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JRM Hauling & Recycling Services, Inc. v. The Newark Group, Inc. (Lawyers Weekly No. 09-056-17)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
No. 2015-3790 BLS 1
JRM HAULING & RECYCLING SERVICES, INC.
vs.
THE NEWARK GROUP, INC.
FINDINGS OF FACT AND RULINGS OF LAW AFTER TRIAL
This contract dispute was tried before me, jury waived, from October 23 to 27, 2017. The
dispute arises out of a contract between plaintiff, JRM Hauling & Recycling Services, Inc.
(“JRM”), and defendant, The Newark Group, Inc. (“Newark”), wherein Newark agreed to
purchase and JRM agreed to sell “all secondary fiber produced by [JRM] at” JRM’s location in
Malden, Massachusetts (the “Agreement”). JRM claims that Newark wrongfully terminated the
Agreement in January 2015. By its terms, the Agreement was to run for ten years from its
execution on November 1, 2006 to October 31, 2016.
JRM asserts its claim in two counts: breach of contract and breach of the implied
covenant of good faith and fair dealing. Newark counterclaims, pursuant to a provision of the
Agreement, seeking indemnification from JRM for Newark’s costs, including legal fees and
disbursements, incurred defending any unsuccessful claims made by JRM.
I. FINDINGS OF FACT
The Agreement
JRM, a company with headquarters in Peabody, Massachusetts, is a hauler of trash and
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recycled material. JRM is under contract with municipalities and businesses to pick up at
curbside the trash generated by the occupants. JRM picks up trash that has been separated by the
occupants to put newspaper and other paper into one bin and all other trash in another bin. The
contract in this case concerns what JRM was to do with the “loose paper” picked up at curbside.
Under its contracts with the municipalities, JRM was required to guarantee that the materials it
collected from the residents would be recycled..
Newark is a New Jersey corporation with corporate offices in Cranford, New Jersey. In
February 2015, as discussed below, Newark was acquired by Caraustar Industries, Inc.
In 2005, JRM learned that a facility located at 1130 Eastern Avenue in Malden,
Massachusetts (“the Malden facility”) might be available as a location for JRM’s operations. The
facility had been operated previously as a recycling center. JRM began negotiations with the
owner of the facility, Robert Heffernan, who was, at that time, a Newark employee. At around
the same time in 2005, Newark was looking for sources of supply of Secondary Fiber/RMP for
use by its mill in Fitchburg, Massachusetts. Secondary Fiber/RMP is a description of the loose
news and other paper collected by JRM. The mill in Fitchburg manufactured recycled paper
board products from the secondary fiber. In particular, the mill was producing “graphic board” to
be used as game boards and covers for books.
Jonathan Gold was a long time executive of Newark. He started employment with Newark
in 1978. In 2006, Gold was Senior Vice-President of the Recycled Fibers Division of Newark.
Gold lived in Swampscott, Massachusetts. His family had a long history of working in the
recycle industry. Gold knew the president and sole shareholder of JRM, James R. Motzkin, and
Motzkin’s son, James (“Jimmy”) S. Motzkin. In 2006, Gold became involved, on behalf of
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Newark, in the discussions with JRM regarding a lease of the Malden facility and a supply
contract for secondary fiber for Newark.
According to Gold, Newark wanted to secure all of the output of secondary fiber from
JRM. Newark’s demand for secondary fiber for its Fitchburg mill was so large that it also
contracted with other suppliers of secondary fiber to provide the material. Gold was told by his
superiors to get sufficient supply under contract because it was very important to the success of
the Fitchburg mill. The Fitchburg mill was looking for as much as 10,000 tons monthly of
secondary fiber. Gold testified that at the time of the supply contract with JRM it did not matter
to Newark where JRM collected secondary fiber to deliver to Newark. He did not even consider
the possibility that JRM could deliver more secondary fiber than the Fitchburg mill could use. I
find this testimony to be credible.
JRM simultaneously negotiated (1) an agreement with Heffernan to lease the Malden
facility, (2) an agreement with Newark to provide approximately $ 250,000 in financing for the
purchase of equipment for the Malden facility; and (3) the supply Agreement with Newark that is
the subject of this case. A deal was struck. JRM entered into a lease for the Malden facility with a
term of 10 years, starting on July 1, 2005. JRM would not have entered into the lease for the
Malden facility if it were not also entering into the Agreement with Newark to supply the
Fitchburg mill. JRM needed a guaranteed market for secondary fiber to sustain its operations at
the new Malden facility.
The Agreement was entered into on November 1, 2006. The term of the Agreement was
for ten years, from November 1, 2006 to October 31, 2016. The form of the Agreement was a
standard form developed and presented by Newark. Both parties, however, were represented by
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counsel with respect to the negotiation of the Agreement. Paragraph 1 of the Agreement is as
follows:
1. AGREEMENT TO PURCHASE AND SELL
Buyer agrees to buy, and Seller agrees to sell, all secondary fiber
produced by Seller at the following location(s): 1130 Eastern
Avenue, Malden, MA on the following terms and conditions:
(Emphasis in the original). Paragraph 1 goes on to describe the price, grade and quality of the
secondary fiber. Paragraph 1 also includes a promise by Newark as the buyer to purchase a
minimum of 500 tons per month. The Agreement contains no specified limit in tons that
constitutes a maximum amount of secondary fiber that Newark was obligated to purchase.
The Agreement includes an integration clause stating that the Agreement constitutes the
entire agreement between the parties. The parties agreed that the Agreement may not be
amended, nor may compliance with its terms be waived, except pursuant to a writing signed by
the party to be charged. The Agreement precludes JRM from assigning any interest in the
Agreement without first obtaining the written consent of Newark. The Agreement provides that
“the duties, rights and remedies of the parties hereunder shall be governed by the substantive
laws of the State of New Jersey, without regard to its conflicts of law principles.” The Agreement
provides for the waiver of trial by jury with respect to any litigation arising out of the Agreement.
Finally, the Agreement provides that Newark, but not JRM, shall be indemnified for its legal fees
and disbursements and other costs incurred in enforcing or defending against any unsuccessful
claims made by JRM with respect to the Agreement.
At the time JRM entered into the Agreement with Newark, the Malden facility was the
only location that JRM used to receive recycled materials from its trucks picking up trash from
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customers pursuant to JRM’s contract with municipalities and businesses. The JRM trucks
picked up trash at curbside, drove to Malden, and then simply dumped the trash on the floor of
the Malden facility. Recycled paper was dumped in a separate area from other recyclables. A
JRM employee then pushed with a loader vehicle the loose paper onto a conveyer belt leading to
a compactor. Another employee watched the loose paper on the belt and pulled out anything that
was not paper. The belt dropped the paper into the compactor. From the compactor, the paper
was pushed into the trailer of a truck. The paper was not baled or otherwise processed. The paper
was delivered to Newark loose.
Under the Agreement, Newark could select a mutually agreeable location for Newark to
pick up the secondary fiber from JRM. The parties subsequently agreed, however, that JRM
would deliver the loose paper/secondary fiber to Newark for an additional price per ton.
As referenced, Gold, the lead negotiator for Newark of the Agreement, testified that
Newark did not care at the time of entering into the Agreement whether the secondary fiber
delivered from JRM would come from the Malden facility or elsewhere. Notwithstanding the
language in the Agreement stating that Newark was obligated to purchase “ all secondary fiber
produced by Seller at the following location(s): 1130 Eastern Avenue, Malden, MA”, Gold
testified that the specification of the collection location was insignificant. I find this testimony to
be credible, given the heavy demand for secondary fiber anticipated by Newark for its Fitchburg
mill.1
1 Newark called as a witness Ms. Lynn Herro. Herro currently works for Caraustar, and
was previously employed by Newark as corporate controller. She works at the corporate office in
New Jersey. She testified that she had no role in negotiating the Agreement with JRM.
Nevertheless, she offered the opinion that the reason for specifying the location from which
Newark was obligated to purchase was to impose some limit on the quantity Newark was to buy.
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Performance of the Contract Until 2014
For eight years, from 2006 to mid 2014, the parties operated under the Agreement with no
difficulties, disagreements or disputes. JRM typically delivered secondary fiber to Newark each
work day (on average, twenty days per month), taking two, and sometimes three, truck loads per
day to Newark. Each delivery was approximately 20 to 25 tons of secondary fiber. Thus, using
the estimate of 25 tons per load, JRM could deliver secondary fiber to Newark in the amount of
approximately 1,000 to 1,500 tons per month. For the calendar year 2014, however, JRM’s
delivery of secondary fiber to Newark averaged 933 tons per month.
Market Changes Affecting Newark
In or about 2010, market demand for the products manufactured by Newark at its
Fitchburg mill decreased significantly. In 2011, Newark began the process of changing the
products produced at its Fitchburg mill to paperboard that required much less loose paper/
secondary fiber. As a result, Newark began selling the loose paper received from JRM to
customers in the domestic and export market. Newark suffered losses, at an increasing rate, on
those transactions. By January 2014, Newark’s Fitchburg mill was using only ten per cent of the
secondary fiber being furnished by its suppliers. Newark was experiencing substantial losses as a
result of the Agreement with JRM.
Newark Considers Getting Out of the Contract
In February 2014, Mr. Frank Papa, Newark’s CEO, stated to Gold that “the mill needs
I find that although Herro’s testimony might be correct in another context, in this case Gold was
adamant that there was no limit to what Newark wanted to buy. The location designation was
merely to reference the one and only place JRM operated a facility to collect material for recycle.
The actual location of the JRM collection facility was insignificant to Newark.
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your help to try to minimize this expense. We can’t be absorbing a $ 1.5 million loss for next
year. I’m confident you can get creative and find a home for the news.”
A few months later, Newark, for the first time in the eight year history of the Agreement,
claimed that the paper delivered by JRM was excessively contaminated with prohibited food
materials. The claim was raised by officials at the Newark mill in Fitchburg. Gold investigated
the claim. He concluded that the claim of contamination was baseless. The rejection of JRM’s
load was, according to Gold in an email at the time, “laughable.” Gold recommended in writing
to his superiors that Newark divert the tonnage from JRM to Newark’s plant in Salem,
Massachusetts instead of Fitchburg. Gold would then cause the Salem plant to sell the secondary
fiber to overseas markets. The other option, Gold wrote to his superiors, was to terminate the
Agreement for default on quality. Gold recommended against this option because the claim of
contamination would not hold up. Newark elected not to terminate the Agreement on the ground
of poor quality of the delivered secondary fiber.
JRM Fails to Deliver Loose Paper to Newark on January 13, 2015
In the several years prior to 2015, JRM planned to construct a state-of-the-art recycling
facility on property owned by the Moskins. The facility would have the capability to handle,
refine and process various types of recycled material (e.g., paper, cardboard, glass, plastic,
aluminum and steel) into raw materials for use in manufacturing. JRM’s owners created a
separate company called GreenWorks, Inc. in 2013 to own and operate this new facility. A major
investment with respect to GreenWorks was to purchase and install a large, technologically
sophisticated, sorting machine. The GreenWorks facility cost at least $ 18 million to develop.
JRM’s owners expected that GreenWorks could do more complete processing of recycled
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material, enabling it to sell the material in finer and higher grades at higher prices. On January
12, 2015, JRM’s owners opened GreenWorks for business.
In January 2015, JRM was aware that Newark was losing money under the Agreement to
purchase JRM’s secondary fiber. Likewise, Newark was aware of the development, construction
and opening of GreenWorks by the owners of JRM. JRM’s owners intended, ultimately, to move
all of its operations from the Malden facility to GreenWorks. The lease for the Malden facility
expired at the end of June 2015. JRM’s owners testified that there was space at GreenWorks
where the JRM trucks could dump the loose paper for delivery to Newark exactly as had been
done for years under the Agreement. In fact, there was capacity at GreenWorks for GreenWorks
or JRM to increase the amount of secondary fiber collected for delivery.
As the GreenWorks facility was in the process of becoming operational in mid-January
2015, GreenWorks needed to test its new sorting machine. JRM directed its drivers to deliver
loose paper to GreenWorks, instead of the Malden facility, to be used to test the machine. JRM
failed to notify Newark that JRM would not be delivering its daily tons to Newark. Immediately
upon the lack of a delivery to Newark, on January 13, 2015, Newark emailed JRM inquiring
whether JRM intended to make deliveries to Newark. JRM responded the same day stating that it
was testing the machine at GreenWorks and “if you want material we have it.” Gold, on behalf of
Newark, responded within 45 minutes: “Let’s meet to go over the future. Name the time, place
etc. I have no problem with ending the loads that were going to Fitchburg and now Salem (your
call but no problem at all). Just want to make sure I finish all orders that I have taken before we
stop.” JRM responded in an email: “We are working out a lot of kinks this week. Testing speeds,
angles, etc to make sure we have a good product. We definitely want to work together and would
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like to sit down to go over some details. Give me a week or two to get things worked out and we
can meet up then or at a break in the action.” Jimmy Motzkin testified, credibly, that JRM did not
intend to stop delivering material to Newark as called for under the Agreement.2 Gold responded
to Jimmy Motzkin’s email: “Perfecto and a big congratulations with the start up.” As indicated
by the emails, and as testified to by Gold, Newark had no objection to JRM suspending deliveries
on January 13, 2015.3 Gold testified: “We didn’t want the material.”
Gold testified that he had been aware of the plan to build GreenWorks by the owners of
JRM for years. Further, Gold was aware that JRM intended ultimately to move its operations
from the Malden facility to a location at GreenWorks. He understood that JRM would continue
to supply loose paper/secondary fiber to Newark under the Agreement from the GreenWorks
location starting in January 2015. Gold testified that JRM’s plan was of “no concern” to him. I
credit the testimony of Gold.
Newark Decides to Terminate the Agreement
Within three days of the missed delivery, by January 16, 2015, Newark decided to
terminate the Agreement. Gold testified that the CEO of Newark, Mr. Papa, instructed Gold to
“end the deal.” In an exchange of emails on that date among executives at Newark, reference is
made to a meeting that was scheduled with JRM on January 20, 2015. Gold invites Chuck Stone,
2 The parties stipulated that “[a]fter January 13, 2015, JRM continued delivering at least
some of the secondary fiber it collected to the Malden Facility.”
3 The record contains an exchange of emails from Newark (Marc Galardi) and Jimmy
Moskin on January 14, 2015. Newark had some existing orders for loose paper to fulfill. Galardi
mentions that Newark may be “facing roll over charges” if it does not receive material from
JRM. No evidence was presented at trial that Newark actually experienced the charges. JRM
responded by offering loose paper for pick up and referencing the agreement with Gold to sit
down for a meeting.
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the Vice President/General Manager of the Northeast Region of Newark’s Recycled Fibers
Division, from the corporate office in New Jersey to attend the meeting. Stone asks that two
additional Newark employees attend. In the email, Gold states “come to JRM as I am putting an
end to the deal.”
A meeting between Newark and JRM occurred, over lunch at a restaurant, on January 20,
2015. Five people testified at trial regarding what was said at the meeting: James Motzkin,
Jimmy Motzkin, Gold, Stone, and Marc Galardi, another Newark employee. According to the
Motzkins, Gold stated at the meeting that effective immediately Newark would no longer accept
any material from JRM. The Motzkins testified that they were shocked at the termination. They
did not say that JRM agreed to the termination.4 Gold testified that he told the Motzkins at the
meeting that he had been given marching orders: Newark could no longer take delivery of
materials. Gold could not recall any response from the Motzkins. Stone testified that there was
discussion about Newark not wanting the material but he denied that Gold said Newark would
not accept deliveries. Stone also testified that James Motzkin said that “they will do whatever
[Gold] wanted to do.” Galardi testified that he could not recall the discussions at the meeting.
After the lunch meeting, the participants adjourned to a pre-arranged tour of the new
GreenWorks facility and there were discussions about future business opportunities.
I find the testimony of the Motzkins and Gold to be credible. At the meeting on January
20, 2015, Newark refused further deliveries under the Agreement. JRM did not assent to the
4 At trial, Jimmy Motzkin was confronted with his deposition where he testified that he
said “Okay” in response to Gold’s rejection of future deliveries. The context of the
“Okay” response at deposition was not provided. The use of the word “Okay” is ambiguous. It
does not necessarily mean that Jimmy Motzkin agreed to the termination of the Agreement.
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termination of the Agreement.
In February 2015, the corporate office of Newark prepared a document to terminate the
Agreement in writing. Newark was about to be sold to Caraustar Industries, Inc. Gold was urged
to obtain a written confirmation from JRM that the Agreement was terminated. By email dated
February 7, 2015, Gold states to JRM that “with the sale of the company eminent [sic] Feb 17,
I’ve been asked to get all contracts closed or ended. Please see the attachment on the loose new
deal. Let me know when you have a chance.” The attachment is a document entitled Termination
Agreement. The Termination Agreement, dated February 1, 2015, purports to terminate the
November 1, 2006 Secondary Fiber Purchase Agreement and states that “neither party shall have
any further liability to the other” after the termination date. The document is signed by Gold.
Gold testified, credibly, that when he sent this email on February 7, 2015, he knew there had
been no agreement by JRM to terminate the Agreement. JRM responded by requesting a meeting
to discuss the proposed Termination Agreement. In fact, JRM never accepted the proposed
Termination Agreement and did not sign it.
On February 17, 2015, the date of the acquisition of Newark by Caraustar, Gold resigned
from his officer position at Newark. Starting in April 2015, Gold began to perform some
consulting work for JRM. Stone continued to be employed by Caraustar until his retirement in
2017. At the end of March 2015, Caraustar inquired of Marc Galardi (still employed by Newark)
about the status of the Agreement. Galardi responded in an email that “JRM has stopped bringing
material in, but the contract is still in place.”
JRM’s Response to Termination of the Agreement
JRM’s owners intended to move JRM’s collection of loose paper from the Malden
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facility to GreenWorks once GreenWorks was up and operating. According to James Motzkin,
JRM had no reason to anticipate that Newark would object to the transfer of JRM’s collection
activity to the GreenWorks location. In fact, Motzkin had discussed JRM’s plan to move JRM’s
operation to GreenWorks with Gold, and Gold was supportive of the move. Gold never
expressed any concern over the proposed move. It was JRM’s intention to collect loose paper,
and deliver it to Newark, exactly as JRM had been doing from the Malden facility. JRM wanted
the Agreement with Newark to continue for the life of the contract.
After the January 20, 2015 meeting, JRM began to look for other purchasers of the loose
paper that had previously been delivered to Newark under the Agreement. According to James
Motzkin’s testimony there was essentially no market for loose paper. JRM could not obtain the
purchase price under the Agreement for the loose paper that Newark was obligated to pay. To
mitigate its losses, JRM decided to have GreenWorks process the loose paper to a higher, finer
grade and baled, for which there was a market. JRM was then able to sell the fully processed and
baled secondary fiber at a price higher per ton than what would have been paid by Newark for
loose paper. The cost, however, of processing the loose paper to a baled, refined degree was a
cost that JRM would not have incurred if Newark had continued the Agreement to buy
unprocessed, unbaled loose paper.
Damages
JRM claims that it has suffered damages as a result of Newark’s unjustified termination
of the Agreement. JRM calculates its damages to be $ 2,169,948 (Exhibit 43). Findings regarding
the damages calculation are in Part III, below.
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II. ANALYSIS AND CONCLUSIONS OF LAW
The Agreement provides that the “duties, rights, and remedies of the parties” shall be
governed by New Jersey law. Because the sale of secondary fiber under the Agreement is a sale
of “goods” as defined by the Uniform Commercial Code (“UCC”), N.J. Rev. Stat. § 12A: 2-101,
105 et seq, the New Jersey UCC will be applied. It will be cited as UCC §2-xxx. New Jersey also
recognizes the implied covenant of good faith and fair dealing that applies to all contracts. To
prove a breach of the implied covenant, JRM must prove (i) the existence of a contract, (ii) that
Newark engaged in conduct, without good faith, with bad motive or intention, for the purpose of
depriving JRM of the rights and benefits of the parties’ contract, (iii) that JRM suffered damages
as a result of that conduct, and (iv) that JRM performed its own contractual duties, unless
excused. Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210,
224-225 (2005).
A. Repudiation of the Agreement
As referenced above, I find that Newark unilaterally terminated the Agreement on
January 20, 2015. Newark informed JRM that it would no longer accept deliveries of secondary
fiber from JRM under the Agreement. JRM did not consent to the termination.
Under UCC § 2-610, “[w]hen either party repudiates the contract with respect to a
performance not yet due the loss of which will substantially impair the value of the contract to
the other” the aggrieved party has certain options. I find that Newark’s repudiation of the
Agreement substantially impaired the value of the contract to JRM. The Agreement, providing a
guaranteed price to JRM for loose paper, had approximately 21 months left before the agreedupon
term ended. Under UCC § 2-610 (b) and (c), JRM was entitled, upon repudiation, to
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suspend its own performance and to seek any remedy for breach.
Newark makes three legal arguments to justify the termination of the Agreement on
January 20, 2015. First, Newark contends that the failure of JRM to deliver loose paper on
January 13 – 20, 2015, was a breach of the Agreement, relieving it from performance. Second,
Newark avers that JRM abandoned the Agreement by failing to provide adequate assurance of
performance. Third, Newark says that JRM was planning to deliver loose paper from
GreenWorks, not the Malden facility. Thus, Newark had no obligation to continue purchases. I
will address each argument in turn.
The parties agree that the contract at issue is an installment contract as described in UCC
§ 2-612. JRM was obligated to deliver “all” of its secondary fiber/loose paper in separate lots.
The Agreement does not specify when the deliveries should occur. The Agreement provides that
the goods will be picked up by Newark pursuant to “a pickup schedule, which [Newark] may
revise from time to time in its reasonable discretion.” According to the parties’ stipulated facts, at
some date after the execution of the Agreement, the parties entered into another agreement for
JRM to deliver the goods to Newark for an additional price per ton. A copy of this delivery
agreement is not in the record. Accordingly, the record reflects no obligation for JRM to deliver
every business day, every week or every month. JRM was, however, obligated to sell “all” of its
output of secondary fiber to Newark. The evidence shows that the practice of the parties was for
JRM to deliver loose paper to Newark every business day.
Newark contends that the failure of JRM to deliver loose paper on January 13 – 20, 2015,
was a breach, or default, under the Agreement. If the failure to deliver was a “breach [that] goes
to the whole contract (12A: 2-612)”, Newark may cancel the Agreement. UCC § 2-711(1). The
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reference to § 2-612 invokes the applicable provisions of law governing an installment contract
like the Agreement here.
Under UCC § 2-612(3), when a “default with respect to one or more installments
substantially impairs the value of the whole contract there is a breach of the whole.” I find that
the failure of JRM to deliver loose paper on January 13 – 20, 2015, did not impair the value of the
Agreement to Newark. Newark was losing money on its re-sale of loose paper. As stated by
Gold: “We didn’t want the material.” I find that the suspension of delivery by JRM on January
13, 2015, was viewed by Newark as an opportunity, not an impairment. The opportunity was to
use the suspension of delivery to “end the deal” as Gold did on January 20, 2015.
Next, Newark says that JRM failed to provide adequate assurance that it intended to
continue to perform following the suspension of deliveries on January 13, 2015. Newark argues
that failure to provide reasonable assurance from JRM to Newark constitutes repudiation by
JRM. UCC § 2-609(1) provides that “[w]hen reasonable grounds for insecurity arise with respect
to the performance of either party the other may in writing demand adequate assurance of due
performance and until he receives such assurance may if commercially reasonable suspend any
performance for which he has not already received the agreed return.”
Newark’s argument under UCC § 2-609 fails at more than one level. First, Newark’s
“insecurity” must arise from a threat to its “expectation of receiving due performance” that will
not impair the value of the contract. Id. As described above, Newark was not insecure about
JRM’s performance. On the contrary, it wanted to end the contract. Second, I find that the emails
from Marc Galardi to Jimmy Motzkin on January 13 and 14, 2015, are not, when viewed in
context, demands for assurance of performance of the whole contract. Galardi was inquiring
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regarding the short term interest of Newark to obtain material to fulfill a handful of existing
orders. Gilardi did not express “insecurity” as to the contract as a whole and did not demand
performance of the contract as a whole. At precisely the same time as Galardi’s emails, Galardi’s
superior, Gold, stated to JRM that he had “no problem with ending the loads that were going to
Fitchburg and now Salem (your call but no problem at all).” Third, JRM did, in fact, provide
assurance that it could deliver the short-term loads requested by Galardi.
Finally, UCC § 2-609 requires “reasonable” grounds and “adequate” assurance.
According to Official Comment 3 to this UCC section, those terms should be understood by
applying commercial standards in accordance with commercial practices. JRM and Newark had
been performing under the Agreement for more than eight years prior to January 13, 2015. The
emails between the parties at that time propose reasonable steps to determine both parties’ intent
as to performance under the Agreement. A meeting was set for seven days5 after January 13,
2015, on January 20, 2015. Rather than engage in a commercially reasonable discussion at that
meeting regarding the continuation of performance under the Agreement, however, Newark
repudiated the Agreement. At no point did JRM repudiate the Agreement.
Newark’s last line of defense to the finding that it repudiated the Agreement on January
20, 2015, is to point to the fact that JRM intended, ultimately, to move its operation of collecting
the truck loads of curbside pick up of loose paper to GreenWorks rather than the Malden facility.
Newark argues that it was only obligated under the Agreement to purchase loose paper collected
5 Even if Newark’s emails from Galardi could be viewed as a justified demand for
assurance of performance, under UCC § 2-609(4), JRM had a “reasonable time not exceeding
thirty days” to provide assurance. I find that JRM acted reasonably by proposing, then attending,
a meeting within seven days.
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at the Malden facility.
On January 20, 2015, JRM was still operating the Malden facility. Newark repudiated the
Agreement on that date because it was losing money on the deal, not because JRM might in the
near future begin to collect material at GreenWorks rather than Malden. The collection location
was immaterial to Newark at the time the Agreement was entered into, and the location remained
immaterial to Newark after it chose to repudiate.
Newark unjustifiably repudiated the installment Agreement on January 20, 2015. JRM
did not assent in writing or otherwise to the termination. JRM is entitled to proceed to the
remedies provided to a seller upon default by the buyer as described in UCC §§ 2-703, 2-706,
and 2-708.
III. DAMAGES
UCC § 2-703 lists the remedies available to a seller when the buyer has repudiated the
contract. Among the remedies are to resell the goods and recover damages (§ 2-706), or to
recover the difference between the contract price and the market price for the goods (§ 2-708(1)).
Here, JRM is proceeding under UCC § 2-708(1). See JRM’s Proposed Conclusions of Law, ¶ 15.
JRM’s theory of damages is that the market price for the loose paper that, absent repudiation,
would have been sold to Newark, can be determined by the evidence of what GreenWorks did
with the loose paper. JRM delivered the loose paper to GreenWorks for no consideration.6
GreenWorks then processed the loose paper to a higher, refined degree than mere loose paper,
and baled the finished product (‘finished paper”). GreenWorks sold the finished paper to third
6 Because JRM delivered the loose paper to GreenWorks for no consideration there was
no “resale” that would allow a calculation of damages pursuant to UCC § 2- 706.
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parties, thereby determining a market price for the finished paper.
To calculate damages, JRM then applies a cost factor to refining the loose paper to
become finished paper. JRM subtracts that cost from the market value (total revenue received) of
the finished paper. The calculation produces a “net return.” The “net return” is a loss in 2015 and
a profit in 2016. The last step in JRM’s damages theory is to take the total revenue that would
have been received by JRM from Newark if the contract had been performed, and adjust that
number by the “net return.”
UCC § 2-708(1) provides as follows:
Subject to subsection (2) and to the provisions of this Chapter with respect to
proof of market price (12A: 2-723), the measure of damages for non-acceptance
or repudiation by the buyer is the difference between the market price at the time
and place for tender and the unpaid contract price together with any incidental
damages provided in this Chapter (12A: 2-710), but less expenses saved in
consequence of the buyer’s breach.
JRM does not seek the remedy of profit it would have earned under the Agreement, pursuant to
subsection (2) of § 2-708.7 It proceeds under § 2 – 708(1), as guided by UCC § 2-723.
Under JRM’s theory of damages, it bears the burden of proving three measurement points
necessary for JRM’s calculation of damages: (1) the contract price for loose paper that Newark
was obligated to pay, (2) the market price of the loose paper at the time and place of tender, and
(3) the reasonable quantity of loose paper that Newark was obligated to buy. JRM’s damages
calculation is contained in Exhibit 43. The calculation was prepared by JRM’s long-time
7 As referenced above, JRM is explicitly proceeding under UCC § 2-708(1), not § 2-
708(2). JRM’s Proposed Conclusions of Law, ¶ 15. Moreover, JRM offered no evidence to show
the profit margin that it, as opposed to GreenWorks, experienced prior to the breach. JRM’s
damages witness (John Hoffman) testified that he did not prepare any analysis of JRM’s profits
in 2014.
18
accountant, John Hoffman. Hoffman is a certified public accountant who has acted as JRM’s
outside accountant for more than twenty years. He has also served as the outside accountant for
GreenWorks since its inception. At trial, Hoffman explained the calculations.
As to the first measurement point, Hoffman used the minimum price per ton of loose
paper that Newark agreed to pay. That price is $ 57.50 per ton of loose paper. The price of $ 57.50
per ton is referenced in the “Minimum Price Rider” attached to the Agreement. While Newark
argued that the minimum price rider “provides for suspension of the minimum price in certain
circumstances” (JRM Proposed Findings of Fact ¶ 17), there was insufficient proof that any such
circumstances applied to JRM’s calculation of damages. I find that $ 57.50 per ton is the correct
price to use in calculating JRM’s damages.
The second measuring point under JRM’s theory of damages is “the market price at the
time and place for tender” of the goods not purchased by Newark. See UCC § 2-708(1). JRM
elected to offer no evidence of what the market price for loose paper was in the 2015 – 2016
period. Instead, it proceeded on a theory of showing what a reasonable estimate of market price
for loose paper could be based on a comparable market.
UCC § 2-708(1) directs the court to UCC § 2-723 for a description of acceptable proof of
market price. As stated in the Official Comment to that section, “[w]here the appropriate market
price is not readily available the court is here granted reasonable leeway in receiving evidence of
prices current in other comparable markets or at other times comparable to the one in question.”
JRM introduced evidence showing that there was no market for loose paper, or at least there was
no “readily available” market. Consequently, in its effort to mitigate damages, JRM decided to
use the market for finished paper as a comparable market. While it may be that the market for
19
finished paper could be used as a “comparable market” under the circumstances of this case,
JRM failed to offer acceptable evidence to adjust the finished paper price to a reasonable
estimate of the price of loose paper.8 In fact, nowhere in its damages analysis (Exhibit 43) or in
Hoffman’s testimony is there evidence that would allow a reasonable estimate of the market price
of loose paper in the 2015 – 2016 period. This is the fundamental flaw in JRM’s claim for
damages.
Hoffman detailed in Exhibit 43 the per ton price actually obtained by GreenWorks from
third parties for finished paper. That evidence was unrebutted. As shown on Exhibit 43, the
comparable market price for finished paper varied significantly over the remaining 21 months of
the Agreement. By the use of actual prices obtained for finished paper, JRM satisfied the
requirement of UCC § 2- 708(1) to show market price in a comparable market “at the time and
place for tender.”
The market price for finished paper must be adjusted, however, to come to a reasonable
estimate of the market price for loose paper. Finished paper sells at a higher price because the
product is refined and baled. It costs more to refine and bale finished paper than to sell loose
paper. Guided by that fact, JRM embarked on an analysis of the cost of producing finished paper.
Hoffman calculated the cost of refining and baling the loose paper to make the product finished
paper. Hoffman calculated the cost for processing the paper to be $ 75.16 per ton and $ 73.50 per
ton for 2015 and 2016, respectively.
JRM’s proof of damages goes awry at this point. Instead of proving the market price of
8 For example, it is possible that there could be evidence that the price of loose paper
fluctuates at a certain percentage below the price of finished paper. There was no such evidence
offered.
20
loose paper, even by way of deduction or inference, JRM limits its proof to the cost of processing
loose paper to a finished product. Then, JRM performs a “net return” calculation measuring
GreenWorks’ profit and loss. For example, the calculation for 2016 in Exhibit 43 simply
calculates that GreenWorks made a profit on the sale of finished paper. Then, inexplicably, the
damages to JRM for that year are calculated to be the revenue JRM would have received had
Newark performed, less the profit GreenWorks made. This damages formula is inconsistent with
UCC § 2-708(1). JRM’s proof does not prove anything about the market price of loose paper
during the 2015 – 2016 period. On that basis alone, JRM fails to prove damages.
Even if JRM’s damages model is considered further, it is erroneous in its methodology.
First, the calculation of cost per ton is faulty. The premise of the calculation was to determine a
cost per ton of all of GreenWorks’ output, including product from glass, metals and paper. The
calculation uses 100% of GreenWorks’ costs, but fails to divide by 100% of GreenWorks’
output, when calculating cost per ton.9 If all output is considered, including cardboard, the cost
per ton of product from GreenWorks would be $ 59.15 and 53.80 for 2015 and 2016, respectively.
Use of those revised cost per ton numbers shows that GreenWorks made a substantial profit on
the sale of finished paper derived from loose paper delivered by JRM. Second, JRM fails to
explain the rationale of calculating damages by taking expected revenue from the Agreement in
9 Hoffman offered Exhibit 40 as his calculation of cost. As described by Hoffman, he
compiled the total cost of operating the GreenWorks facility for each of 2015 and 2016, and the
monthly average for each year. From the records of GreenWorks, Hoffman took the number of
total tons processed at the facility for the year. The number of total tons processed included all
materials processed at the facility, not just paper. Hoffman divided the cost number by the total
tons of product, except that he reduced by 75% the tons of cardboard product, to come to the
price per ton for processing. The reduction for cardboard is inconsistent with the purpose of the
calculation.
21
2015 – 2016, and adjusting that number by GreenWorks’ net profit or loss. That calculation is
comparing apples to oranges. It says nothing about JRM’s loss or profit, nor does it provide a
basis for estimating the market price for loose paper in 2015 – 2016.
The third, and last, measuring point for JRM’s theory of damages is to prove the
reasonable quantity of loose paper that Newark was obligated to buy. Because JRM failed to
prove a reasonable estimate of price for loose paper in the 2015 – 2016 period, this measuring
point does not need to be addressed. Nevertheless, I make the following finding for the record.
JRM’s damages model, Exhibit 43, is built on the assumption that JRM could have delivered to
Newark a much larger amount of loose paper than it ever did during the time the Agreement was
operating. The damages model assumes 20,816 tons delivered in 2015 and 20,217 tons delivered
in 2016. In contrast, the tonnage delivered to Newark in 2014 was approximately 1,000 tons per
month, or 12,000 tons for the year. Testimony at trial showed that the Moskins intended in 2015 –
2016 to increase the amount of loose paper picked up because JRM had more capacity at
GreenWorks. UCC § 2-306 provides guidance for evaluating the reasonable expectations of the
parties to an output contract like this one. “A term which measures the quantity by the output of
the seller . . . means such actual output . . . as may occur in good faith, except that no quantity
unreasonably disproportionate to . . . any normal or otherwise comparable prior output . . . may
be tendered or demanded.” I find that Newark was not obligated to purchase the disproportionate
amounts of approximately 20,000 tons in the years 2015 – 2016.
In sum, JRM elected to transfer the loose paper it collected after January 20, 2015 to
GreenWorks for no consideration, thereby eliminating the typical measure of damages based on
resale of the goods. UCC § 2-706. It chose to seek damages under UCC § 2-708(1). There was,
22
however, no proof of the market price of loose paper after Newark’s repudiation. The evidence
offered at trial by JRM was insufficient to prove that JRM suffered damages.
ORDER
JRM’s claims for breach of contract and breach of the implied covenant of good faith and
fair dealing must be DISMISSED for failure to prove damages. Under the Agreement, “Seller
shall also indemnify Buyer for its costs (including legal fees and disbursements) in enforcing, or
defending against any unsuccessful claims made by Seller with respect to, this Agreement.”
Newark counterclaims under that provision of the Agreement. Newark is hereby ORDERED to
serve, pursuant to Superior Court Rule 9A, its motion for legal fees and disbursements,
accompanied by supporting material and affidavits. The deadline for service of the motion is
January 8, 2018. Both parties should indicate in their respective motion and opposition papers
whether they wish to have an evidentiary hearing on the motion.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
Date: December 7, 2017
23 read more

Posted by Stephen Sandberg - January 6, 2018 at 9:54 am

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Anne Gamble Ten Taxpayer Group, et al. v. Health Facilities Appeals Board, et al. (Lawyers Weekly No. 09-031-17)

1
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
SUCV2015-3545-BLS2
ANNE GAMBLE TEN TAXPAYER GROUP, consisting of
GUSTAVE H. MURBY, ANNE C. GAMBLE, WALTER J. GAMBLE, STEPHEN GELLIS, M.D., LORING CONANT M.D., JR., CONANT LOUISE, BRIAN GREENBERG, PEGGY GREENBERG, KAREN D’AMATO, CHRISTINE BARENSFELD, JOHN W. HAGERMAN, ROBERT GAMBLE, SHIRLEY C. DUFF, JAMES K. DUFF, JAMES M. SMITH, and ELLEN K. ANDERSSON,
Plaintiffs
vs.
HEALTH FACILITIES APPEALS BOARD, MONICA BHAREL, M.D., in her capacity as COMMISSIONER OF MASSACHUSETTS DEPARTMENT OF PUBLIC HEALTH, MARYLOU SUDDERS, in her capacity as SECRETARY OF MASSACHUSETTS EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES, and CHILDREN’S HOSPITAL CORPORATION d/b/a CHILDREN’S HOSPITAL,
Defendants
MEMORANDUM OF DECISION AND ORDER
ON CROSS MOTIONS FOR JUDGMENT ON THE PLEADINGS
AND ON PLAINTIFFS’ MOTION TO AMEND COMPLAINT
This is one of several lawsuits filed by a group of plaintiffs unhappy with a decision by the defendant Boston Children’s Hospital (BCH) to eliminate the Prouty Garden as part of a modernization and expansion project. In the instant case, plaintiffs challenge the October 27, 2016 determination by the Commissioner of the Department of Public Health and the Public Health Council (collectively, the Department) to issue a Determination of Need in connection with that project. The Department’s decision is subject to judicial review pursuant to G.L.c. 30A §14 and G.L.c. 111 §25E. With the Administrative Record having been filed, this case is before this Court on Cross Motions for Judgment on the Pleadings, as required by Superior Court Standing Order 1-96. Plaintiffs also seek leave to amend their Complaint. This Court concludes
2
that the plaintiffs’ motions must be DENIED and the defendants’ Cross Motion must be ALLOWED, for reasons set forth herein.
BACKGROUND
Section 25C of Chapter 111 of the Massachusetts General Laws states that a health care institution contemplating a construction project that requires a “substantial capital expenditure” must first obtain a determination of need or “DoN” from the Department of Public Health (DPH). The purpose of the statute is to “control unnecessary expansion by health care institutions of their patient care facilities,” Howe v. Health Facilities Appeals Bd., 20 Mass.App.Ct. 531, 532 (1985), and to encourage the appropriate allocation of resources for health care purposes. Shoolman v. Health Facilities Appeals Bd., 404 Mass. 33, 36 (1989). In order to obtain a DoN, the health care institution must file an Application, which is reviewed for completeness and then forwarded for to the Public Health Council (PHC) and the Commissioner of DPH for their consideration. 105 C.M.R. §510-100.530.1 The Application is also subject to comments and a public hearing. G.L.c. 111 §25C, 105 C.M.R. §§100.400-100.410. The DoN Program Director prepares a staff report (the Staff Summary). 105 C.M.R. §§100.420-100.421. Upon consideration of the Application, the Staff Summary and comments by “parties of record” and the general public, the Department makes a final Determination of Need approving or disapproving the Application, in whole or in part. 105. C.M.R. §100.530(A). Under G.L.c. 111 §25E, any person aggrieved by the determination may, within fourteen days, file an appeal with
1 This Court was informed by counsel at the hearing on these Motions that the DoN regulations have since been amended. As this Court understands it, any changes with regard to content have no bearing on this case. The amendment has changed the number references for those regulations, however. Because the parties agree that the earlier version of the regulations apply and because they have cited to that earlier version in their pleadings, this Court uses the citations to those older regulations, even though they have now been superseded.
3
the Health Facilities Appeals Board. G.L.c. 111 §25E. Within sixty days of that filing, the Board is to issue a final decision either denying the appeal or remanding it for further action.
In the instant case, all these procedural steps were followed. On December 7, 2016, BCH filed an Application for a DoN in connection with a project to create new clinical space, including a neonatal intensive care unit and improved Heart Center at the hospital’s Longwood Avenue location (the Project) If approved, the Project would require the destruction of the Prouty Garden. The plaintiffs are a group of taxpayers who oppose destruction of the garden. They are duly registered with the Department as a “party of record” to the DoN proceedings and may file comments to the Application, which they did.
As required by statute, the DPH staff, held a public hearing on the Project and the plaintiffs were among those who provided their views. After a ten month review process, DPH issued a 37-page Staff Summary that recommended approval of the Application, with conditions. That Summary was later supplemented with an Addendum that addressed certain comments, including those submitted by the Health Policy Commission (HPC). On October 20, 2016, the PHC, chaired by DPH Commissioner Monica Bharel, held a hearing to determine whether to grant BCH’s DoN Application. Among those presenting testimony at the hearing were various individuals who opposed the destruction of Prouty Garden. The PHC ultimately voted to approve BCH’s Application, and the Commissioner and the PHC, acting together as the Department, issued a Notice of Final Action on October 27, 2016. That Notice states that the issuance of the DoN was based upon BCH’s “clear and convincing demonstration that the Project meets each of the governing factors, set forth in 105 C.M.R. 100.000 and Department guidelines.” The approval expressly included certain conditions. Although the statute is ordinarily reviewable by the Health Facilities Appeals Board, the Board had not yet been
4
constituted so that the determination by the Department was considered final. 105 C.M.R. §100.970(B); 105 C.M.R. §100.551(A). This lawsuit ensued.
DISCUSSION
The Legislature has determined what standard that this Court applies in reviewing a Department decision to issue a DoN. That standard is set forth in G.L.c. 111 §25E, which states that the Department’s determination may be set aside only where there has been an “abuse of discretion” or where it is in violation of the procedural or substantive law. Contrary to the plaintiffs’ position, this Court does not apply the more rigorous “substantial evidence” standard. Howe v. Health Facilities Board, 20 Mass.App.Ct. 531, 534-537 (1985); see also Shoolman v. Health Facilities Appeals Board, 404 Mass. 33 (1989). Rather, the review is even more deferential. As explained by the SJC, the decision to issue the DoN can be overturned only if it was “arbitrary and capricious.” Shoolman, 404 Mass. at 36. If there is a rational basis for the decision and it is not otherwise unlawful, then it must be affirmed. Applying this standard, this Court concludes that the plaintiffs have not met their burden of demonstrating that the Department’ decision to issue a DoN to BCH should be overturned.
As stated in the October 27, 2016 Notice of Final Action, the Department reviewed BCH’s Application to determine whether it complied with certain mandatory terms and conditions of the applicable regulations. Specifically, it sought to determine whether the Project met each of nine factors set forth in 105 C.M.R. §100.533(B). In support of their Motion, plaintiffs focus on a couple of these factors and argue that the evidence does not support the Department’s decision. One of those factors (Factor One) requires BCH to demonstrate that the Project “will not duplicate existing resources in the applicable service area.” 105 C.M.R. §100.533(B) (1). A second factor (Factor Two) requires that the project must “satisfy in whole
5
or in part health care requirements of the project population of the applicable services area, without any duplication of services and other adverse service consequences…” ” 105 C.M.R. §100.533(B) (2). Plaintiffs argues that the Project does not satisfy these requirements because it is based not on present needs but on BCH projections regarding future patient volume. Moreover, these projections (they argue) are not based on increased demand from Massachusetts patients but from international and out of state patients. Citing comments by the HPC, plaintiffs express concern that shifting patients from competing local pediatric care providers to BCH could have a destabilizing effect that would translate into higher health care costs overall. Plaintiffs argue that the Department ignored these concerns and that the Department’s decision that the regulatory factors were satisfied is wholly unsupported by the facts presented to it.
In fact, a review of the Administrative Record shows that the Department did consider the same arguments and criticisms plaintiffs now make to this Court. The HPC’s comments, for example, were specifically addressed both in the Staff Summary and the Addendum. The plaintiffs may disagree with how the Department resolved those concerns, but that is not a basis to overturn its decision. Moreover, the reasons offered in support of the decision are neither arbitrary nor capricious. Regarding the danger of duplication of services, the Staff Summary concluded that the “applicable services area” referenced in the regulations can – and, in the instant case, did — extend to an area beyond Massachusetts so that it was permissible to consider patients projected to come from out of state and internationally. The Department further determined that higher acuity patients from all regions, including the Boston area, are already coming to BCH for more complex procedures than are available at other local hospitals, decreasing the danger that services would be duplicated. As to the validity of BCH’s projections, the DPH Staff required from BCH an Independent Cost Analysis which (among
6
other things) reviewed population projections, historical trends, and two patient projection scenarios. That analysis concluded that the success of the Project would not require taking patients away from other local providers and was also “consistent with the Commonwealth’s effort to meet the health care cost containment goals.” In short, in making the findings that it did, the Department did not abuse its discretion or exceed its legal authority. Indeed, even under the less deferential “substantial evidence” standard, the DoN determination passes muster.
Significantly, the Department did not simply determine that BCH’s Application satisfied the nine mandatory factors imposed by the regulations. Additionally, it imposed eight conditions on BCH, among them “Condition 8.” That condition imposed three requirements on BCH that directly addressed the concerns expressed above. First, BCH was prevented from passing on its incremental operating costs to government and nongovernment Massachusetts payors or patients “in excess of the Commonwealth’s costs containment goals.” Second, BCH had to maintain its commitment to serving Medicaid patients. Third, it is required to make an annual report to the Department that includes among other things information concerning the degree to which the out-of-state demand it anticipated was actually being realized. Plaintiffs argue that this condition is somehow invalid or at the very least unworkable. This Court disagrees.
The DoN regulations expressly permit the Department to impose conditions. See 105 C.M.R. §100.552(A) (Department “may prescribe…any other conditions reasonably related to the scope of the project…and consistent with the objective of making adequate health care services reasonably available to every person within Massachusetts”). Indeed, the regulations specifically contemplate the imposition of a condition in the event that the Project falls short of satisfying any of the nine regulatory factors. See 105 CM.R. §100.533(C). Plaintiffs argue that
7
Condition 8 is not in accordance with 105 C.M.R. 100. §552, which requires that the condition be “within the control of the applicant.” But each of the three requirements that Condition 8 imposes are within BCH’s control and are matters for which the Department can hold BCH accountable. That Condition 8 by its terms gives to BCH an opportunity to argue that it is noncompliant with any of the requirements because of unexpected circumstances or events does not change the fact that the condition itself (including the submission of an annual report) concerns matters within BCH’s control. Nor does this so called “escape clause” render the Condition meaningless: a finding by the Department that BCH is not in compliance with Condition 8 permits the Department to require BCH to remove beds from service and to extract other payments. In short, this Court sees no legal grounds for overturning the Department’s decision.
At the same time that the plaintiffs filed their Cross Motion for Judgment on the Pleadings, they also filed a Motion to Amend the Complaint. This Motion seeks to add a count (Count 4) which alleges that since the issuance of the DoN, BCH is in violation of the conditions that the Department imposed and has otherwise not complied with applicable regulations. BCH argues that plaintiffs’ allegations are demonstrably false and that further amendment of the Complaint would futile. Although this Court must accept plaintiffs’ allegations as true, this Court does have some discretion to deny a request to amend a complaint, and does so here. See Rule 15(a), Mass.R.Civ.P.
Count 4 alleges among other things that the report that Condition 8 requires BCH to submit to the Department is inadequate; it also alleges that BCH has not complied with Condition 7 of the DoN that requires it to implement a plan to effectively communicate with community groups. Whether BCH is in violation of those conditions, however, is a matter that
8
should first be addressed to the Department, which has both the expertise and the primary responsibility for enforcing its own regulations and orders. See Athol Mem’l Hospital v. Comm’r of Div. of Med. Assistance, 437 Mass. 417, 421-422 (2002). Other parts of Count 4 do not appear to belong in this case at all. For example, plaintiffs allege public records violations, but have already filed a separate public records action which this Court has already refused to consolidate with the instant one. See Murby v. Marylou Sudders, Civ. No., 17-1036H (Suffolk Superior Court). 2 A motion to amend may also be properly denied based on “undue delay, bad faith, or dilatory motive on the part of the movant.” Vakil v. Vakil, 450 Mass. 411, 417 (2008), quoting Castellucci v. United States Fid. & Gaur. Co., 372 Mass. 288, 290 (1977). BCH argues (not without basis) that the plaintiffs here are more interested in delay than in seeking redress for real (as opposed to illusory) legal violations. In short, taking into account both the procedural background of this case together with the violations that are alleged, there is ample basis for this Court to exercise its discretion to deny the motion.
CONCLUSION AND ORDER
For all the foregoing reasons together with reasons articulated in the Memoranda of BCH and the Department, the plaintiffs’ Motion to Amend the Complaint and their Motion for Judgment on the Pleadings are both DENIED. The defendants’ Cross Motion for Judgment on the Pleadings is ALLOWED and it is hereby ORDERED that judgment enter affirming the Department’s DoN determination. The parties shall submit a proposed form of judgment within 10 days of receiving this opinion.
_____________________________
Janet L. Sanders
Dated: October 13, 2017 Justice of the Superior Court
2 Based on plaintiffs’ Reply Memorandum, it appears that at least some of the information that plaintiffs sought was provided as of the date the Motion to Amend was filed, suggesting that at least some of the alleged violations are now moot or may soon become moot once the records are provided.
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Dated: October 13, 2017 read more

Posted by Stephen Sandberg - November 3, 2017 at 2:37 pm

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Malebranche, et al. v. Colonial Automotive Group, Inc., et al. (Lawyers Weekly No. 09-028-17)

1
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
Civ. No. 2016-3479-BLS2
DJHON MALEBRANCHE, WISKINDA LAMANDIER,
NICHOLAS PEZZANO, and CHRISTOPHER FARIAS,
on behalf of themselves and all others similarly situated,
Plaintiffs
vs.
COLONIAL AUTOMOTIVE GROUP, INC.; GORDON
CHEVROLET, INC. f/k/a GORDON CHEVROLET GEO, INC.;
COLONIAL NISSAN OF MEDFORD, INC.; GORDON
VOLKSWAGEN, INC.; COLONIAL DODGE, INC; and
LAWRENCE GORDON,
Defendants
MEMORANDUM OF DECISION AND ORDER ON
DEFENDANTS’ AMENDED MOTION TO DISMISS
This is a putative class action against a family of automotive dealerships and their parent company, Colonial Automotive Group, Inc. (CAG), alleging a failure to pay car sales employees compensation due under the Massachusetts wage and overtime laws. G.L.c. 149 §§ 148, 150. Plaintiffs Djhon Malebranche, Wiskinda Lamandier, Nicholas Pezzano, and Christopher Farias were employed as such salespersons. The First Amended Class Action Complaint (the Complaint) asserted both statutory violations (Counts I through V) and common law claims (Counts VI through IX). Defendants CAG and Gordon Chevrolet, Inc. (Gordon Chevrolet) moved to dismiss pursuant to Rule 12(b) (6), Mass.R.Civ. P. By the time of the motion hearing, the plaintiffs had voluntarily dismissed the common law claims, leaving only Counts I through V. As to those claims, CAG and Gordon Chevrolet contend that the Complaint fails to
2
allege facts sufficient to show that either of them ever employed plaintiffs.1 For the reasons set forth below, this Court concludes that the Motion must be Denied.
BACKGROUND
The Complaint sets forth the following allegations, which this Court assumes as true for purposes of this Motion.
CAG is a domestic corporation that manages and controls the business operations and employment matters for all of the sixteen automotive dealerships that comprise the “Colonial Automotive Group,” including Gordon Chevrolet, Colonial Nissan, Colonial Dodge, and Gordon Volkswagen. ¶¶ 5, 15. Gordon Chevrolet (formerly known as Gordon Chevrolet Geo) is a foreign corporation with a principal office in Acton, Massachusetts. ¶ 5. Colonial Nissan, Colonial Dodge, and Gordon Volkswagen are all domestic corporations with principal offices in Medford, Hudson, and Westborough, Massachusetts, respectively. ¶¶ 6-9. As sub-corporations or subsidiaries of CAG, the dealerships function as CAG’s agents. ¶ 36.
CAG and the dealerships all do business under the Colonial Automotive Group umbrella, and regularly sell cars to members of the public. ¶¶ 15-16, 34, 41. CAG controls, operates, oversees, and/or directs both the business and employment operations for the dealerships, including hiring and firing, creating and implementing payroll policies, overseeing employee performance, maintaining personnel and employment records, and controlling work schedules. ¶ 33. CAG also operates a general website for all of the dealerships, representing the group “as a single ‘dealership’ that actively employs over 600 employees.” ¶ 34.
1 Defendants also contended that the plaintiffs did not satisfy the statutory prerequisite of first filing a Wage Act complaint with the Attorney General’s Office. Plaintiffs have since amended the Complaint to eliminate this procedural issue.
3
With respect to Gordon Chevrolet, the Complaint alleges that Gordon Chevrolet assists CAG as its agent in the management and control of business and employment operations for all of the dealerships. ¶ 19. Additionally, plaintiffs Malebranche and Lamandier executed documents acknowledging their employment with Gordon Chevrolet. ¶¶ 49, 51. Malebranche’s document acknowledges an agreement with “Gordon Chevrolet Geo dba Colonial Chevrolet,” and Lamandier’s acknowledges an agreement with “Gordon Chevrolet Geo dba Colonial Nissan.” Id.
Malebranche, Lamandier, Pezzano and Farias were all employed as inside car salesmen who worked at different dealerships under the CAG umbrella. ¶¶ 1-4. They worked to sell cars on behalf of CAG and its dealerships. ¶¶ 1-4, 48, 50, 52-53. The defendants were aware that plaintiffs and other similarly situated sales employees often worked more than forty hours per week and on Sundays without receiving compensation required by the Wage Act. ¶¶ 55, 56, 62. This was the result of a “companywide practice and policy” of CAG and the dealerships. ¶ 54, 68.
DISCUSSION
In moving to dismiss Counts I through V, CAG and Gordon Chevrolet argue that the Complaint does not allege sufficient facts to show that either of them is an “employer” of the plaintiffs within the meaning of the Massachusetts Wage Act. The standard that this Court applies to this Rule 12(b) (6) motion is well established. Although the complaint must contain more than mere “labels and conclusions,” Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), the ultimate inquiry is whether the plaintiff has alleged facts that are “adequately detailed so as to plausibly suggest an entitlement to relief.” Greenleaf Arms Realty Trust, LLC v. New Boston Fund, Inc., 81 Mass. App. Ct. 282, 288 (2012) (reversing lower court’s allowance of 12
4
(b) (6) motion). Thus, that the complaint relies on facts that are improbable does not support dismissal so long as those allegations, “even if doubtful in fact,” “raise a right to relief above the speculative level.” Iannacchino, 451 Mass. at 636, quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). This Court must draw all reasonable inferences from those factual allegations in favor of the nonmoving party. See Iannacchino, 451 Mass. at 625 n.7, citing Nader v. Citron, 372 Mass. 96, 98 (1977). Finally, it is important to note that employment status is ordinarily a question of fact that can rarely be decided on a motion to dismiss. See Morris v. Massachusetts Maritime Academy, 409 Mass. 179, 194 (1991) (affirming lower court’s denial of motion to dismiss in part because whether an employer-employee relationship existed under the Jones Act was a question of fact). This Court concludes that the Complaint satisfies the 12(b) (6) standard.
In a recent decision, the Appeals Court applied two tests to determine whether the defendant was an “employer” within the meaning the Massachusetts Wage Act. Gallagher v. Cerebral Palsy of Mass., Inc., 92 Mass. App. Ct. 207 (2017). The first is a statutory test analyzing the employer-employee relationship according to G.L. c. 149, § 148B. The focus there is whether the plaintiff provided services to the defendant. Id. at. 210, quoting Sebago v. Boston Cab Dispatch, Inc., 471 Mass. 321, 329 (2015). The second is a common law test. Under this second test, a defendant who was not the direct employer of the plaintiff would nevertheless be considered the “joint employer” of the plaintiff where it “retained for itself sufficient control of the terms and conditions of employment of the employees who are employed by the other employer.” Id at. 214, quoting Commodore Health Ventures, Inc., 63 Mass.App.Ct. 57, 62 (2005). The Appeals Court noted that under either test, whether or not an employer-employee
5
relationship exists is ordinarily a question of fact and thus cannot easily be decided on a Rule 12(b) (6) motion.
Noting that the case before it was “not the ordinary case,” the court in Gallagher affirmed the lower court’s allowance of a motion to dismiss because an extensive regulatory framework governed the work arrangement at issue and the corresponding relationships between the various parties. The plaintiffs were personal care attendants who performed work in the homes of individual consumers covered by MassHealth. The defendant acted as a “fiscal intermediary agency” between MassHealth and the consumer. The Appeals Court concluded that the defendant was not an employer under the statutory test because the services were rendered to the individual consumers, not the defendant agency. The Court also concluded that the plaintiffs could not satisfy the common law test because the defendant did not exercise sufficient control over the plaintiff’s work: it was MassHealth, not the defendant, that set the plaintiffs’ work schedule and determined payroll policies. 2 In the instant case, no regulatory framework governs the employer-employee relationship of car sales employees at the Colonial Automotive Group dealerships, suggesting that whether such a relationship exists for purposes of the Wage Act is a question of fact. The issue is whether the Complaint pleads sufficient facts to satisfy the two tests described in Gallagher. This Court concludes that it does.
As to CAG, the Complaint alleges that all defendants, including CAG, sell cars to members of the public through sales employees such as the plaintiffs. ¶¶ 41, 20-31. Assuming these facts to be true, CAG thus receives the “services” of the plaintiffs. The Complaint also alleges that CAG maintains a common website for all of the dealerships, and holds itself out as a
2 Gallagher left open the question of whether the statutory “services” test entirely supplants the common law “control” test. In the absence of any appellate case that deals directly with this issue, this Court concludes that the common law test supplements the statutory test – that is, that both can be applied to determine if a defendant is an employer under the Wage Act.
6
single dealership with over 600 employees. CAG controls and manages the business operations and employment matters for all of the dealerships, which implement CAG employment policies and procedures, including those that pertain to wage and overtime compensation. Finally, plaintiffs attached to their memorandum in opposition certain agreements signed by plaintiffs Malebranche and Lamandier, apparently with CAG, which state among other things that failure to comply with “The Colonial Automotive Group’s information security policies and procedures” could result in “termination of my employment with The Colonial Automotive Group.” Although these documents are not specifically referenced in the Complaint and thus should not be considered on this 12 (b) (6) motion, they do indicate that if discovery were allowed to proceed, there may be further information that would support plaintiffs’ claim that they were employed by CAG.
Although a closer call, this Court also concludes that the Complaint alleges enough to show an employment relationship between plaintiffs and Gordon Chevrolet, particularly if this Court draws all reasonable inference in favor of the plaintiffs. At least two of the plaintiffs executed agreements acknowledging the terms of their employment with “Gordon Chevrolet Geo dba Gordon Chevrolet” and “Gordon Chevrolet Geo dba Colonial Nissan.” This suggests that they do provide services to Gordon Chevrolet or alternatively, that Gordon Chevrolet maintains some control over the terms and conditions of their employment. The Complaint also alleges that Gordon Chevrolet assists CAG as its agent in its management and control of the business and employment matters for the dealerships. In short, whether Gordon Chevrolet or CAG should remain in the case is best decided after plaintiffs have had an opportunity to explore these issues in discovery.
7
CONCLUSION
For the foregoing reasons, the defendants’ Motion to Dismiss is DENIED. This case is scheduled for a Rule 16 conference November ___, 2018 at 2:00.
_________________________________
Janet L. Sanders
Justice of the Superior Court
Dated: October 19, 2017 read more

Posted by Stephen Sandberg - November 3, 2017 at 7:33 am

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AIDS Support Group of Cape Cod, Inc. v. Town of Barnstable, et al. (Lawyers Weekly No. 10-104-17)

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; SJCReporter@sjc.state.ma.us

SJC-12224

AIDS SUPPORT GROUP OF CAPE COD, INC.  vs.  TOWN OF BARNSTABLE & others.[1]

Barnstable.     February 14, 2017. – June 14, 2017.

Present:  Gants, C.J., Lenk, Hines, Gaziano, Lowy, & Budd, JJ.

Hypodermic Needle.

Civil action commenced in the Superior Court Department on November 10, 2015.

A motion for a preliminary injunction was heard by Raymond P. Veary, Jr., J., and the case was reported to the Appeals Court by Robert C. Rufo, J.

The Supreme Judicial Court granted an application for direct appellate review. read more

Posted by Stephen Sandberg - June 15, 2017 at 3:18 am

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Nguyen v. Arbella Insurance Group (Lawyers Weekly No. 11-064-17)

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; SJCReporter@sjc.state.ma.us

16-P-834                                        Appeals Court

VINCENT NGUYEN  vs.  ARBELLA INSURANCE GROUP.[1]

No. 16-P-834.

Middlesex.     February 16, 2017. – May 23, 2017.

Present:  Kafker, C.J., Wolohojian, & Sacks, JJ.

Insurance, Insurer’s obligation to defend, Defense of proceedings against insured, Homeowner’s insurance, Business exclusion.  Contract, Insurance.  Practice, Civil, Summary judgment.

Civil action commenced in the Superior Court Department on April 11, 2014. read more

Posted by Stephen Sandberg - May 23, 2017 at 3:04 pm

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The Hanover Insurance Group, Inc. v. Raw Seafoods, Inc. (Lawyers Weekly No. 11-048-17)

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; SJCReporter@sjc.state.ma.us

15-P-1554                                       Appeals Court

THE HANOVER INSURANCE GROUP, INC.  vs.  RAW SEAFOODS, INC.

No. 15-P-1554.

Suffolk.     September 16, 2016. – April 26, 2017.

Present:  Agnes, Neyman, & Henry, JJ.

Insurance, General liability insurance, Coverage.  Words, “Occurrence.”

Civil action commenced in the Superior Court Department on September 21, 2012.

The case was heard by Christine M. Roach, J., on motions for summary judgment. read more

Posted by Stephen Sandberg - April 27, 2017 at 11:41 pm

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

Erecruit Holdings, LLC v. Willis Group Holdings, LLC (Lawyers Weekly No. 12-003-17)

COMMONWEALTH OF MASSACHUSETTS

SUFFOLK, ss.                                                                                   SUPERIOR COURT

                                                                                                             SUCV2016-0557-BLS2

ERECRUIT HOLDINGS, LLC

Plaintiff

 

and

 

SIXCEL, LLC

Plaintiff/Intervenor

vs.

 

WILLIS GROUP HOLDINGS, LLC

Defendant

 

 

 

MEMORANDUM OF DECISION AND ORDER

ON PLAINTIFF ERECRUIT HOLDINGS, LLC’S MOTION

 FOR JUDGMENT ON THE PLEADINGS

This action arising from a business deal gone sour between the plaintiff Erecruit Holdings, LLC (Erecruit) and the defendant Willis Group Holdings, LLC.  Erecruit alleges that Willis breached a written contract called the Non-Perpetual Software License Agreement (the Agreement) by fabricating a pretext for terminating the Agreement, then refusing to pay Erecruit for amounts owed.  In response, Willis asserted a  Counterclaim alleging that Erecruit misled it as to Erecruit’s capabilities and then after Willis had already paid Erecruit $ 93,500, failed to deliver on the promises it made to provide Willis with  a fully functional software product – promises that Erecruit  knew at the time that it made them that it could not keep.    Erecruit now moves for a judgment on the pleadings as to Willis’s Counterclaim. This Court concludes that the Motion must be DENIED for the reasons set forth in Willis’s Opposition, and offers the following by way of brief explanation. read more

Posted by Stephen Sandberg - February 2, 2017 at 2:40 pm

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Hillside FXF, LLC, et al. v. Premier Design + Build Group, LLC, et al. (Lawyers Weekly No. 12-164-16)

1
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
SUCV2013-03831-BLS2
HILLSIDE FXF, LLC & JONES DEVELOPMENT COMPANY, LLC,
Plaintiffs
vs.
PREMIER DESIGN + BUILD GROUP, LLC,
HALEY & ALDRICH, INC., & G. LOPES CONSTRUCTION, INC.,
Defendants
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANT PREMIER DESIGN + BUILD GROUP, LLC’S
MOTION FOR SUMMARY JUDGMENT AGAINST
G. LOPES CONSTRUCTION, INC.
This case arises out of the construction of a FedEx facility in Northborough, Massachusetts. Plaintiffs Hillside FXF, LLC (Hillside) and Jones Development Company, LLC (Jones) filed this action against defendants G. Lopes Construction, Inc. (Lopes), Premier Design + Build Group, LLC (Premier), and Haley & Aldrich, Inc. (Haley) seeking to recover damages relating to remedial work performed after the construction. This Court has already denied motions for summary judgment made by Haley and by Premier as to plaintiffs’ claims asserted against them. Now before this Court is Premier’s Motion for Summary Judgment as to Count VII of its Cross Claim against defendant Lopes. Premier seeks a declaration from this Court that its subcontract with Lopes contains a valid and enforceable duty to indemnify and that Lopes is obligated to indemnify, defend, and hold Premier harmless from any errors or deficiencies related to the construction project. After careful review of the parties’ submissions, this Court
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concludes that Premier’s motion must be DENIED as to Lopes’ duty to indemnify but ALLOWED as to its duty to defend.
BACKGROUND
The relevant facts in the summary judgment record, viewed in the light most favorable to the plaintiffs, are as follows. Hillside and Jones engage in commercial development and construction projects. On August 23, 2011, Hillside as the owner/developer and Premier as the general contractor entered into an agreement to construct a FedEx freight facility at 300 Bartlett Street, Northborough, Massachusetts (the Project). Because the site was on a relatively steep slope, a significant amount of cut and fill and excavation work was required to prepare it for construction. The plaintiffs retained Premier to perform this work. Premier in turn retained Lopes as a subcontractor to perform demolition, grading, and excavation for the Project. The defendant Haley was retained by Premier to provide on-site monitoring of the earthwork.
On September 21, 2011, Lopes began removing trees at the Project site, and excavation at the site continued through the fall. Hillside authorized Premier to proceed with the foundation installation in late December 2011, and footings and foundations for the Project were installed shortly thereafter. In February 2012, it was noticed that the walls appeared to have shifted laterally. Ultimately, it was determined that the foundations had settled and that this was caused by improper fill work. There are disputes of fact as to which entity – Premier, Lopes, or Haley – either alone or in combination with each other, was responsible for the foundation’s failure. By the time the building was stabilized and the site repaired, Hillside had spent more than $ 3 million in remedial work.
Premier’s motion relies on certain provisions in two separate subcontracts it had with Lopes, one dated August 24, 2011 and the other dated March 1, 2012 (the Subcontracts). The
3
Subcontracts have two clauses in each of them which can be fairly characterized as indemnification provisions. The first (Indemnification Provision #1) is as follows:
The Subcontractor [Lopes] shall indemnify and save harmless the Owner [Hillside] and the Contractor [Premier] and their officers, agents, servants and employees, from and against any and all claims, demands, suits, proceedings, liabilities, judgments, awards, losses, damages, costs and expenses, including attorneys’ fees, on account of . . . damage to or destruction of any property, directly or indirectly arising out of, relating to or in connection with the Work, whether or not due or claimed to be due in whole or in part to the active, passive or concurrent negligence or fault of the Subcontractor . . . and whether or not such claims, demands, suits or proceedings are just, unjust, groundless, false or fraudulent; and the Subcontractor shall and does hereby assume and agrees to pay for the defense of all such claims, demands, suits and proceedings….the Subcontractor shall not be required to indemnify the Contractor, his officers, agents, servants or employees against any such damages occasioned solely by acts or omissions of the contractor other than supervisory acts or omissions of the Contractor in the work.
(Emphasis added.) The second (Indemnification Provision #2) is part of the General Conditions of the Subcontracts and provides in relevant part that:
Subcontractor shall indemnify and hold harmless PDBG . . . Owner . . . and agents and employees of any of them ( . . . “Indemnified Parties”) from and against claims, damages, losses and expenses, including, but not limited to, attorney’s fees arising out of or resulting from (i) performance or non-performance of the Work, (ii) breach of obligations of Subcontractor under the Contract Documents including, without limitation, defective Work . . ., or (v) any other act or omission with respect to the Work by Subcontractor . . . resulting in . . . injury to or destruction of property, or loss thereof.
(Emphasis added). This same provision goes on to more specifically describe the duty to defend:
Subcontractor hereby acknowledges and agrees that if any one or more claims or actions are asserted against PDBG Parties giving rise to a duty . . . [to] defend on the part of Subcontractor pursuant to this Section, PDBG Parties shall have the right to elect, in
4
PDBG Parties’ sole and absolute discretion, whether to contest any one or more of such claims or actions and Subcontractor shall be required to perform the obligations of Subcontractor set forth above regardless of whether PDBG Parties elect to contest such claim(s). If PDBG Parties elect to contest any such claim(s), PDBG Parties shall have the right to select PDBG Parties’ own counsel and control their defense and Subcontractor shall bear the cost of employing such counsel . . .
Both of Indemnification Provision #1 and Indemnification Provision #2 refer to “Work.” The General Conditions define “Work to include “all design, labor, materials, skill, equipment, taxes, services, delivery charges, supervision, administration, facilities, and field measurement necessary to produce the construction required by the Subcontract Agreement and other Contract Documents.” The term “Contract Documents” is also defined by the Subcontracts and includes the Construction Agreement between plaintiffs and Premier. Finally, the Subcontracts state that they shall be construed in accordance with Massachusetts law and their provisions “shall be interpreted where possible in a manner to sustain their legality and enforceability.”
Hillside and Jones filed this action October 28, 2013. By letter dated December 27, 2013, Premier tendered its defense and indemnification of this matter to Lopes. Counsel for Lopes requested additional information, and on February 4, 2014, Premier issued a more detailed amended tender of defense and indemnity to Lopes. Thereafter, Lopes declined to defend and indemnify Premier under the subcontracts, and Premier eventually filed a cross claim against Lopes.
DISCUSSION
This Motion raises the question of whether the two indemnifications clauses contained in the Subcontracts comply with G.L. c. 149, § 29C (Section 29C). The issue is not an easy one: as one party’s counsel remarked at the motion hearing, the clauses do not appear to have been drafted with an eye toward Section 29C. Nevertheless, the Subcontracts expressly state that their
5
provisions must be construed wherever possible in a manner that “sustains their legality and enforceability.” This Court approaches the task of resolving the question before me with that in mind.
Section 29C states:
Any provision for or in connection with a contract for construction, reconstruction, installation, alteration, remodeling, repair, demolition or maintenance work, including without limitation, excavation, backfilling or grading, on any building or structure, whether underground or above ground, or on any real property,
. . ., which requires a subcontractor to indemnify any party for injury to persons or damage to property not caused by the subcontractor or its employees, agents or subcontractors, shall be void.
In determining the validity of Indemnification Provisions #1 and #2, this Court focuses on the language of the clauses themselves rather than on the facts relating to the incident and an assessment of fault of the parties. See Herson v. New Boston Garden Corp., 40 Mass. App. Ct. 779, 786-787 (1996). That is because the purpose of such clauses is to make clear to the parties from the outset where the burden of acquiring insurance lies. Harnois v. Quannapowitt Dev., Inc., 35 Mass. App. Ct. 286, 288 (1993). “Indemnity provisions are not read with any bias in favor of the indemnitor and against the indemnitee; rather, such provisions are to be fairly and reasonably construed to ascertain the intention of the parties and to effectuate the purpose sought to be accomplished.” Urban Inv. & Dev. Co. v. Turner Constr. Co., 35 Mass. App. Ct. 100, 107 (1993).
As applied by Massachusetts courts, Section 29C voids only those contractual indemnity provisions that require indemnification for injuries not caused in any part by the subcontractor. Herson v. New Boston Garden Corporation, 40 Mass. App. Ct. at 788. As explained by the Appeals Court: “General contractors and owners are prohibited by § 29C from receiving
6
indemnity for their sole causal negligence, but § 29C does not proscribe full indemnification when the conduct of the subcontractor is only a partial cause of the injury.” Ibid. Thus, a contractual indemnity arrangement whereby the subcontractor agrees to indemnify the contractor for the entire liability when both the subcontractor and the general contractor or owner are causally negligent, is not prohibited by Section 29C. What is forbidden is shifting that liability to a subcontractor even where it plays no role in causing the damages. The question before this Court is whether the indemnification provisions here permit that shifting. This Court concludes that they do.
Indemnification Provision #1 states that Lopes is required to indemnify Premier for “damage to or destruction of any property, directly or indirectly arising out of, relating to or in connection with the Work, whether or not due or claimed to be due in whole or in part to the active, passive or concurrent negligence or fault of the Subcontractor . . . .” By its terms, this provision would require Lopes to indemnify Premier for negligently performed work even where that negligent work was not done by Lopes. In this Court’s view, this violates Section 29C. The final sentence of Indemnification Provision #1 does not cure the problem. It states that Lopes shall not be required to indemnify Premier “against any damages occasioned solely by acts or omissions of the Contractor [Premier] other than supervisory acts or omissions of the contractor in the work.” (emphasis added). In other words, Lopes is required to indemnify Premier for its supervisory acts even though Lopes did nothing to cause the injury for which damages are claimed. Again, this is a violation of the statute.
Indemnification Provision #2 also goes beyond that which is permitted by Section 29C. It requires Lopes to indemnify Premier for claims for damage “arising out of or resulting from (i) performance or non-performance of the Work . . . .” “Work” is a defined by the
7
Subcontracts: it includes all design, labor, materials, and equipment necessary to “produce the construction required by the Subcontract Agreement and other Contract Documents.” (Emphasis added). “Contract Documents” under the Subcontracts means the “Construction Contract,” which is in turn defined as the “agreement entered into by and between Owner and PDPG [Premier] referred to in the Subcontract Agreement relating to the Project.” Because this definition of “Work” necessarily encompasses work performed by others on the Project, it operates as no limitation at all on Lopes’ indemnification obligation: Lopes must indemnify Premier not only for Premier’s own actions, but for the actions of every other subcontractor Premier hired, even where Lopes played no role in the performance of that work.
Premier responds that the term “Work” must be construed in line with the overall obligation that the Subcontracts impose on Lopes. Part A of both Subcontracts defines “Work” to mean those obligations both in the Subcontract and in the Contract Documents that Lopes “agrees to perform.” Premier argues that, to the extent that the Contract Documents dictate what others are to do on the Project, then Lopes has not “agreed to perform” those other tasks and that this, as a consequence, narrows the definition of “Work” as used in the Indemnification Provisions. This is a stretch, at best, requiring the Court to put together and merge definitions from other parts of the Subcontracts in order to impose limitations that are not apparent from the plain language of the Indemnification Provisions themselves.
Even if this Court were to accept Premier’s narrower definition of “Work,” it is still not enough to save these indemnification provisions, given the second flaw in Premier’s argument. Premier argues that the requisite causal connection between Lopes’ acts and the claims for which indemnification is sought is provided by the phrase “arising out of.” Indemnification Provision #1 applies, however, not only to claims for injury “arising out of” the Work but also to claims
8
“relating to or in connection with the Work.” Thus, even with the contorted definition of “Work” that Premier urges this Court to accept, it clearly extends well beyond any “work” actually performed by Lopes. Indemnification Provision #2 is a bit more narrowly drawn, stating that the claim must arise out of or result from the “performance or nonperformance of the Work,” among other things. But it does not specify who has to have performed (or failed to perform) that “Work” in order to trigger the indemnification obligation, is thus must be read as extending to acts or omissions by others. In other words, Lopes could be required to indemnify Premier even where its acts or omissions did not play any part in causing the damage.
Although this Court agrees with Lopes that the two provisions impose indemnify obligations beyond that which is permitted by Section 29C, it does not follow that Lopes has no duty to defend. As the SJC explained in Herson v. New Boston Garden Corp., 40 Mass. App. Ct. at 786-787, the duty to defend is “ independent of and broader than the duty to indemnify” and the imposition of such a duty is not constrained by Section 29C, which makes no reference to it. As quoted above, the Subcontracts contain language requiring Lopes to defend Premier from claims or actions asserted against Premier, and to bear the cost of employing counsel if Premier chooses to contest the claims asserted against it. Lopes does not even attempt to explain in its written opposition why this language does not impose upon it a duty to defend Premier in this litigation. In any event, this Court concludes that it does.
SO ORDERED.
___________________________ Janet L. Sanders
Justice of the Superior Court
Dated: November 30, 2016
9 read more

Posted by Stephen Sandberg - December 7, 2016 at 7:34 pm

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Hillside FXF, LLC, et al. v. Premier Design + Build Group, LLC, et al. (Lawyers Weekly No. 12-158-16)

1
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
SUCV2013-03831-BLS2
HILLSIDE FXF, LLC & JONES DEVELOPMENT COMPANY, LLC,
Plaintiffs
vs.
PREMIER DESIGN + BUILD GROUP, LLC,
HALEY & ALDRICH, INC., & G. LOPES CONSTRUCTION, INC.,
Defendants
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANT PREMIER DESIGN + BUILD GROUP, LLC’S
MOTION FOR SUMMARY JUDGMENT AGAINST HILLSIDE FXF, LLC &
JONES DEVELOPMENT COMPANY, LLC
This case arises out of the construction of a FedEx facility in Northborough, Massachusetts. Plaintiffs Hillside FXF, LLC (Hillside) and Jones Development Company, LLC (Jones) filed this action against defendants G. Lopes Construction, Inc. (Lopes), Premier Design + Build Group, LLC (Premier), and Haley & Aldrich, Inc. (Haley) seeking to recover damages relating to remedial work performed after the construction. This Court has already denied Haley’s summary judgment motion. This memorandum concerns the defendant Premier’s Motion for Summary Judgment as to plaintiffs’ claims against it. 1 Premier argues that release language in a change order bars all of the plaintiffs’ claims against it and that plaintiffs have in any event waived any claim because they failed to follow certain contractual provisions. After careful review of the summary judgment record, this Court concludes that there are questions of fact such that the Motion must be Denied.
1 Plaintiffs also filed a motion to strike three of Premier’s fact statements contained in Premier’s Superior Court Rule 9A (b) (5) statement of material facts. That motion is denied for the reasons stated in Premier’s opposition.
2
BACKGROUND
The relevant facts in the summary judgment record, viewed in the light most favorable to the plaintiffs, are as follows. Hillside and Jones engage in commercial development and construction projects. On August 23, 2011, Hillside as the owner/developer and Premier as the general contractor entered into an agreement to construct a FedEx freight facility at 300 Bartlett Street, Northborough, Massachusetts (the “Project”). Because the site was on a relatively steep slope, a significant amount of cut and fill and excavation work was required to prepare it for construction. The earthwork began in September 2011, with foundations and walls of the building installed in early 2012. Shortly thereafter, it was noticed that the walls appeared to have shifted laterally. Ultimately, it was determined that the foundations had settled and that this was caused by improper fill work. By the time the building was stabilized and the site repaired, Hillside had spent more than $ 3 million in remedial work.
Premier’s Motion is based in part on language contained in its construction contract with Hillside (the Agreement). See Exhibit C of Joint Appendix. Article 7 of the Agreement states that “[i]f, during the period of construction, the Work [as defined by the Agreement] is found to be defective or not in accordance with the Agreement Documents, contractor shall correct it with reasonable promptness after receipt of written notice from Owner to do so …. Owner shall give such notice within ten (10) business days after discovery of the condition.” Article 9 ¶ Q states that: “[s]hould either party to this Agreement suffer injury or damage…because of any act or omission of the other party…claim shall be made in writing to such other party within a reasonable time after the first observance of such injury or damage.” On March 26, 2012,
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Premier sent the plaintiffs a written notice of soil stability issues. Four days later, on March 30, 2012, plaintiffs sent Premier a notice that these issues arose from Premier’s defective work.
The Motion also relies on a certain change order — Change Order 13 — entered into between the parties following the execution of the Agreement. The Agreement defines a change order to be “a written order to a Contractor signed by Owner issued after execution of the Agreement authorizing a change in the Work or an adjustment in the Agreement Sum or Agreement Time.” Article 6 of Agreement. Change Order 13 was one of fourteen change orders issued. It was executed on June 19, 2013, many months after Hillside had discovered the problems with the foundation. Change Order 13 stated that:
“The following changes shall be added to and become part of Item I of the Standard Contract Agreement dated August 23, 2011:
. . . Credit to contractors [sic] fee. This credit shall serve as final compensation to the Owner [Hillside] and constitutes a complete release from any and all claims against the Contractor [Premier] relating to this project. DEDUCT $ 30,000.”
See Exhibit J. Kevin Jones signed Change Order 13 on behalf of the plaintiffs.
The summary judgment record contains various e-mails and portions of deposition testimony relating to the meaning of this language. As described in one email, its purpose was to give Premier a $ 30,000 credit to help offset the costs “associated with the soils, building and undercut issues.” Alec Zocher, a Premier representative, testified that he had several conversations with Jones about Change Order 13 but couldn’t recall what was said beyond the fact that there was some negotiation as to the amount of the credit. As Jones recalls it, the discussion pertained only to the specific work that was to be performed pursuant to Change Order 13, and that, although he did not notice the release language, he would have assumed that it related only to a minor dispute between the parties regarding Premier’s ten percent fee as general contractor. Jones denies that there was any discussion about resolving the parties’ larger dispute
4
over the failure of the Project site, nor did he understand the language to constitute a release by plaintiffs of that much larger claim.
DISCUSSION
Premier makes two arguments in support of its motion for summary judgment. First, it contends that Change Order 13 is an enforceable release that bars all of the plaintiffs’ claims against Premier in this action. Second, it argues in the alternative that the plaintiffs’ contract claims against Premier are waived because plaintiffs failed to provide timely written notice of the damage to the property and of their claim that Premier’s work was defective. The Court will discuss each of these arguments in turn.
A. Change Order 13
As an initial matter, this Court concludes that Illinois law applies. See Article 12 of the Agreement (providing that Agreement to be construed in accordance with Illinois law). Under Illinois law, a release, like any contract, must be enforced as written if its terms are clear and explicit. However, in determining the meaning of those terms, Illinois courts strictly construe them against the benefitting party; to be enforceable so as to bar a claim, the release must spell out the intention of the parties with great particularity. Construction Systems, Inc. v. FagelHaber, LLC, 35 N.E.3d 1244, 1251 (Ill. App. Ct. 2015). Indeed, Illinois cases seem to suggest that the court must always take into account the circumstances surrounding the execution of a release, regardless of what the release says. Ainsworth Corp. v. Cenco, Inc., 437 N.E.2d 817, 821 (Ill. App. Ct. 1982) (“[N]o form of words, no matter how all encompassing, will foreclose scrutiny of a release . . . or prevent a reviewing court from inquiring into surrounding circumstances to ascertain whether it was fairly made and accurately reflected the intention of the parties’). Moreover, the court should avoid interpretations that lead to absurd results where a
5
contract is susceptible to more than one construction. Where one construction is “fair, customary and such as prudent men would naturally execute,” and the other is “inequitable, unusual or such as reasonable men would not be likely to enter into,” the court must prefer the former. Chicago Title & Trust Co., v. Telco Capital Corp., 685 N.E.2d 952, 955-956 (Ill.App.1997), quoted in Bank of Commerce v. Fyre Lake Ventures, LLC., 84 F.Supp. 3d 807, 823 (C.D. Ill.2015) (denying summary judgment because of factual disputes as to meaning of release).
In opposing the motion, plaintiffs contend that reading Change Order 13 to release Premier from a $ 3 million damages claim in exchange for a $ 30,000 credit would be an absurd interpretation. This Court finds this argument to be persuasive. At the very least, this Court concludes that there is are genuine disputes of fact regarding the intent of the parties such that summary judgment on this basis would be improper. As noted by the plaintiffs, there is evidence in the summary judgment record suggesting that the only dispute that was intended to be resolved by the release language in Change Order 13 concerned the dispute between the parties regarding the general contractor’s fee on certain of the remedial work. This is a plausible interpretation of the release language, since it is immediately preceded by the words “credit to contractors [sic] fee.” That the language was not intended to foreclose the much larger claims asserted in this action is further supported by the fact that it was placed in a change order. As defined by the Agreement, a change order is an order authorizing a change in the work or an adjustment to the time in which the work is to be completed or the price to be paid. Thus, plaintiffs have some justification for their position that Jones, signing on behalf of plaintiffs, could not be reasonably expected to find a release of the magnitude argued by Premier in a change order that covered a relatively insignificant amount of additional work.
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B. Timely Notice
Premier’s second argument merits less discussion. Premier notes that the undisputed facts show that the problems in the building foundation were first observed on or around February 23, 2012, but that the plaintiffs did not issue any written notice of this defect until March 30, 2012. Premier contends that Article 9 of the Agreement required that this notice had to be given within ten days of discovery of the defect and that this delay amounted to a waiver of plaintiffs’ contractual claims. Article 9, however, says only that a claim against the liable party for injury to property must be made “within a reasonable time after the first observance of such injury or damage.” Clearly, a month is not an unreasonable time. Premier asserts that the notice had to be given within ten days, but this ten day requirement is contained in Article 7, not Article 9. Moreover, a reasonable interpretation of Article 7 is that it was to give a contractor a chance to correct its defective work before the owner corrects it and sends the contractor the bill. In any event, neither Article 7 nor Article 9 contains any waiver language.
CONCLUSION AND ORDER
For all of the foregoing reasons, Defendant Premier Design + Build Group, LLC’s Motion for Summary Judgment is DENIED.
______________________________
Janet L. Sanders
Justice of the Superior Court
Dated: November 3, 2016 read more

Posted by Stephen Sandberg - December 6, 2016 at 2:55 pm

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Hillside FXF, LLC, et al. v. Premier Design + Build Group, LLC, et al. (Lawyers Weekly No. 12-147-16)

1
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
SUCV2013-03831-BLS2
HILLSIDE FXF, LLC & JONES DEVELOPMENT COMPANY, LLC,
Plaintiffs
vs.
PREMIER DESIGN + BUILD GROUP, LLC,
HALEY & ALDRICH, INC., & G. LOPES CONSTRUCTION, INC.,
Defendants
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANT HALEY & ALDRICH, INC.’S
MOTION FOR SUMMARY JUDGMENT
Plaintiffs Hillside FXF, LLC (Hillside) and Jones Development Company, LLC (Jones) filed this action against defendants, Haley & Aldrich, Inc. (Haley), Premier Design + Build Group, LLC (Premier), and G. Lopes Construction, Inc. (Lopes) seeking to recover damages relating to the construction of a freight facility in Northborough, Massachusetts. All three defendants have moved for summary judgment. This memorandum addresses that motion brought by the defendant Haley.
The Plaintiffs’ Third Amended Complaint (the Complaint) asserts the following claims against Haley: breach of contract (Count II), gross negligence (Count VI), breach of express and implied warranties (Count VII), common law indemnity (Count VIII), reformation (Count IX), and negligent or intentional misrepresentation (Count X). Haley moves for summary judgment as to all of these counts. In the alternative, it argues that its liability must be capped pursuant to the written contracts it entered into with plaintiffs. The plaintiffs agree that summary judgment is appropriate as to Count VIII, their common law indemnity claim, but otherwise contest the
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motion. This Court concludes that, with the exception of Count VIII, Haley’s motion must be Denied.
BACKGROUND
The relevant facts in the summary judgment record, viewed in the light most favorable to the plaintiffs, are as follows. Hillside and Jones, both based in Kansas City, Missouri, engage in commercial development and construction projects. On August 23, 2011, Hillside as the owner/developer and Premier as the general contractor entered into an agreement to construct a FedEx freight facility at 300 Bartlett Street, Northborough, Massachusetts (the Project). The Project’s plans required a significant amount of cut and fill and excavation work at the site to prepare for the building’s construction. The plaintiffs hired Haley to perform geotechnical consulting work as well as soil testing.
Before construction began, Haley prepared a lengthy Report that summarized the results of subsurface soil explorations and made certain recommendations as to geotechnical design and construction for the proposed facility. This Report included Haley’s analysis of soil at the Project and its moisture contents, as well as its recommendation that compacted granular fill be used at certain areas of the site where unsuitable soils were located. On June 28, 2011, Haley and Hillside entered into a written agreement (the Reliance Agreement) stating that the services performed by Haley were subject to the scope of services expressed in the Report and that Hillside could rely on the Report, subject to certain terms and conditions. This Reliance Agreement contained a limitation of remedies provision that limited Haley’s liability to $ 50,000 or the amount of Haley’s fees, whichever was greater.
On August 29, 2011, Haley entered into an agreement with Premier (the Premier Agreement) to perform geotechnical services for the Project. This Agreement noted that very
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significant earthwork in “very silty glacial soil conditions” would be required in order to construct the facility. Haley agreed to a full-time, experienced field engineer to monitor the excavation of soil and observe and test the placement of compacted fill for the building, among other things. The Premier Agreement contained a provision that limited Haley’s liability to $ 500,000 or the amount of Haley’s fee, whichever was greater.
In October 2011, Haley entered into a third agreement, this time with Jones (the Jones Agreement). Plaintiffs were led to believe that this agreement was intended only to transfer the Premier Agreement to Jones (as required by FedEx) and was a mere formality. Specifically, plaintiffs alleged that Steve Kraemer with Haley told Don Tuttle of Jones that this new agreement would be the same as the Premier Agreement, and Tuttle signed it in reliance on that representation. In fact, the Jones Agreement was not the same in that it contained a different limitation of remedies provision capping Haley’s liability at $ 50,000 or the amount of its fee, whichever was greater.
Premier retained Lopes as a subcontractor to perform demolition, grading, excavation, and site grading work for the Project, and Lopes performed this work. Lopes began work at the project in September 2011. Thereafter, various individuals from Haley and the plaintiffs discussed the weather and soil conditions at the Project site via e-mail. For instance, on November 2, 2011, Kelvin Wong, a senior engineer with Haley, noted in a daily update that the project site was “still wet from recent precipitation” and that the majority of earthwork activities were suspended in order to allow the site to dry. Haley continued site monitoring in December of 2011 and January of 2012.
In February 2012, Premier (the general contractor) noticed settlement and lateral movement of the building walls and foundations. The plaintiffs hired McArdle, Gannon, &
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Associates to determine what was causing the shifting and settlement and to assist in fixing it. Ultimately, it was determined that the fill work performed on the site had not been done properly. By the time that the building was stabilized and the site repaired, plaintiff Hillside had spent approximately $ 3 million in remedial work. This action ensued.
DISCUSSION
Haley argues that it is entitled to summary judgment because plaintiffs have no reasonable expectation of proving their claims for gross negligence or breach of warranty. As to the breach of contract claim, Haley contends that it is duplicative of the negligence claim and does not separately survive. In the alternative, Haley seeks a ruling from the Court that would limit its liability as set forth in the Jones Agreement. This Court concludes that there are material facts in dispute as to each of these arguments, such that summary judgment is inappropriate.
The reasons why summary judgment should be denied are fully set forth in the plaintiffs’ written Opposition at pages 7 through 20. As described therein, the summary judgment record contains sufficient evidence from which a jury could find that Haley was grossly negligent. Indeed, summary judgment is rarely appropriate in a negligence cases, where the defendant’s knowledge and state of mind are critical issues. Jupin v. Kask, 447 Mass. 141 (2006); Pratt v. Martineau, 69 Mass.App.Ct. 670, 675 (2007). This is no less true where the claim is one of gross negligence. Inferrera v. Sudbury, 31 Mass.App.Ct. 96, 103 (1991). As to the breach of contract claim, the plaintiffs have cited specific contractual provisions which they claim that Haley breached, among them a requirement that Haley performed its work in accordance with the standard of care applicable to its profession. Although that may very well overlap with the negligence claim, Massachusetts case law does not prohibit a plaintiff from relying on different
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legal theories. See Arthur D. Little, Inter., Inc. v. Dooyang, Corp., 928 F.Supp. 1189, 1201-1203 (D.Mass. 1996). The summary judgment record also contains a basis from which a jury could conclude that Haley made certain warranties. Finally, as to the issue of whether the reduced limitation of liability provision is valid and applicable in this action, it will be up to a fact finder at trial to determine whether Haley procured agreement to that provision by fraud. Moreover, in the event the plaintiffs prove gross negligence, that may make this provision unenforceable. See A.J. Properties LLC v. Stanley Black & Decker, Inc. 989 F.Supp. 2d 256, 163 (D.Mass. 2013).
CONCLUSION AND ORDER
For all of the foregoing reasons, defendant Haley & Aldrich, Inc.’s Motion for Summary Judgment is ALLOWED as to Count VIII (common law indemnity) by agreement of the parties, and is otherwise DENIED.
______________________________
Janet L. Sanders
Justice of the Superior Court
Dated: October 31, 2016 read more

Posted by Stephen Sandberg - November 9, 2016 at 10:29 pm

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