., v Casella Waste Management of Mass., Inc. 70 Mass. App. Ct. 300, 309 (2011) (“There is no surer way to find out what the parties meant, than to see what they have done”).
Moreover, while the question of whether HVAC’s purchase of the LPT using the All Assets method constitutes a breach of contract is a very close question, as discussed below, the claim for breach of fiduciary duty clearly involves disputed questions of fact and must proceed to trial. The evidence to be presented on this breach of contract claim is very much the same as that which will be presented on the breach of fiduciary duty claim. The court finds that while
questions of law rather than fact are more predominant and central to this breach of contract claim, it is better resolved after the court has had the benefit of a trial addressing questions of how the Directors came to choose this approach to resolving the issues confronting HVAC by O’Connor’s decision to withdraw from the SIG.
Breach of Fiduciary Duty
As noted, HVAC is a not-for-profit corporation organized under Chapter 180 of the General Laws and, therefore, each Director may be liable to a member “ (i) for any breach of the . . . director’s duty of loyalty to the corporation or its members, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) for any transaction from which the . . . director derived an improper personal benefit.” Although, effective December 31, 2009, O’Connor ceased to be a member of HVAC, the Directors still controlled funds in which O’Connor had an interest under Section 12 of the Indemnity Agreement. (“Payment of a refund based on a previous Fund Year shall not be contingent on continued membership in the group after that Fund Year.”) Additionally, their management of HVAC had the capacity to cause O’Connor to incur additional liabilities with respect to matters relating to fund years in which O’Connor was a member. (“A member of a group, . . . , who elects to terminate its membership . . . shall remain jointly and severally liable for the workers’ compensation obligations of the group and its members which were incurred during the . . . terminated member’s period of membership;” and, “[a] group member is not relieved of its workers’ compensation liabilities incurred during its period of membership except through payment by the group or the member of required workers’ compensation benefits.” G.L. c. 152, § 25K (3) and (4).) In consequence, the Directors continue to owe fiduciary duties of loyalty to a
departed member and an obligation not to take action to benefit their own interests at the expense of terminated member, to the extent their actions implicate the former member’s interest in surplus or the creation of additional liabilities for the former member.2
Whether, in this case, the course of action adopted by the Directors breached their fiduciary obligations to O’Connor involve a number of disputed issues of fact. Certainly, Directors owe fiduciary duties to all members and HVAC, as well as O’Connor. They may adopt a course of action, in good faith, which is a reasonable approach to a business problem and in the best interests of the enterprise and its members, generally. See, e.g., Wilkes v. Springside Nursing Home, Inc., 370 Mass. 842, 851-852 (1976). Whether they did that in this case when they purchased the LPT using the All Assets approach, and included fund year 2010 in the liabilities sold off, involves a number of disputed issues of fact that can only be resolved after trial.3
Chapter 93A
It has long been recognized that intra-enterprise disputes will not support claims of violation of Chapter 93A. See Linkage Corp. v. Trustees of Boston University, 425 Mass. 1 n.33, cert. denied 522 U.S. 1015 (1997) and cases there cited. This case involves quintessentially intra-corporate action. It does not arise out of an arms-length commercial transaction between O’Connor and HVAC or its Directors. Rather, the issue is whether HVAC’s decision to purchase an LPT policy using the All Assets method constituted a breach of its internal, organizational documents or a breach of fiduciary duty on the part of the Directors to treat O’Connor fairly. See
2 Indeed, in this case the purchase of the LPT led to the assessment of a liquidity assessment against O’Connor.
3 For example, for reasons that are not well explained, it seems that the LPT covering 2010 was less expensive than that which ended with 2009. This could be because the quote for the 2009 LPT was received well before the quote for the LPT that was purchased and might have cost much less (claims are constantly being paid and reducing the exposure to the insurer issuing the LPT policy) if the quotes were as of the same date. Issues such as these require factually development.
Ray-Tek Services, Inc. v. Parker, 64 Mass. App. Ct. 165, 170-171 (2005). In consequence, the claim for violation of Chapter 93A must be dismissed.4
For the foregoing reasons, HVAC’s motion for summary judgment is ALLOWED, in part, and DENIED, in part. Count VII is dismissed; Counts I and VI shall proceed to trial.
Mitchell H. Kaplan
Justice of the Superior Court
Dated: July 27, 2017
4 HVAC argues that the claims asserted against it should be dismissed because the Division of Insurance approved the transaction. There is, however, no indication that the Division gave any thought to whether the transaction was fair to all members or former members or breached a contractual obligation among the members. There is no suggestion that it had statutory authority to do that. Presumably, the Division was only concerned with whether HVAC would be financially able to meet its workers’ compensation benefit obligations following the transaction. The court finds that the Division’s approval of the transaction is not relevant to the claims asserted by O’Connor against HVAC or the Directors. read more


Posted by Stephen Sandberg - August 31, 2017 at 10:56 pm

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Smith, et al. v. Unidine Corporation (Lawyers Weekly No. 12-097-17)

Nos. 2015-2667 and 2015-3417
consolidated with No. 2016-3297 1
In this action under the Massachusetts Wage Act, G.L. c. 149, §§ 148, 150 (the “Act”),
the employer, Unidine Corporation, and plaintiffs, former employees, cross move for summary
judgment. The principal issue presented is whether the former employees are entitled to recover
for the non-payment of commissions and a bonus. The employer says they are not because of the
terms and conditions of the governing agreement for calculating and paying commissions and
bonuses. The former employees assert that they should be paid the commissions as a matter of
law under the Act.2
The resolution of the motion turns on both the terms and conditions of the written
agreement regarding commissions and bonuses as well as the terms of the Act. The Act requires
1 These actions are consolidated into the lead case, Civil Action No. 2016-3297 BLS1.
The plaintiff in No. 2016-3297 is Correna Lukas. Unidine and Lukas do not move for summary
judgment in the lead case.
2 Plaintiffs also assert claims for breach of contract, breach of the implied covenant of
good faith and fair dealing, and “quantum meruit/unjust enrichment.” All claims are for nonpayment
of commissions or bonus.
the timely payment of wages. Wages include commissions “when the amount of such
commissions . . . has been definitely determined and has become due and payable . . . .” Id. The
terms of the written agreement determine what has been “definitely determined” and what is “due
and payable.”
The following facts, drawn from the parties’ Statement of Undisputed Material Facts, are
Unidine is in the business of providing dining management services to institutional
clients such as hospitals, senior living facilities, universities, etc. Unidine employs Directors of
Business Development (“DBDs”) to sell the services of Unidine and to develop and maintain
relationships with client customers as the contracts with the client customers are performed.
Plaintiffs, Donald Smith and Matthew Ales, were employed by Unidine as DBDs.3
DBDs earn a base salary and are eligible to participate in Unidine’s 2014 Sales
Commission and Bonus Plan (the “Plan”) subject to its terms and conditions. DBDs, including
Smith and Ales, acknowledge and sign the Plan each year. All of plaintiffs’ claims arise under
the 2014 Plan. The Plan applies to contracts with client customers executed in 2014.
Smith began work at Unidine on April 14, 2014, as an at-will employee, in the position of
DBD. He was paid a base salary of $ 125,000 per year, and a signing bonus of $ 25,000. Smith
was terminated from employment on May 29, 2015.
Ales began work at Unidine on January 3, 2012, as an at-will employee, in the position of
3 Signed employment letters in the record indicate that Smith and Ales were employees
at-will and that Massachusetts law governs the agreements.
DBD. His base salary was $ 80,000 per year and was increased to $ 90,000 on January 1, 2015. In
February 2015, Ales voluntarily resigned from Unidine.
The Plan
The Plan provides for the payment of commissions to DBDs subject to its terms and
conditions, based upon obtaining and maintaining for one year a new client account for Unidine.
Under the Plan, “[c]ommissions will be earned ratably over a twelve (12) month period. As such,
commissions will be paid on a monthly basis over the first year following execution (signed by
both parties) of the contract and commencement of service by Unidine.” Plan ¶ E.4 The Plan
further provides that commission payments “shall commence following the end of the first full
month of the account’s operation.” Id.
Paragraph E of the Plan lists a number of contingencies that must occur before the first
commission payment is due. Among those contingencies are the following:
– execution of a signed contract
– planning and execution of a transition meeting by the DBD with the client and
Unidine operations personnel
– development of the first Unidine invoice to the client
– “invoicing and collection of Initial Payment . . . .” Id. at ¶ E 6 (emphasis in
-completion of the Commission Worksheet and Commission Submittal Checklist.
The Plan recognizes that the DBD has a continuing interest in the successful performance
of the contract. For example, the Plan allows the company to terminate commission payments if
the customer fails to pay any Unidine invoice or accrues an account receivable in excess of the
payment terms. Also, if the new account is terminated prior to the completion of twelve (12)
4 This quotation is from the Plan executed by Smith. The Plan executed by Ales is slightly
different. It states “[c]ommissions will be earned and paid ratably over a twelve (12) month
period as described in this section.”
months of commission payments, “any commission payments made will be returned to the
company over the same number of months as paid as well as any bonus payments. During this
period, in the event the Director of Business Development leaves the company for any reason,
any commission and/or bonus balance due the company will be due immediately to the company
and may be used to off-set any compensation due.” Id.5 Moreover, both Smith and Ales testified
in their depositions to the effect that they worked closely with the operations staff and maintained
contact with the customer as part of their jobs.6
Finally, the Plan provides that “[t]o be eligible for Commission Payment or bonus the
participant must be employed by Unidine at the time the Commission Payment or bonus is
processed and paid as described in paragraph E – Commission Payment.” Plan, ¶ B.
With respect to the payment of either a quarterly or annual bonus, the Plan is sparse. In
two paragraphs, reference is made to another, unspecified, “plan” which appears to include goals
for revenue to be generated by the DBD (although there is no definition of how the revenue
targets are set or calculated). If the DBD exceeds the goals by certain percentages (e.g., 125%,
150%, 200%), the DBD is “eligible” for payment of the bonus. The Plan does not explicitly
reserve any discretion to the company or its officers as to whether the revenue goals were met or
5 The application of this provision requiring return of commissions is subject to the
discretion of the officers of the company.
6 In particular, Ales testified that maintaining relationships was “part of my job” and gave
the example of going to the location of a customer (Three Pillars) and staying there for two
months to “smooth things out” when operations were going poorly.
Facts With Respect to Smith
Smith’s sole claim is that he is owed a commission7 with respect to a single customer,
Southeast Missouri Hospital. It is undisputed that Smith was responsible for the sale of services
to the hospital and that he worked to get the operations team set up to have a successful and
smooth start-up and launch. The hospital signed a contract with Unidine on November 24, 2014,
but dining services were not commenced until March 22, 2015. The hospital paid the initial
advance payment on March 24, 2015, and paid the first monthly invoice under the contract on
April 20, 2015. After Smith’s employment was terminated8 on May 29, 2015, Unidine sent Smith
a check in an amount (Smith concedes) that represents the value of two months of commission
payments (April and May). No further commissions were paid to Smith. Accordingly, Smith’s
claim in this lawsuit is for commissions that he alleges would have been paid to him in the ten
months after his termination. In his memorandum in opposition to Unidine’s motion for summary
judgment (and in support of his cross-motion for summary judgment), Smith states “[w]hile
Smith was not employed at the time his commission payment was due, all other contingencies
were satisfied.” Plaintiffs’ Memorandum, p. 10.
Facts With Respect to Ales
Ales claims that he is owed commissions with respect to five (5) client customers of
Unidine. Ales also asserts that he is owed a bonus under the Plan for the year, 2014. The five
7Smith makes no claim for an unpaid bonus.
8 Unidine states that Smith was terminated because Smith failed to pursue a business
opportunity for the company and because of Smith’s weak sales pipeline and disagreements with
senior management. Smith contends that he was not given any reason for his termination. In any
event, Smith does not allege that the termination of his at-will employment was wrongful or
motivated by bad faith.
customers are Wellspring, Cedarbrook, Bethesda, Three Pillars and Presence Health. Unidine
concedes that Ales performed some work to obtain each of these accounts. The undisputed facts
regarding each of the customers, however, are the following.
Wellspring. The contract between Wellspring and Unidine was entered into on
September 30, 2015. Ales voluntarily left the employment of Unidine seven months earlier, on
February 18, 2015. No commission was paid to Ales.
Cedarbrook. While Cedarbrook entered into a contract with Unidine on September 22,
2014, the Cedarbrook facility that was the subject of the contract had not been built. Unidine
began to provide dining services at Cedarbrook on August 10, 2015, six months after Ales left
Unidine. At the time of Ales’ resignation, Cedarbrook had not made its initial payment under the
contract, a first invoice had not been developed and Ales had not completed a transition meeting
or commission worksheet. No commission was paid to Ales.
Bethesda. Bethesda entered into a contract with Unidine on September 30, 2014. Unidine
began providing services on October 18, 2014. Ales earned his first commission on this account
for the month of December 2014. He was also paid a commission on this account for the month
of January 2015. Ales resigned from employment on February 18, 2015, and was not paid a
commission for February or any subsequent month.
Three Pillars. This contract was entered into on February 20, 2014. Services began on
May 1, 2014. Ales was paid his first commission on this account in June 2014. He continued to
receive commission payments through January 2015. When Ales resigned in February 2015, he
was not paid commissions for February or any subsequent month.
Presence Health. Unidine entered into a dining service contract with Presence Health on
January 20, 2014. Ales began receiving commissions on this account in April 2014, and was paid
commissions earned for the months of April through November 2014. In 2014, Presence Health
fell behind on payments owed to Unidine under the contract. Pursuant to paragraph E of the Plan,
commissions were suspended in December 2014 and January 2015 (“Commission Payment shall
terminate at the earlier of any of the following events: . . . 3. Non-payment of any Unidine
invoices by the client during the twelve (12) month term of the Commission Payment.”).
Commission payments did not resume before Ales resigned. No commissions were paid to Ales
on this account after November 2014.
Ales also claims that he earned a bonus in 2014 under the terms of the Plan that was not
paid by Unidine. The dispute on this issue is whether Ales should receive credit for the sale of
the Presence Health account in the calculation of total sales to determine whether a bonus is
owed. Ales admits that without credit for the Presence Health account against his 2014 sales
plan, he does not qualify for any quarterly or annual bonus in 2014. According to the Affidavit of
Steven Servant, Unidine’s Senior Vice President, he informed Ales that the Presence Health sale
would not count toward Ales’ bonus eligibility in 2014. Servant avers that he made that decision
“pursuant to the discretion given me under the Plan.” Servant Aff. ¶ 42. Ales admits that he did
not include the Presence Health sale on his internal monthly reports of business sold in 2014, at
the direction of Servant. Ales denies, however, that he was told that Presence Health would not
be counted for purposes of his bonus calculation.
In sum, Smith seeks payment of commissions in the amount of $ 44,424. Ales seeks
payment of commissions in the amount of $ 139,412, and payment of a bonus for 2014 in the
amount of $ 30,000. To the extent the non-payment of the amounts is found to be in violation of
the Act, any award is subject to automatic trebling, and an award of reasonable attorney fees.
Summary judgment is appropriate where there are no genuine issues of material fact and
the moving party is entitled to judgment as a matter of law. Mass. R. Civ. P. 56(c); Cassesso v.
Commissioner of Corr., 390 Mass. 419, 422 (1983). In this case, the parties cross-move for
summary judgment. Accordingly, both sides assert that there are no disputes of fact
material to the resolution of the motions.
I. Wage Act Claims
The Wage Act, G. L. c. 149, § 148, requires employers to pay employees all earned wages
on a weekly or bi-weekly basis.9 Massachusetts courts generally recognize that the purpose of
this statute is to prevent the unreasonable detention of earned wages by employers. Weems v.
Citigroup, Inc., 453 Mass. 147, 150 (2009). The Wage Act does not, however, define the term
“wages.” Thus, courts have considered various kinds of compensation to determine whether the
compensation should be held to be a “wage” under the Act.
As referenced above, “commissions” are specifically recognized as being covered by the
Act. G.L. c. 149, § 148, ¶ 4. Thus, commissions must be timely paid to an employee “when the
amount of such commissions, less allowable or authorized deductions, has been definitely
determined and has become due and payable.” Id. To be “definitely determined” a commission
must be “arithmetically determinable.” Wiedmann v. The Bradford Group, Inc., 444 Mass. 698,
708 (2005). Commissions are “due and payable” when “any contingencies relating to their
9 The Wage Act includes some exceptions to this general requirement, e.g., executive and
professional employees may request payment on a monthly basis.
entitlement have occurred.” McAleer v. Prudential Insurance Co. Of Am., 928 F. Supp. 2d 280,
288 (D. Mass. 2013)(quoting cases). Accordingly, a court applies the terms of the contract to
determine whether the commission is “definitely determined” and “due and payable.” Gallant v.
Boston Executive Search Assoc., Inc., 2015 WL 3654339, *7 (D. Mass. 2015).
A bonus that is discretionary or contingent upon the employee remaining with the
company for a defined period of time has been held not to be a wage under the Act. Weems, 453
Mass. at 153-154, citing Harrison v. Net Centric Corp., 433 Mass. 465, 466, 473
(2001)(compensation that vests over time is not earned until contingency of continued
employment is met); see also Sheedy v. Lehman Bros. Holdings Inc., 2011 U.S. Dist. LEXIS
131003 (D. Mass. 2011) (where bonus payment is contingent upon continued employment,
payment is not a “wage” under the Act).
A. Claim by Smith
Smith sold services to Southeast Missouri Hospital which made him eligible to receive
commissions. In fact, Unidine paid Smith the commissions owed for the two months following
the date when the commissions first became due and payable. At that point, Smith’s employment
with Unidine was terminated for reasons unrelated to Southeast Missouri Hospital.
Smith argues that commissions are due and payable to him for the following ten months
of the contract with Southeast Missouri Hospital even though he was no longer employed by
Unidine and could no longer provide any ongoing maintenance of the relationship between
Unidine and Southeast Missouri Hospital. He contends that the provision of the Plan that makes
a person ineligible to receive commissions after his employment is terminated is a “special
contract” that is prohibited by the Act. He relies on a recent case decided by the United States
District Court, applying the Act: Israel v. Voya Institutional Plan Services, LLC, 2017 WL
1026416 (D. Mass. 2017). In Israel, the Court granted summary judgment in favor of the
employee holding that commissions earned under the terms of a plan cannot be withheld based
upon the contract provision requiring the employee to be employed at the time of payment.
Unfortunately for Smith, the facts in his case are significantly different than the facts of
Voya. The key finding in Voya was that the commissions were “definitely determined” and “due
and payable” for past services provided before the termination of employment. Id. at *7. That the
commissions were not paid (as opposed to payable) at the time of the employee’s termination of
employment was because of the plan’s provision mandating payment following the third month
“after the month that production activity occurred.” Id. at *2. Thus, the Court found that the Act
prohibits a contract provision that would relieve an employer of the obligation to pay an earned
commission based solely on whether the employee remained employed on the date the company
elects to issue payment. In contrast to Voya, Smith’s claim fails because the commissions he
seeks were not earned and therefore were not “due and payable.”10
The Plan provides that commissions are earned ratably over a twelve month period. The
dictionary meaning of “ratably” is “apportioned.” Webster’s Ninth New Collegiate Dictionary
(1991). Giving the words of the contract their common sense meaning, it is beyond argument
that commissions were “earned” by the DBD each month as he performed or was available to
perform services in aid of the contract. This reading is consistent with the testimony of Smith and
10 Likewise, Perry v. Hampden Engineering Corp., 90 Mass. App. Ct. 1109 (2016) (Rule
1:28 Memorandum and Order), relied upon by plaintiffs, is inapposite. The commission payment
recovered in Perry was earned, and thus due and payable, prior to the date of termination of
Ales as to their ongoing obligations to the client customers. Likewise, Unidine’s Senior Vice
President (Steven Servant) described in his affidavit the ongoing responsibilities of a DBD as the
reason for requiring the commissions to be earned ratably over the twelve month period. Finally,
the Plan’s terms regarding the suspension of commissions when the client customer fails to pay
invoices and the possible retrieval of paid commissions if the new account is terminated during
the twelve month period further support the conclusion that commissions are earned each month
when, with the ongoing maintenance by the DBD, the customer account is fully performing.
Therefore, under the Plan governing the payment of commissions to both Smith and Ales
a commission is not earned when the DBD is no longer employed. Because there is no earned
commission after the termination of employment, a commission is not “due and payable” as
required for recovery of an unpaid commission under the Act.11 In the case of Smith, that means
that he is not entitled to the commission payments sought in his complaint. Summary judgment
dismissing Smith’s complaint is required.
B. Claim by Ales
Ales claims commissions are owed to him with respect to five client customers. Three of
those customers (Bethesda, Three Pillars and Presence Health) present the identical legal issue
discussed above with respect to Smith. That is that commissions were paid to Ales by
Unidine for the period of time before he terminated his employment. Thus, Ales was paid
11 Unidine advances the additional argument that commissions for months after the
termination of employment of a DBD are also not “definitely determined” as required by the Act.
The argument is based on the possibility that the client customer may change its food
requirements, eliminate a facility or otherwise take steps to reduce its invoice from Unidine. If
the amount collected from the client customer changes, then the commission changes. I view this
as further evidence in support of the conclusion that commissions are earned by the DBD each
month he performs services.
commissions for what he earned. He seeks, however, to be paid for commissions for the time
after he stopped performing services to Unidine and its client customers when he left the
employment of Unidine. Because such unpaid commissions were not earned and, therefore, not
“due and payable” there can be no recovery under the Act.
Ales’ claims for commissions with respect to Wellspring and Cedarbrook also fail. In
both cases, no commissions were earned even for the time before Ales left the company because
the Plan required an executed contract and the commencement of services before a commission
could be earned. Unidine did not have a contract (in the case of Wellspring) and did not begin to
provide services (in the case of Wellspring and Cedarbrook) until after Ales left employment.
Accordingly, Ales’ claims for commissions under the Act must be dismissed.
II. Claims for Breach of Contract, Implied Covenant of Good Faith and Fair Dealing and
Quantum Meruit
A. Commissions
The conclusion that commissions were not earned and due and payable to Smith and
Ales under the terms of the Plan necessarily resolves plaintiffs’ claims for breach of contract. If
commissions were not owed to Smith and Ales under the contract terms of the Plan, there also
cannot be a claim for breach of the implied covenant of good faith and fair dealing because to
allow such a claim would be, in effect, to re-write the partes’ contract. The implied covenant in
every contract protects the parties’ reasonable expectations under the contract but does not
“create rights and duties not otherwise provided for.” Bohne v. Computer Associates Intern. Inc.,
514 F. 3d 141, 143 (1st Cir. 2008), quoting Uno Restaurants, Inc. v. Boston Kenmore Realty
Corp., 441 Mass. 376, 385 (2004). Similarly, “[r]ecovery in quantum meruit presupposes that no
valid contract covers the subject matter of a dispute. Where such a contract exists, the law need
not create a quantum meruit right to receive compensation for services.” Boswell v. Zephyr
Lines, Inc., 414 Mass. 241, 250 (1993).
Smith makes clear in his Third Amended Complaint that he does not allege wrongful
termination of his employment. He avers that “while not terminated in bad faith, [he] was not
terminated with good cause.” Id. at ¶ 45. Moreover, the application of the implied covenant of
good faith and fair dealing as described in Gram v. Liberty Mutual Ins. Co., 391 Mass. 333. 335
(1984) protects only an employee’s right not to be deprived of compensation for past services.
Because plaintiffs were not denied compensation for past services under the terms of the Plan,
their claims for commissions alleging breach of contract, breach of the implied covenant and
quantum meruit fail.
B. Ales’ Claim for Bonus
At oral argument, counsel for Ales stipulated that Ales’ claim for an unpaid bonus does
not arise under the Wage Act. Instead, he maintains this claim under theories of breach of
contract, breach of the implied covenant of good faith and fair dealing, and quantum meruit.
Unlike the claims for unpaid commissions, Ales’ claim for an unpaid bonus raises a
genuine issue of material fact that precludes summary judgment. The fact issue presented is
whether, in the calculation of the bonus for 2014, Ales was entitled to have the company include
the revenue received from the Presence Health account. Unidine admits that if the Presence
Health contract had counted towards Ales’ sales quota, he would have been eligible to receive
bonus payments under the Plan. Unidine argues, however, that its management determined that
Presence Health should not be counted in the bonus calculation and that Ales was so informed.
Ales disputes that he was told that Presence Health would not be counted in his bonus
calculation. In his affidavit, Ales states that “I had no reason to believe that Presence Health
would not be counted towards my bonus threshold.”
Unidine argues that it had the discretion under the Plan to determine which accounts
would be counted for purposes of calculating a DBD’s bonus. When asked at oral argument to
identify the provision in the Plan upon which Unidine relies for such discretion, Unidine’s
counsel pointed to ¶ R:
Amendments, Revisions and Interpretation of the Plan: The President & CEO
of Unidine is the sole interpreter and arbitrator of the general and specific
provisions of the Plan and has the right to amend, withdraw, and modify The [sic] Plan at any time without notice.
As can be seen, this paragraph does not give Unidine the explicit discretion to refuse to pay a
bonus that was otherwise earned under the Plan. To the extent ¶ R attempts to reserve to
management the right to “interpret”, “withdraw” or “modify” the Plan, such power must be
viewed in the light of the implied covenant of good faith and fair dealing inherent in every
The Plan states that DBDs will be “eligible” for quarterly and annual bonus payments by
achieving 100% or more of a certain amount. While not explicitly stated, the amount which is the
base for calculating the bonus appears to be the “gross operating budget” for the client customer.
The Plan states that “[o]nly signed, opened accounts, including add-ons, will count toward
achievement of plan for both quarterly and annual bonuses.” Plan ¶ L. Other then those
conditions, the Plan says nothing further about how the client customer’s “gross operating
budget” is calculated or attributed to a DBD. In sum, the summary judgment record is
insufficient to determine, as a matter of law, whether Ales earned a bonus. Ultimately, whether
Ales is entitled to a bonus will depend on the parties’ understanding of the terms of the Plan and
the reasonable expectations of the parties as to how the bonus calculations were to be made.
Summary judgment must be denied with respect to Ales’ claim for a bonus based on breach of
contract and breach of the implied covenant of good faith and fair dealing.12
Unidine’s motion for summary judgment will be ALLOWED, in part, and DENIED, in
part. The motion is ALLOWED (a) to dismiss all claims by Smith in Civil Action No. 2015-
2667,13 and (b) to dismiss the Wage Act claim and all other claims for unpaid commissions by
Ales in Civil Action No. 2015-3417. The motion is DENIED with respect to the claim by Ales
for an unpaid bonus based upon breach of contract and the implied covenant of good faith and
fair dealing. Plaintiffs’ cross-motion for partial summary judgment is DENIED.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
Date: July 25, 2017
12 Ales’ bonus claim based on quantum meruit must be dismissed because the claim is
governed by contract principles. York v. Zurich Scudder Investments, Inc., 66 Mass. App. Ct.
610, 619 (2006).
13 Final judgment may enter in Civil Action No. 2015-2667, all claims having been
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