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Alnylam Pharmaceuticals, Inc. v. Dicerna Pharmaceuticals, Inc. (Lawyers Weekly No. 09-026-17)

No. 2015-4126
(Specially Assigned to
Leibensperger, J.)
These motions present the issue of whether, in a battle between business competitors, the
defendant may assert a counterclaim against the plaintiff based on plaintiff’s commencement of
the lawsuit. Specifically, may the defendant proceed on counterclaims of tortious interference
with advantageous relations, abuse of process and violation of G.L. c. 93A based on the
allegation that the initiation of the lawsuit by the plaintiff was motivated by an ulterior purpose to
squelch the defendant as a competitor, as opposed to a good faith belief in the claims asserted?
Here, Alnylam attacks counterclaims asserted by Dicerna. Alnylam seeks dismissal of
Dicerna’s counterclaims on the ground that they are all based on Alnylam’s exercise of its right
to petition the government by commencing the lawsuit. Alnylam invokes the protection of the
anti-SLAPP staute, G.L. c. 231, § 59H. Alnylam also contends that Dicerna’s counterclaims fail
to meet the standard for asserting viable causes of action. Thus, Alnylam moves for dismissal
1 This Order will also address Alnylam’s Rule 42(b) Motion to Bifurcate.
under Rule 12(b)(6). I will address the anti-SLAPP motion first as the resolution of that motion
will necessarily determine whether the counterclaims survive Rule 12(b)(6).
This action was commenced by Alnylam in June 2015. Alnylam claims that Dicerna
misappropriated Alnylam’s trade secrets. In general, the trade secrets include those developed at
Merck and purchased by Alnylam for millions of dollars. Alnylam alleges that the theft occurred
in at least two ways. First, Dicerna hired scientists who had been employed at Merck, and those
scientists brought Merck’s trade secret documents with them to Dicerna. Second, Dicerna had bid
for Merck’s trade secrets at the same time as Alnylam. In that connection, Dicerna was provided
with access to Merck’s trade secrets under an agreement not to use or disclose the trade secrets if
the bid were unsuccessful. Dicerna’s bid was unsuccessful, as the sale went to Alnylam. Alnylam
claims that Dicerna is, nevertheless, using the Merck/Alnylam trade secrets. Alnylam seeks
damages and an injunction in its complaint but it chose not to seek a preliminary injunction.
Dicerna did not attack Alnylam’s complaint with a motion to dismiss or a motion for summary
Two years later, in June 2017, Dicerna moved to amend its responsive pleading to assert
counterclaims against Alnylam. After hearing, I allowed the motion to amend. The counterclaims
are in three counts: Count I, Tortious Interference With Advantageous Relations; Count II, Abuse
of Process; and Count III, Violation of G.L. c. 93A. Alnylam now moves to dismiss the
The overall gist of the counterclaims is that Alnylam commenced a frivolous suit because
the trade secrets alleged by Alnylam, and described by it after several iterations during discovery
from 2015 to 2017, are not secrets at all but, instead, constitute information in the public domain.
Dicerna contends that the suit was commenced in order to crush Alnylam’s much smaller
competitor, Dicerna, with the cost of defending the case. Dicerna also avers that Alnylam
brought the suit with the ulterior motive to interfere with Dicerna’s funding sources and
partnership opportunities. The counterclaims include the following specifics.
There is no question that the two bio-pharmaceutical companies are competitors. They
are both engaged in the process of researching, developing and commercializing therapies
utilizing RNA interference (“RNAi”). RNAi technology is cutting edge science directed to
attacking or suppressing disease-involved genes. According to Dicerna’s counterclaim, the two
companies compete with respect to hiring the best scientists and attracting investment dollars, as
well as with respect to bringing an approved drug to market. Alnylam is the larger competitor,
with over one billion dollars in cash on its balance sheet, while Dicerna has only a small fraction
of that amount.
Dicerna alleges that the trade secrets claimed by Alnylam fail to qualify as such. The
“central component” of the assets purchased from Merck by Alnylam was Merck’s patent
portfolio. Counterclaims (“CCL”) ¶ 27. The patent portfolio puts the technology in the public
domain. In addition, the particular trade secret that precipitated this suit (Slide 11) has been
described in the public domain in patent applications and in the scientific literature. Dicerna
alleges that Alnylam did not research whether its putative trade secrets were in the public domain
prior to filing this lawsuit. CCL ¶s 42 to 46. In ¶ 45, Dicerna states “Alnylam’s willful blindness
to the public domain and its own patent strategy while making its trade secret allegation is clear,
as not a single Alnylam witness has come forward to testify that Alnylam considered the
technology described in its public patent filings before striking out at Dicerna with a lawsuit
designed to inflict competitive harm on Dicerna.” In depositions taken of Alnylam witnesses in
this case, Dicerna says there are admissions that Alnylam did not, before filing suit, compare the
Merck documents that were found to be in the possession of former Merck scientists who
became employed at Dicerna to information already in the public domain. Finally, Dicerna
alleges that Alnylam did not investigate before filing suit whether the putative trade secrets held
at Merck were adequately protected as such so as to qualify for legal protection as trade secrets.
CCL ¶s 17 to 24.
Alnylam filed this lawsuit against Dicerna in June 2015, and on the same day issued a
press release announcing the action. With the press release, Alnylam posted an electronic copy of
its complaint, where it remains accessible today. Although Alnylam claimed in the press release
that it filed the case in order to stop Dicerna from misappropriating trade secret information, and
included a request for an injunction in the complaint, Alnylam did not seek a preliminary
injunction. At the outset of this litigation, Alnylam, upon motion by Dicerna, was ordered to
provide a Trade Secret List detailing the secrets it claimed had been misappropriated and
describing whether the putative secrets were or were not in the public domain. In response,
Alnylam submitted an extremely long and broad list, with no indication of what might already be
in the public domain. Pursuant to orders of the court, Alnylam was required to revise the list in
successive iterations of the Trade Secret List. After discovery, the list of alleged trade secrets has
narrowed considerably.
Dicerna alleges that “[b]ecause they are competitors, Alnylam is well-aware that Dicerna
relies on securing partnerships, alliances, and licensing deals with other pharmaceutical
companies to continue to fund its mission of continuing research and development into
potentially life-saving therapeutics.” CCL ¶ 57. Dicerna pleads that it has been unable to secure
two partnership deals that would have closed but for the pendency of Alnylam’s lawsuit. CCL ¶
68. The lost partnership opportunities have allegedly caused Dicerna pecuniary harm in the form
of lost investment dollars. Dicerna also claims that the lawsuit has affected Dicerna’s ability to
recruit talented scientists. CCL ¶ 72. Finally, Dicerna alleges that Alnylam’s lawsuit has caused
harm to Dicerna in the form of attorney fees and expert costs.
The standards for evaluating Alnylam’s anti-SLAPP motion and its Rule 12(b)(6) motion
are different. To survive a Rule 12(b)(6) motion to dismiss, a complaint or counterclaim must set
forth the basis for the complainant’s entitlement to relief with “more than labels and
conclusions.” Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). At the pleading stage, Rule 12(b)(6) requires that the
counterclaim set forth “factual ‘allegations plausibly suggesting (not merely consistent with)’ an
entitlement to relief . . . .” Id., quoting Bell Atl. Corp., 550 U.S. at 557. The court must, however,
accept as true the factual allegations of the counterclaim and draw every reasonable inference in
favor of the counterclaimant. Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 676 (2011).
The anti-SLAPP standard allows the court to consider more than the averments in the
counterclaim. “[T]he motion judge, in the exercise of sound discretion, is to assess the totality of
the circumstances pertinent to the nonmoving party’s asserted primary purpose in bringing its
claim. The course and manner of proceedings, the pleadings filed, and affidavits ‘stating the facts
upon which the liability or defense is based,’ . . . may all be considered in evaluating whether the
claim is a ‘SLAPP’ suit.” Blanchard v. Steward Carney Hospital, Inc., 477 Mass. 141, 160 – 161
(2017)(citations omitted). Under the anti-SLAPP statute, G.L. c. 231, § 59H, the court is to
“advance” consideration of a special motion to dismiss “so that it may be heard and determined
as expeditiously as possible.”
Thus, the court is required to conduct the comprehensive analysis described in Blanchard
upon motion papers rather than a trial. This presents particular problems in a highly technical
case like this one. The essence of Dicerna’s counterclaim is the allegation that Alnylam did not
have a good faith basis for its claims of theft of trade secrets. Dicerna says the trade secrets do
not qualify for protection because they are in the public domain. That is the heart of this lawsuit –
– were the trade secrets in the public domain or not? At trial, I expect that there will be
sophisticated experts on both sides telling the jury the answer to that question. Yet, I am to
determine now whether Dicerna should be allowed to proceed with its counterclaims. The fair
result, and the result consistent with the following analysis under the anti-SLAPP framework, is
to let the counterclaims proceed.
Anti-SLAPP Analysis
The now three-pronged framework for analyzing an anti-SLAPP statute is as follows.
First, the moving party must make a threshold showing through the pleadings and affidavits that
“the claims against it are “based on” the petitioning activities alone and have no substantial basis
other than or in addition to the petitioning activities.” Duracraft, v. Holmes Prods. Corp., 427
Mass. 156, 167 – 168 (1998). If such a showing is made by the moving party, the burden shifts to
the non-moving party to show “(1) the moving party’s exercise of its right to petition was devoid
of any reasonable factual support or any arguable basis in law and (2) the moving party’s acts
caused actual injury to the responding party.” G.L. c. 231, § 59H. The recent decision in
Blanchard, supra, adds a third prong to the framework. The non-moving party may defeat an
anti-SLAPP motion by establishing “that its suit was not ‘brought primarily to chill’ the special
movant’s legitimate exercise of its right to petition.” Blanchard, 477 Mass. at 159, quoting
Duracraft, supra at 161. The non-moving party must persuade the court that its “primary
motivating goal in bringing its claim, viewed in its entirety, was ‘not to interfere with and burden
[the moving party’s] . . . petition rights, but to seek damages for the personal harm to [it] from
[the moving party’s] alleged . . . [legally transgressive] acts.” Blanchard, supra at 160, quoting
Sandholm v. Kuecker, 2012 IL 111443 ¶ 57,356 Ill. Dec. 733, 962 N.E. 2d 418 (2012).
The first two prongs of the analysis are easily determined in favor of Alnylam, the
moving party. Dicerna concedes that its counterclaims are based on Alnylam’s petitioning
activity and nothing else. The filing of the complaint, the press release and the subsequent
litigation conduct by Alnylam are all protected petitioning activities. Alnylam carries its burden
to show that the counterclaims have no basis other than or in addition to the petitioning activity.
The burden then shifts to Dicerna to show that Alnylam’s petitioning activity was devoid of any
reasonable factual support. While Dicerna certainly alleges that Alnylam’s complaint was devoid
of factual support, I find that, on the state of the record today, it cannot be determined whether
Alnylam’s claims are reasonably supported. Applying the Rule 12(b)(6) standard to Alnylam’s
complaint, an exercise that was never done because Dicerna did not move to dismiss, Alnylam’s
complaint states a cognizable claim for misappropriation of trade secrets, taking the allegations
of the complaint as true. But the ultimate conclusion regarding the merits of Alnylam’s
complaint must await further evidence at trial. Dicerna cannot carry at this stage of the
proceedings its burden of showing that Alnylam’s claims lack any reasonable support.
I now address the new third prong of the anti-SLAPP analysis. This is the augmented
analysis dictated by the Supreme Judicial Court in Blanchard, supra. Absent this third prong,
Alnylam’s special motion to dismiss would be allowed. In fact, Dicerna’s counsel suggested at
oral argument that it was because of the Supreme Judicial Court’s decision in Blanchard in 2017
that Dicerna believed it could move to add the counterclaims.
The non-moving party (Dicerna) may defeat a special motion to dismiss if it can
demonstrate that its counterclaim “was not primarily brought to chill the special movant’s
[Alnylam’s] legitimate petitioning activity.” Blanchard, 477 Mass. at 160. As described above, in
applying this new test, the motion judge may consider the entire record and circumstances
pertinent to the nonmoving party’s primary purpose in bringing its counterclaim. It appears that
this is a subjective test as to whether Dicerna’s counterclaims were brought primarily to chill. A
necessary but not sufficient factor in this analysis will be whether Dicerna’s counterclaim at issue
is ‘colorable or . . . worthy of being presented to and considered by the court’ . . . i.e., whether it
‘offers some reasonable possibility’ of a decision in the party’s favor.” Id. at 160-161 (citations
I start with the “necessary but not sufficient factor.” I find that all of Dicerna’s
counterclaims are “colorable” and are worth being presented to and considered by the court and
jury. I start with the claim for intentional interference with advantageous relations.
In order to succeed on a claim for intentional interference with advantageous relations,
the claimant (Dicerna) must show that “(1) a business relationship or contemplated contract for
economic benefit with a third party; (2) [the defendant’s] knowledge of such a relationship; (3)
[the defendant’s] interference with it through improper motive or means; and (4) [the claimant’s] loss of advantage directly resulting from [the defendant’s] conduct.” Adcom Products, Inc. v
Konica Business Machines USA, Inc., 41 Mass. App. Ct. 101, 104 (1996). Dicerna satisfies the
first element by pleading that there were two business relationships for investment in Dicerna
that would have closed but for the filing of Alnylam’s complaint. As to the second element,
while there is no allegation that Alnylam knew, specifically, of the two potential partnerships for
investment referenced by Dicerna, Dicerna does plead that Alnylam knew, generally, that
Dicerna was in the business of attracting and developing investment partners. It also is a
reasonable inference that Alnylam knew that the act of commencing a major lawsuit against a
competitor that goes to the heart of the competitor’s rights to intellectual property will likely
interfere with the competitor’s ability to raise investment funds through partnerships or
otherwise. I agree with the conclusion reached in Gillette Company v. Provost, 2017 WL
2292748 (Mass. Sup. Ct., Salinger, J.) that “[a] party claiming tortious interference with
prospective (rather than existing) business relationships is not required to prove that the
defendant was aware of a potential relationship with a specific third party. It is enough that the
defendant knowingly interfered with a prospective relationship between the plaintiff and an
identifiable class or category of third persons.” Id. at *8.
Whether the facts alleged in the counterclaim are sufficient to plead the third element of
the intentional interference tort is the principal subject of Alnylam’s motion to dismiss. Dicerna
must plead sufficient facts to make it plausible that Alnylam acted with improper means or
motive when it commenced this action. That means that Alnylam commenced the suit not
primarily to protect its trade secrets but instead with the ulterior motive to thwart its competitor,
Dicerna. As put by Alnylam in its argument, Dicerna must show that Alnylam’s suit was filed
without probable cause to believe it would succeed. G. S. Enterprises, Inc. v. Falmouth Marine,
Inc., 410 Mass. 262, 273 (1991).
Dicerna’s counterclaim alleges facts that, if proved, raise a jury question regarding
Alnylam’s motivation for commencing this action. Dicerna alleges that Alnylam’s alleged trade
secrets did not qualify as such because the information was in the public domain. Further, the
counterclaim alleges that Alnylam either knew that the trade secrets were not protected or
recklessly failed to examine whether the trade secrets were in the public domain before
commencing this lawsuit. Alnylam allegedly did so to injure Dicerna and to gain a competitive
advantage over Dicerna. If these facts are proved, a jury could conclude that Alnylam acted with
ulterior motive and did not actually believe it could succeed on its claim of misappropriation of
trade secrets. “The propriety of an actor’s motives in a particular setting necessarily depends on
the attending circumstances, and must be evaluated on a case-by-case basis.” Id. at 273 – 274
(reversing summary judgment dismissing intentional interference claim). See, Brooks
Automation, Inc. v. Blueshift Technologies, Inc., 2006 WL 307948 at *8 (Mass. Superior Ct.,
Gants, J.)(holding, after trial, that interference claim justified where party “filed suit when it
sensed the possibility of a trade secret theft without having reasonably investigated whether what
it sensed indeed constituted the theft of a trade secret”). In sum, the questions of whether
Alnylam had probable cause to file this case, and whether it acted with an ulterior motive are for
the jury.
Having concluded that Dicerna’s counterclaim for intentional interference with
advantageous relations is colorable, and adequately pleaded,2 it is an easy deduction to conclude
that Dicerna’s abuse of process and c. 93A claims also are colorable and adequately pleaded.
Alnylam makes no separate arguments for why these claims are not colorable and do not state a
claim. Alnylam expressly concedes that the c. 93A claim is derivative of the intentional
interference claim and that they stand or fall together. With respect to the abuse of process claim,
Alnylam repeats its arguments to the effect that the counterclaim does not adequately plead
ulterior motive.
Finally, the last step of the augmented framework for evaluating an anti-SLAPP motion
under Blanchard is to determine whether under the “totality of the circumstances” Dicerna’s
counterclaim was, or was not, brought primarily to chill Alnylam’s legitimate exercise of the
right to petition. Blanchard, 477 Mass. at 160. Dicerna bears the burden to meet this showing. Id.
Dicerna must make this showing as to each claim viewed as a whole. Id.
This last step requires the court to discern the subjective state of mind of Dicerna. It is a
reasonable inference from the facts alleged in the counterclaim that Dicerna is, in fact, motivated
to recover for the harm caused by Alnylam’s commencement of this action. If it turns out that
Alnylam’s lawsuit for theft of trade secrets was justified, the fact that it caused Dicerna harm is
of no moment. But if it turns out that Alnylam’s lawsuit was not justified, and was commenced
without probable cause and with an ulterior motive, as Dicerna alleges, Dicerna seeks
recompense for the harm done. I find that that is a legitimate motive and is not intended to chill
2 The counterclaim expressly pleads that Dicerna has been harmed by loss of investment
opportunities, loss of ability to attract scientists and the incurrence of legal fees. Thus, the fourth
element of the tort of intentional interference is adequately pleaded to withstand a motion to
Alnylam’s right to petition. Id. at 157 (“The Legislature did not intend the expedited remedy it
provided, the special motion to dismiss, to be used instead as a cudgel to forestall and chill the
legitimate claims – – also petitioning activity – – of those who may truly be aggrieved by the
sometimes collateral damage wrought by another’s valid petitioning activity”).
Alnylam relies on two arguments for why the court should conclude that Dicerna’s
counterclaims are intended to chill Alnylam. First, it points to Dicerna’s efforts, through motions
in this case, to secure compliance with the court’s orders to Alnylam to revise the Trade Secret
List and to compel discovery. I find that those motions were routine litigation tactics purposely
intended and directed to defending Alnylam’s claims.3 Second, Alnylam notes that Dicerna, at
the same time it sought leave to file counterclaims in this case, prepared and promptly filed an
antitrust action in federal court which is, allegedly, a cut and paste of Dicerna’s counterclaims in
this case. Alnylam argues that this filing is evidence that the counterclaims here were brought to
chill Alnylam for its legitimate petitioning activity. I draw an opposite inference. The filing of the
federal lawsuit asserting antitrust claims against Alnylam for anti-competitive conduct, a claim
that could only be made in federal court, suggests Dicerna’s true motive is to seek actual
damages for what it believes is Alnylam’s wrongful conduct in pursuing “sham” litigation.
Complaint, Docket No. 17cv11466, U.S. Dist. Ct., Dist. Of Mass., ¶s 25 et seq. Alnylam’s
arguments do not suggest a “chill” motive for Dicerna beyond a legitimate interest in obtaining
recovery for allegedly wrongful conduct.
3 This finding is made notwithstanding the language I used in allowing Dicerna’s motion
to compel discovery wherein I stated that the breadth of Dicerna’s initial request had a “punitive
Rule 12(b)(6) Analysis
As referenced the standard for examining a motion to dismiss is narrower than the
standard for evaluating an anti-SLAPP motion. That said, however, the anti-SLAPP analysis
requires the court to determine whether the counterclaims are colorable. I interpret “colorable” as
being the same as finding that the claims are “plausible.” Accordingly, because I find the
counterclaims to be colorable, they necessarily are plausible and survive Alnylam’s Rule 12(b)(6)
motion to dismiss.
Alnylam’s Motion to Bifurcate and Stay
At the time of hearing and allowing Dicerna’s motion for leave to amend to add
counterclaims, I indicated that bifurcation was not in the interest of judicial economy. The jury
that determines whether Dicerna misappropriated Alnylam’s trade secrets is best equipped to
decide whether Alnylam had a good faith basis to commence the action. Alnylam now points to
Dicerna’s filing of the federal antitrust case as a reason to bifurcate the counterclaims and to stay
resolution of this case until after the completion of the federal case. This also makes no sense
because the three causes of action in Dicerna’s counterclaim are not even pleaded in the federal
case. The motion to bifurcate will be denied.
For the reasons stated above, each of (i) Alnylam’s Special Motion to Dismiss, (ii)
Alnylam’s Rule 12(b)(6) Motion to Dismiss, and (iii) Alnylam’s Rule 42(b) Motion to Bifurcate
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
October 23, 2017
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Posted by Stephen Sandberg - November 2, 2017 at 8:44 pm

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Da Costa, et al. v. Vanguard Cleaning Systems, Inc. (Lawyers Weekly No. 09-021-17)



MIDDLESEX, ss.                                                                                        SUPERIOR COURT

                                                                                                                       CIVIL ACTION

  1. 15-04743







The plaintiffs, Luiz Thomaz Da Costa and others, and the defendant, Vanguard Cleaning Systems, Inc. (“Vanguard”), have filed cross motions for summary judgment seeking a ruling on the plaintiffs’ employment classification status under the laws of Massachusetts and Connecticut in connection with commercial cleaning work which the plaintiffs claim they performed on behalf of Vanguard. G.L. c. 149, § 148B; Conn. Gen. Stat. § 31-222(a)(1)(B).  After hearing, and upon review and consideration, the plaintiffs’ cross-motion for summary judgment is ALLOWED, and Vanguard’s cross-motion for summary judgment is DENIED. read more

Posted by Stephen Sandberg - October 25, 2017 at 7:32 pm

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Ajemian, et al. v. Yahoo!, Inc. (Lawyers Weekly No. 10-165-17)

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;


MARIANNE AJEMIAN, coadministrator,[1] & another[2]  vs.  YAHOO!, INC.

Norfolk.     March 9, 2017. – October 16, 2017.

Present:  Gants, C.J., Lenk, Hines, Gaziano, Lowy, & Budd, JJ.[3]

Internet.  Personal Property, Ownership.  Executor and Administrator, Recovery of assets, Contracts.  Contract, Service contract.  Agency, What constitutes. Statute, Construction.  Consent.  Federal Preemption.

Complaint filed in the Norfolk Division of the Probate and Family Court Department on September 15, 2009. read more

Posted by Stephen Sandberg - October 16, 2017 at 8:52 pm

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Smith-Berry, et al. v. National Amusements, Inc., et al. (Lawyers Weekly No. 09-017-17)

No. 2017-0491 BLS 1
TREMAYNE SMITH-BERRY and JESSA DAPRATO, individually and as class
Both plaintiffs and defendants ask the court to reconsider its decision dated August 29,
2017 (“Decision”), allowing, in part, and denying, in part, defendants’ motion to dismiss Count
III of the First Amended Complaint.
Plaintiffs re-argue their position that workers at Showcase Cinemas are entitled to be
compensated at one and half times their regular pay (‘premium pay”) when they work on
Sundays. After review of the argument, plaintiffs’ motion to reconsider is DENIED for the
reasons stated in the Decision.
Defendants, referred to collectively in the Decision and here as “Showcase”, move to
reconsider that portion of the Decision that denied complete dismissal of Count III. In the
Decision, I held that application of G.L. c. 136, § 13 required that Showcase pay premium pay to
workers for work performed on three holidays: New Year’s Day, Columbus Day and Veteran’s
Day (the “Holidays”). This somewhat odd result was directed by the decision of the Appeals
Court in Drive-O-Rama, Inc. v. Attorney General, 63 Mass. App. Ct. 769 (2005) concerning
1 Cerco LLC, d/b/a Showcase Cinemas and Shari Redstone
retail establishments.
Showcase now argues that its operation on the Holidays is governed by a different section
of the General Laws that does not require premium pay. For the reasons stated below, I agree.
Section 13 of c. 136 applies to a retail establishment that operates on the Holidays “under
the exemption granted by this section.” Showcase now points out that movie theaters operate on
the Holidays pursuant to another section of c. 136; i.e., § 14. Section 14 was enacted by the
Legislature on the same day as § 13, and states that “[n]otwithstanding any provision of this
chapter to the contrary” the activities of “sport, fair, exposition, play, entertainment or public
diversion” may be conducted on any legal holiday. “[A]ny labor, business or work necessary or
incidental thereto may be performed on any legal holiday . . . .” Section 14, unlike § 13, does not
require premium pay for employees working on any legal holiday.
As referenced in the Decision, a movie theater may be viewed as a retail establishment.
At the same time, the operation of a movie theater is also a business providing “entertainment or
public diversion” as described in § 14. That conclusion is consistent with the plain meaning of
the words in § 14. Moreover, the conclusion is bolstered by the Legislature’s specific reference to
“exhibition of motion pictures by a movie theater” in Clause 8A of § 4 of c. 136. Clause 8A
exempts movie theaters from certain licensing requirements that otherwise would have applied to
a business providing “entertainment or public diversion.” By implication, the Legislature
recognized that movie theaters are businesses providing “entertainment or public diversion.”
Because § 13 and § 14 were enacted together in St. 1962, c. 616, § 2, I conclude that the
Legislature intended that “retail establishments” and businesses providing “entertainment or
public diversion” should be treated differently when it comes to the obligation to provide
premium pay for work on the Holidays. That is made abundantly clear by the Legislature’s
language in § 14 providing “[n]otwithstanding any provision of this chapter to the contrary” a
provider of “entertainment or public diversion” is governed by § 14.
“It is a basic canon of statutory interpretation that ‘general statutory language must yield
to that which is more specific.’” TBI Inc. v. Board of Health of North Andover, 431 Mass. 9, 18
(2000), quoting Risk Mgt. Found. Of Harvard Med. Insts., Inc. v. Commissioner of Ins., 407
Mass. 498, 505 (1990). Applying that canon here, I conclude that the inclusion of movie theaters
in § 14 by virtue of being a business providing “entertainment or public diversion” is a more
specific reference to the business of movie theaters than the generic “retail establishment.” That
means that movie theaters are governed by § 14, not § 13. Because § 14 does not require
premium pay for work on the Holidays, Plaintiffs Count III must be dismissed in its entirety.
Defendants’ motion for reconsideration is ALLOWED. Count III is dismissed.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
October 6, 2017
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Posted by Stephen Sandberg - October 11, 2017 at 7:14 pm

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Casella Waste Systems, Inc., et al. v. Steadfast Insurance Company (Lawyers Weekly No. 09-008-17)

No. 2016-2521 BLS 1
This is an insurance coverage dispute between a company engaged in the landfill business
and its insurer. The insurer, defendant Steadfast Insurance Company, issued a policy called Z
Choice Pollution Liability (the “Policy”) to plaintiff, Casella Waste Systems, Inc., naming
Casella and its subsidiary, Southbridge Recycling & Disposal Park, Inc. (“SRDP”), as insureds.
The Policy covers claims made against the insureds during the Policy period of April 30, 2015 to
June 15, 2016. Following notification by Casella in October 2015 to the Massachusetts
Department of Environmental Protection (“DEP”) of the detection of pollution flowing from
Casella’s property to neighboring property, a claim by DEP, as defined in the Policy, arose.
Casella sought insurance coverage for the claim. Steadfast denied coverage. Casella sued for
breach of contract, violation of G.L. c. 93A and for a declaration of coverage. Steadfast now
moves for a summary judgment declaring there is no coverage under the Policy. For the reasons
described below, summary judgment must be denied because there are material issues of fact that
1 Southbridge Recycling & Disposal Park, Inc.
are genuinely in dispute.
The following facts are taken from the parties’ Statement of Undisputed Material Facts
and Responses Thereto (“SUMF”), supplemented by documents and affidavits in the summary
judgment record.
The coverage at issue under the Policy is what was provided under Coverage C: Cleanup
Costs – New Pollution Event. Under Coverage C, Steadfast is obligated to pay “cleanup costs” to
the extent resulting from a “new pollution event” that migrates beyond the boundaries of a
“covered location” if that “new pollution event” is first “discovered” during the policy period.
The obligation to pay includes “cleanup costs” that the insured is legally obligated to pay
resulting from a third-party “claim.” The Policy also contains an exclusion from coverage for a
“known pollution event.” The words in quotes are defined terms in the Policy.
Casella seeks to be reimbursed and indemnified by Steadfast for all past and future
cleanup costs incurred on account of a claim by DEP. There is no dispute that (i) Casella incurred
cleanup costs, as defined, (ii) arising from migration of pollution from a covered property, as
defined, and (iii) Casella received and reported to Steadfast a claim, as defined, coming from
DEP. The dispute between the parties that is the crux of this lawsuit is whether the DEP claim
resulted from a “new pollution event” that first commenced in the Policy period and was not
known by Casella prior to the commencement of the Policy
The DEP claim concerns a landfill in the Town of Southbridge, Massachusetts operated
by plaintiff/insured SRDP. Beginning in 2002, the landfill began an annual residential well
monitoring program under which residents within ½ mile of a portion of the landfill could
request testing of their potable wells. On October 23, 2015, Casella, by its consultant, gave notice
to DEP that SRDP’s well testing in September 2015 had detected certain contaminants above
applicable standards in the wells of three residences. The three residence were along a road called
H. Foote Road and the addresses were 65, 74 and 81 H. Foote Road. Of the three residences, it
was only at 65 where two contaminants – – trichloroethene (“TCE”) and 1,1-dichloroethene
(“DCE”) were detected in the well water at concentrations greater than the Massachusetts
Maximum Contaminant Level (“MMCL”). In fact, the detection of TCE and DCE at 65 H. Foote
Road was nearly double the applicable MMCLs. This was the first time since the well testing
program had begun that TCE and DCE were detected at concentrations above the MMCLs in any
residential well that participated in the program. The residence at 65 H. Foote Road had not
participated in the well testing program until December 2014, and its drinking water was not
tested until September 24, 2015.
The notice to DEP also referenced that another contaminant, 1,4 dioxane (“Dioxane”),
was detected in the well water of all three residence at 65, 74 and 81 H. Foote Road. The
concentration levels were all above the Massachusetts Drinking Water Guideline. Also, TCE and
DCE were found in the water of 81 H. Foote Road at levels below MMCL.
Prior to the September, 2015 detection of TCE and DCE at levels above MMCL at 65 H.
Foote Road, there had been detections, as part of the well testing program, of TCE and DCE
below MMCL, as well as detections above reportable conditions of Dioxane in the drinking
water supply of some of the residences on H. Foote Road. None of these detections, however,
caused Casella to be assigned a release tracking number under the 21-E Program or to be
designated as a potentially responsible party. No claim was asserted by DEP and no remedial
action was required because of these earlier detections.
As a result of the notice to DEP in October 2015, the DEP for the first time assigned a
Release Tracking Number pursuant to its 21-E Program and identified SRDP as a potentially
responsible party for cleanup costs. Casella prepared, as required by DEP, an Immediate
Response Action Plan which was subsequently approved by DEP. In March 2017, Casella
reached an agreement in principle with the Town of Southbridge, the Town of Charlton and the
DEP to resolve the DEP claim. The agreement in principle was later finalized by way of an
Administrative Consent Order in May 2017, providing, among other things, for the sharing of
costs between DEP and SRDP of up to $ 10 million to install a municipal waterline in the Town
of Charlton. Casella became legally obligated to pay cleanup costs and take other remedial
action. Casella incurred more than $ 2.5 million in cleanup costs in connection with the DEP
claim and expects to incur additional costs.
On December 15, 2015, Casella provided notice to Steadfast of an occurrence or claim by
attaching a letter from Casella’s consultant to DEP. By letter dated April 8, 2016, Casella
notified Steadfast of the DEP claim. Steadfast denied coverage for the DEP claim, by letter dated
April 27, 2016, based on the “known pollution event” exclusion. This lawsuit followed.
A claim cannot be resolved on a motion for summary judgment where “a reasonable jury
could return a verdict for the nonmoving party.” Dennis v. Kaskel, 79 Mass. App. Ct. 736, 741
(2011), quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For this reason, in
evaluating the motion for summary judgment the court “must . . . draw all reasonable
inferences” from the evidence presented “in favor of the nonmoving party,” as a jury would be
free to do at trial. Godfrey v. Globe Newspaper Co., Inc., 457 Mass. 113, 119 (2010). A request
for summary judgment must be denied where a claim turns on disputed issues of fact or on
disputed inferences from admitted facts. See Molly A. v. Commissioner of Dept. of Mental
Retardation, 69 Mass. App. Ct. 267, 284 (2007)(“summary judgment cannot be granted if the
evidence properly before the motion judge reveals a genuine issue of disputed material fact”);
Flesner v. Technical Communications Corp., 410 Mass. 805, 811-812 (1991) (“Where a jury can
draw opposite inferences from the evidence, summary judgment is improper.”).
Here, there are at least two major disputes of fact that are material to the legal issue of
whether insurance coverage exists under the Policy. Those disputes are (1) whether a relevant
“pollution event” was known to a “responsible insured” prior to the commencement of the
Policy, and (2) whether the “claim” submitted by Casella to Steadfast resulted from a “new
pollution event.” The disputes coalesce around the events at 65 Foote Road.
(1) Knowledge of Pollution Event
In SUMF Nos. 19, 20 and 45, Steadfast asserts that a 2006 collection of samples of water
at 65 H. Foote Road showed some level of TCE and DCE. Steadfast claims that the samples were
part of the residential well program of testing by SRDP. Casella denies these facts, based on
affidavits stating that the 2006 detections were not part of its well program. The affidavits aver
that the 2006 results were not known by Casella until late 2015. In SUMF No. 85, a statement of
fact submitted by Casella, Steadfast then admits that Casella was not aware of the 2006 report of
TCE and DCE at 65 H. Foote Road before April 2015 (the commencement of the Policy). This
contradiction suggests an unresolved issue of fact. Moreover, Steadfast contends in response to
SUMF No. 85 that detection by Casella’s well testing program prior to 2015 at other residences
on H. Foote Road revealed at least some level of TCE and DCE in the water migrating to the
residences along H. Foote Road. While not stated with precision, Steadfast appears to argue that
the known pollution along H. Foote Road may be sufficient to ascribe knowledge of pollution at
65 H. Foote Road to Casella.
Thus, the facts of what did Casella know and when did it know it, are at issue. The
insurance provided by the Policy does not apply to a “pollution event” that was known to Casella
before the commencement of the Policy. A “pollution event” is defined in the Policy to mean
“the discharge, release, or escape of any solid, liquid, gaseous or thermal irritant, contaminant or
pollutant . . . into or upon land . . . or any watercourse or body of water including groundwater.”
Whether there was a pollution event known to Casella prior to the commencement of the policy
at 65 H. Foote Road or at any other relevant residences presents factual issues that must be
determined by a jury.
(2) What Caused the Claim
The question of what caused DEP’s claim brings the focus to 65 H. Foote Road. That is
because Steadfast’s obligation to pay under the Policy is triggered when Casella is legally
obligated to pay “as a result of” a “claim.”
The Policy defines “claim” as a “written demand or written notice received by the
‘insured’ alleging liability or responsibility on the part of the ‘insured.’” There does not appear to
be any dispute that the “claim” in this case is the assertion of liability of SRDP and Casella by
DEP.2 It is the position of Casella that the claim by DEP “resulted from” (quoting the language of
2 On March 9, 2016, Casella provided Steadfast with notice of a letter from legal counsel
to residents in the surrounding area of H. Foote Road. That letter threatened a lawsuit under
federal law for the alleged contamination of drinking water. By letter dated April 5, 2016,
the Policy) the discovery in September 2015, of TCE and DCE at levels in excess of MMCL at
65 H. Foote Road. Stated another way, Casella contends that but for the discovery of high levels
of TCE and DCE at 65 H. Foote Road, there would not have been a DEP enforcement proceeding
or a claim at all. In SUMF No. 79, Casella states “[i]t was not until the detection in the drinking
water of TCE and 1,1 DCE above the MMCLs – – which had never occurred previously as part of
the Well Program – – that Casella was faced with a Claim in connection with the Well Program
identifying SRDP as a PRP under M.G.L. c. 21E and mandating that Casella incur extensive
‘cleanup costs’ in the form of a submission of an Immediate Response Action plan and the
performance of extensive remediation in accordance with M.G.L. c. 21E.” Steadfast disputes
SUMF No. 79. In addition, in response to Steadfast’s SUMF Nos. 18 to 44, wherein Steadfast
described detections on dates prior to the inception of the Policy of some level of TCE and DCE
and Dioxin at residences on H. Foote Road, other than number 65, Casella responded that “the
Mass DEP Claim was not as a result of those detections.”
In sum, Casella asserts that (1) it had no knowledge prior to September 2015 of pollution
migrating to 65 H. Foote Road, and (2) the “claim” occurred as a result of what was discovered
in September 2015 at 65 H. Foote Road, and absent the discovery at 65 H. Foote Road there
would have been no claim. The latter assertion will, ultimately, depend on Casella’s ability to
prove what would have occurred in a hypothetical situation: i.e., if only the Dioxane test results
for 74 and 81 H. Foote Road had been reported rather than in combination with the severe
readings of TCE and DCE from 65 H. Foote Road. I find that the facts asserted by Casella, as to
Steadfast denied coverage under the Policy for this potential claim based upon the “known
pollution event” exclusion. While these events are recited at ¶¶ 35 to 37 of the Complaint,
Casella asserts no claim in this lawsuit arising from this correspondence.
the lack of any enforcement by DEP prior to the October 2015 report of findings at 65 H. Foote
Road, and the immediate assertion of a claim arising after the October 2015 report, give rise to a
reasonable inference that the claim by DEP resulted from a “new pollution event” at 65 H. Foote
Road.3 The reasonable inference may be rebutted by evidence in the correspondence and
otherwise indicating that DEP required remedial action with respect to 74 and 81 H. Foote Road,
but a triable issue is presented. Moreover, it may be that some of the “claim” asserted by DEP
resulted from pollution at locations other than 65 H. Foote Road as to which Casella was aware
prior to 2015. In that case, a question of allocation of cleanup costs to a covered claim (65 H.
Foote Road) and other locations that may not be covered because of the “known pollution event”
exclusion, may have to be determined. Summary judgment is not available to decide those fact
For the reasons stated above, Steadfast’s Motion for Summary Judgment is DENIED.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
Date: September 7, 2017
3 A “new pollution event” is defined in the Policy to mean “a ‘pollution event’ that first
commences after the ‘delimitation date.’” The delimitation date is April 30, 2015.
8 read more

Posted by Stephen Sandberg - October 4, 2017 at 1:11 am

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Cook v. Applause App Quality, Inc., et al. (Lawyers Weekly No. 09-007-17)

NO. 2016-3293-BLS 2
In this putative class action, the plaintiff Walter Cook, individually and on behalf of others similarly situated, alleges violations of the Massachusetts Wage Act, G.L.c. 149 §149, 150, and the Massachusetts Minimum Fair Wage Act, G.L.c. 151 §§1A-1B. The Complaint was filed in October 2016 and, after an effort to settle the case through mediation, the parties proceeded with discovery. On August 10, 2017, the defendants requested extensions of various deadlines, to which the plaintiff assented. Under the revised tracking order, class-based discovery is to be complete by October 20, 2017, with a motion for class certification to follow.
The case is now before the Court because the defendant Applause App Quality, Inc. (Applause) on September 8, 2017 sent a document to putative class members entitled “Option Cancellation Agreement.” The document was sent in connection with a proposed merger between Applause and another company, Vista Equity Partners. On page six of the ten-page, single spaced document is language purporting to release Applause from the claims asserted in the instant case. Plaintiff’s counsel had no advance notice of the merger, and learned of the Option Cancellation Agreement only when an employee of Applause contacted him about it.
On September 11, 2017, plaintiff filed an Emergency Motion for a Temporary Restraining Order challenging Applause’s communications with potential class members. Rather than proceeding on an ex parte basis, this Court scheduled a hearing for September 14, 2017. After hearing, the Court issued a Temporary Order which among things prohibited Applause from any further communications and required it to withdraw the Option Cancellation Agreement pending further hearing. That further hearing was held on September 21, 2017, at which time defendant moved to terminated the Temporary Order. Based on the reasons set forth herein, this Court now extends that earlier order as a Preliminary Injunction and DENIES the defendant’s Motion.
Although the issues presented by this motion are new to this judge, the applicable legal principles are not. It has long been recognized that a court has inherent power to regulate and control the conduct of parties and their legal representatives if that is necessary to protect the integrity of the judicial process. Kevlik v. Goldstein, 724 F.2d 844, 847 (1st Cir. 1984) and cases cited therein. Where suit has been brought as a putative class action, that authority is made explicit in Rule 23(d), Mass. R.Civ. P., which states that the court may “impose such terms as shall fairly and adequately protect the interests of the class in whose behalf the action is brought or defended.” The potential that such interests will be unfairly compromised is particularly strong before a class has been certified, since potential class members are not yet represented by counsel and (in cases involving alleged wage violations) because of the heightened possibility of coercion between an employer defendant and its workers. See Chambers v. RDI Logistics, Inc., 476 Mass. 90, 111 (2016) (Chambers); see also Belt v. Emcare, Inc., 299 F. Supp. 2d 664, 668 (E.D. Tex. 2003) (“[W]here the absent class member and the defendant are involved in an
ongoing business relationship, such as employer-employee, any communications are more likely to be coercive”); Kleiner v. First Nat’l Bank, 751 F.2d 1193, 1202 (11th Cir. 1985) (same). Although a court’s authority to regulate communications by one party or his lawyer is circumscribed by the First Amendment, it is appropriately exercised to prevent “’misleading or coercive communications with potential class members that could or are intended to undermine participation in a class or collective action.” Chambers, 476 Mass. at 111, quoting Davine vs. Golub Corp., U.S. Dist. Ct., No. 14-30136-MGM (D. Mass. Oct. 24, 2014). Any order that does limit the opposing party’s communications must be supported by “clear and specific findings” that show a need for the limitation and a likelihood that, without it, there is a real potential of serious abuse. Chambers, 476 Mass. at 111, quoting Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981).
With these principles in mind, this Court turns to the communication here at issue: the Option Cancellation Agreement (the Agreement). The Agreement contains two sets of releases, one appearing in Section 7 (and entitled “Release”) and the other appearing in Section 9 (c) (under the heading of “Additional Covenants”). The release language in Section 7 is quite broad and applies to a wide variety of claims, known and unknown, that have been or could be asserted against Applause and its successors and assigns, including Vista Equity. It specifically excludes from its reach, however, “any rights to receive compensation (including without limitation wages, fees, salaries and bonuses) and benefits or reimbursement of expenses that have accrued in respect of any employment” with Applause. Section 9 of the Agreement pertains directly to the instant case and purports to release precisely what Section 7 appears to preserve in that the employee relinquishes any claim to wages as asserted in this case. That the Agreement appears to be internally contradictory would alone support the conclusion that it is misleading.
As to the specific language of Section 9, it does accurately describe the claims in the instant case (which it references by name and docket number), and that description is in capitals and bold face. However, it is included in a document that by its title relates to stock options already earned by Applause employees under to a 2008 Equity Incentive Plan. The purpose of the Agreement is set forth on the first page and states that, as a result of the Merger Agreement entered into between Applause and other entities on August 18, 2017, these employee stock options are cancelled except that if they are vested, the option holder will receive a cash payment “equal to the Optionholder’s applicable portion of the consideration payable pursuant to the Merger Agreement…” That cash payment will be made, however, only if the option holder signs and returns the Agreement, and thus agrees to the releases in Section 7 and 9. In other words, any Applause employee with vested stock options will receive the cash equivalent only if he or she agrees to release any and all claims against Applause, including the claims asserted here.
Plaintiff contends that Applause has no legal basis for withholding compensation to its employees who hold vested stock options by conditioning it on those employees giving up their rights against Applause on wholly unrelated claims. This Court is inclined to agree. But see footnote 1, infra. The Agreement appears to cancel all stock options, whether vested or not, but vested stock options cannot be cancelled without some equivalent compensation. Consequently, that right to some compensation cannot be conditioned upon the employee giving up any claim to wages due and owing, which is what the Agreement appears to require the employee to do (assuming that Section 9 trumps Section 7 so as to avoid the internal contradictions between those two sections described above). As plaintiff’s counsel puts it, “defendants are trying to
settle with class members by offering to pay them money that they are already entitled to
receive.” 1
Defense counsel argues that such a general release like the one here at issue is “industry practice” where stock options are being cancelled as a result of a merger. He offers no evidence of that, however. Indeed, plaintiff’s counsel’s own research suggests that the industry practice (at least with respect to publicly traded companies) is to include releases that pertain only to claims that relate to the agreement itself and the stock options to which it pertains. The manner in which this Agreement was presented to putative class members was also coercive. Despite defense counsel’s attempt to characterize it as a mere offer, this Agreement was presented in a “take or leave it” fashion, without any indication that Applause was open to discussing it. Moreover, the Agreement – including Section 9 — is written in the dense and impenetrable language that only a lawyer can decipher. As if in recognition of that fact, the Agreement requires the employee to specifically represent that he or she had the opportunity to consult with legal counsel regarding his or her rights – and more specifically, that he or she has reviewed the Complaint in the instant action. Since these employees are likely of limited means and are not currently represented by class counsel (or even know who class counsel is), the chance that any employee would actually get independent and meaningful legal advice is decidedly slim.
This case is thus far different than the communication at issue in Chambers, which a lower court in its discretion declined to enjoin. In Chambers, the employer defendant in a Wage Act case sent a letter to its employees that described the then pending action against it in terms that a non-lawyer could easily understand. The defendant made a straightforward offer to pay a
1 At the hearing on September 21, 2017, defense counsel argued that this Court has misunderstood the Agreement and that it is supported by consideration. This Court need not decide today whether counsel is correct since I make no final determination regarding the validity of any Agreement executed before the Temporary Order issued. That the Agreement is difficult to decipher, however, and could lead to different interpretations only reinforces this Court’s conclusion that it constitutes a communication to putative class members that is misleading.
sum of money to any individual willing to relinquish his or her claim, as a putative class member, to seek compensation for unpaid wages, including any claim that the individual had been misclassified as an independent contractor. The letter did not require the recipient to give up any other rights; indeed, it specifically stated that the recipient’s decision to accept or reject the cash offer would not have any impact on his or her business dealings with the company unrelated to the class action. Finally, in refusing to reverse the lower court, the SJC did not specifically bless the communication at issue. It held only that the lower court did not abuse its discretion – that is, that its ruling did not involve a “clear error of judgment in weighing the factors relevant to the decision…such that [it] falls outside the range of reasonable alternatives.” Chambers, 476 Mass. at 111, quoting Merles v. Lerner, 391 Mass. 221, 226 (1984). This Court in the exercise of its discretion, concludes that Applause’s conduct is improper.
Accordingly, the plaintiff’s Motion for a Preliminary Injunction is ALLOWED, the defendant’s Motion to Terminate the Temporary Order is DENIED. This Court adopts the proposed Order submitted by plaintiff’s counsel at the hearing on September 21, 2017.
Janet L. Sanders
Justice of the Superior Court
Dated: September 21, 2017 read more

Posted by Stephen Sandberg - October 3, 2017 at 6:01 pm

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Gallagher v. Cerebral Palsy of Massachusetts, Inc., et al. (Lawyers Weekly No. 11-117-17)

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

16-P-1152                                       Appeals Court


No. 16-P-1152.

Norfolk.     April 6, 2017. – September 13, 2017.

Present:  Green, Blake, & Lemire, JJ.

MassHealth.  Massachusetts Wage Act.  Labor, Overtime compensation, Failure to pay wages.  Independent Contractor Act.  Regulation.  Practice, Civil, Motion to dismiss, Summary judgment.

Civil action commenced in the Superior Court Department on December 10, 2015. read more

Posted by Stephen Sandberg - September 13, 2017 at 6:36 pm

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Element Productions, Inc. v. EditBar, LLC, et al. (Lawyers Weekly No. 12-122-17)

No. 2016-1476 BLS1
ARBITRATION (Paper No. 37)
Approximately thirteen months after defendants answered the complaint and asserted
counterclaims and a third-party claim, defendants now seek to move this case to arbitration. The
issue presented is whether defendants, by their active litigation conduct, waived arbitration. For
the reasons described below, I find that arbitration is waived and, thus, this motion is denied.
Defendant Mark Hankey was an employee of Element until April 12, 2016. He executed a
written employment agreement in 2012 stating that “[a]ny dispute, claim or controversy arising
out of or relating to this Agreement or the breach, termination, enforcement, interpretation or
validity thereof shall be determined by arbitration in Boston, Massachusetts before one arbitrator.
The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules
and Procedures . . . .”
Plaintiff, Element Productions, Inc., commenced this action on May 9, 2016. Element
alleges that in 2015, Hankey began secretly aiding Element’s direct competitor, defendant Stir
Films LLC, a start-up video production company set up by defendant, EditBar, LLC. Hankey
allegedly disclosed Element’s confidential information to Stir Films and worked to assist Stir
Films to lure employees from Element to Stir Films. Element alleges that Hankey’s conduct was
in violation of his employment agreement. Element also alleges that EditBar and Stir Films aided
and abetted Hankey’s breach of fiduciary duty, tortiously interfered with Element’s contract with
Hankey, and conspired with Hankey to injure Element, among other claims.
Had Hankey timely moved to compel arbitration of Element’s claims such motion would
have been allowed. Element does not appear to disagree that its claims against Hankey come
within the arbitration provision. Moreover, EditBar and Stir Films contend that they, also, are
entitled to arbitration pursuant to the recent decision of the Appeals Court in Silverwood
Partners, LLC v. Wellness Partners, LLC, 91 Mass. App. Ct. 856 (2017). In Silverwood, the
Court held that a nonsignatory to an arbitration agreement (like EditBar and Stir Films) may
compel arbitration when a signatory (Element) raises allegations of substantially interdependent
and concerted misconduct by both the nonsignatory and one or more of the signatories (Hankey)
to the contract.
Element’s argument against enforcement of the agreement to arbitrate is based entirely on
the principle of waiver of arbitration by litigation conduct. This principle was recognized by the
Supreme Judicial Court in Home Gas Corp. of Massachusetts v. Walter’s of Hadley, Inc. 403
Mass. 772 (1989). Where, under the totality of the circumstances, the party moving to arbitrate
has acted inconsistently with his arbitration right, such right might be waived. Id. at 775. The
facts indicating waiver include whether the party actually participated in the lawsuit and invoked
the jurisdiction and machinery of the court by, for example, filing a counterclaim or by litigating
discovery disputes. Id. at 776. Delay in demanding arbitration while utilizing court procedures
and litigating to obtain court decisions interferes with the court’s interest to control the course of
proceedings before it. Id. at 778.
Here, the totality of the circumstances show waiver. As mentioned, this case has been
actively litigated in court for more than a year. Hankey answered the complaint in June 2016, and
asserted counterclaims against Element for violation of the Wage Act, breach of contract,
conversion, and defamation. Hankey then initiated a third-party complaint against Eran Lobel, an
officer of Element. Hankey then amended his answer, counterclaims, and third-party claim in
preparation to litigate the motion to dismiss the counterclaims and third-party claim filed by
Element. Such litigation ensued with the parties’ invoking the court’s consideration of the
motion that resulted in some of Hankey’s claims being dismissed (such as the claim for
defamation) and some of his claims surviving. Neither Hankey or the corporate defendants
communicated any desire to go to arbitration.
Discovery proceeded apace over the last year. The parties negotiated a protective order
and asked the court to endorse the order. Documents were produced and depositions taken. The
parties, including the corporate defendants, litigated over discovery requests, requiring the court
to resolve the disputes. In January 2017, Hankey submitted a written statement in favor of
transferring this case to the Business Litigation Session (BLS) stating that the case warranted
substantial case management. The case was accepted into the BLS. In June 2017, the parties
appeared in the BLS for a Litigation Control Conference. The parties jointly agreed to a tracking
order setting October 31, 2017 as the deadline for completion of discovery.
Recently, on June 26, 2017, Hankey filed in court the Rule 9A package for his motion for
leave to amend his answer and counterclaims by filing a Second Amended Answer and
Counterclaim. Among other things, the proposed amended counterclaim seeks to re-assert a
claim for defamation based, in part, on facts allegedly learned in discovery. That motion is still
pending, with oral argument set for September 5, 2017.
Then, on July 21, 2017, the corporate defendants served a motion for protective order
with respect to ongoing discovery disputes. In August 2017, the corporate defendants filed an
emergency motion to impound documents in connection with a motion (not yet filed in court) to
compel discovery from Element concerning damages.
Notwithstanding this active practice before this court seeking both affirmative relief and
protection from discovery, on July 17, 2017, less than three weeks from Hankey filing his motion
to amend his pleadings, Hankey and the corporate defendants served the instant motion to stay
the action and to compel arbitration. Until the service of that motion, no reference to the
possibility of arbitration was raised by Hankey or the corporate defendants.
I find the analysis and conclusion in Shalaby v. Arctic Sand Technologies, Inc., 32 Mass.
L. Reptr. 401, 2014 WL 7235830 (2014) (Salinger, J.), to be directly on point and entirely
persuasive. No purpose would be served by repeating the analysis. I agree with Judge Salinger
that the better reasoned cases, including Marie v. Allied Home Mortgage Corp., 402 F. 3d 1 (1st.
Cir. 2005), hold that whether waiver of arbitration by litigation conduct has occurred is one for
the court to decide, not the arbitrator. The court has a direct interest in controlling its judicial
procedures and in preventing abusive forum shopping.1
1 There is no argument advanced by defendants that the terms of the arbitration contract
reserve the issue of waiver by litigation conduct to the arbitrator.
“Where we are dealing with a forfeiture by inaction (as opposed to an explicit waiver),
the components of waiver of an arbitration clause are undue delay and a modicum of prejudice to
the other side.” Rankin v. Allstate Ins. Co., 336 F. 3d 8, 12 (1st Cir. 2003).
I find that defendants’ litigation conduct for more than a year as described above is
completely inconsistent with Hankey’s contractual right to arbitration. The delay in asserting the
contractual right to arbitration until now appears to be intentional, as deduced from defendants’
affirmative invoking of the court’s jurisdiction and their active use of the discovery mechanisms
of the court. Moreover, defendants do not attempt to explain or justify their delayed decision to
claim arbitration. The undue delay by defendants satisfies the first element of a finding that
arbitration has been waived by litigation conduct.
Because there is a strong federal and state policy in favor of arbitration, “‘mere delay in
seeking [arbitration] without some resultant prejudice’ is insufficient for a finding of conductbased
waiver.” Joca-Roca Real Estate, LLC v. Brennan, 772 F. 3d 945, 948 (1st Cir. 2014),
quoting Creative Solutions Grp., Inc. v. Pentzer Corp., 252 F. 3d 28, 32 (1st Cir. 2001). The
required showing of prejudice, however, is “tame at best.” Id. at 949, quoting Rankin v. Allstate
Ins. Co., 336 F.3d at 14. Prejudice may be inferred from the inordinate delay accompanied by
sufficient litigation activity. Id. In this case, Element points to its successful motion to dismiss
Hankey’s defamation claim. Element states that Hankey seeks to reintroduce that claim in a
pending motion to amend filed in this court, and would attempt to assert the defamation claim if
sent to arbitration. Element argues that it would be unfair for defendants to get a second bite at
the (defamation) apple in an arbitration proceeding when this court has already ruled against him.
In addition, Element notes extensive efforts regarding discovery and the likelihood that the court
will be asked to issue orders for discovery in response to motions from both sides. Element
contends that moving the case to arbitration would hamper its efforts to obtain discovery because
discovery in arbitration is not as broad as under the Massachusetts Rules of Civil Procedure.
Finally, Element points to the litigation timetable negotiated and agreed to by the parties that
would be adversely affected by the moving to arbitration. I agree with Element’s arguments.
These facts are sufficient to show a modicum of prejudice, at least, to Element if this case were
stayed and arbitration ordered at this late date. Under the standard for determining whether
litigation conduct waives a party’s contractual right to arbitration, I find that defendants have
waived arbitration.
Defendants’ motion to stay action and to compel arbitration is DENIED.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
Date: August 14, 2017
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Posted by Stephen Sandberg - September 7, 2017 at 8:45 am

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Smith-Berry, et al. v. National Amusements, Inc., et al. (Lawyers Weekly No. 12-123-17)

No. 2017-0491 BLS 1
TREMAYNE SMITH-BERRY and JESSA DAPRATO, individually and as class
This motion presents an issue of apparent first impression; i.e., whether a movie theater
company must pay its hourly employees who work on Sunday and certain holidays one and onehalf
times their regular pay.
Plaintiffs bring this action as a putative class action on behalf of hourly employees at
Showcase Cinemas movie theaters. The named plaintiffs work as a wait staff employee and
bartender, respectively. First Amended Complaint (“FAC”) ¶¶ 5, 6. Both plaintiffs provide food
and beverage services to Showcase’s patrons. FAC ¶¶ 33, 35. The FAC alleges two counts
(Counts I and II) of violation of Massachusetts law regarding the handling of service charges or
tips. Count III of the FAC alleges violation of the Wage Act, G.L. c. 149, §§ 149, 150, for failure
to pay plaintiffs for work on Sunday and holidays at the rate of one and one half times their
regular hourly rate. This partial motion to dismiss concerns only Count III.
1 Cerco LLC, d/b/a Showcase Cinemas and Shari Redstone
The FAC asserts the following facts which, for purposes of this motion, I accept as true.
Defendants, referred to collectively as “Showcase”, operate a chain of movie theaters at eleven
locations in Massachusetts. The movie theaters are open for business on Sundays and holidays.
Plaintiffs are employed by one or both of the corporate defendants to work in the movie theaters.
Showcase regularly requires plaintiffs and other hourly employees to work on Sunday and
holidays. Showcase does not pay hourly employees the premium of one and one half times their
regular hourly rate (“premium pay”) for their work on Sunday and holidays.
When the movie theaters are open for the business of exhibiting motion pictures, they sell
food and beverages to patrons for consumption on the premises. FAC ¶ 38. The food items
include fresh popped popcorn, chips, candy, ice cream novelties, confectionaries, fountain soft
drinks and alcoholic beverages. Id.
A. Sunday Pay
The resolution of the issue regarding pay for work on Sunday requires an analysis of the
statutory scheme. G.L. c. 136 is commonly referred to as the Sunday closing or “Blue” laws.
Zayre Corp. v. Attorney General, 372 Mass. 423, 424 (1977). “The general philosophy of the
various enactments and versions of the Sunday law up to and including the present G.L. c. 136 is
to begin with a general prohibition of all work, labor and amusements on Sunday and then to
engraft on that general prohibition the exemptions which the Legislature deems required by
necessity or the general purpose of the statute.” Id. at 429. A the time of the decision in Zayre,
there were 49 exemptions in c. 136, § 6, thirteen of which concerned the performance of retail
sales. Id. at 431-432. The plaintiffs in Zayre were large and small retailers of various goods
challenging the constitutionality of exemptions authorizing some retail sale activity on Sunday
but not all. Their constitutional challenge failed.
Following Zayre, the Legislature enacted a fiftieth exemption. By St. 1977, c. 722, clause
(50) of c. 136, § 6 was enacted into law.2 That clause provides an exemption from the Sunday
closing law for “a store or shop” engaged in the “sale at retail of goods.” At the same time, the
Legislature imposed the requirement that a “store or shop which qualifies for exemption under
this clause [50] or under clause (25) or clause (27) and which employs more than a total of seven
persons” pay non-executive employees “at a rate of not less than one and one-half times the
employee’s regular rate.”
Of the 50 exemptions to the Sunday closing law that existed upon the passage by the
Legislature of St. 1977, c. 722, there are numerous exemptions for retail activity or the sale of
goods or services at retail. Nevertheless, the Legislature designated only three exemptions that
would trigger an obligation to pay premium pay for work on Sundays.3 Only an employee
working at an establishment that “qualifies for exemption” under clauses (25), (27) and (50) is
entitled to premium pay. G.L. c. 136, § 6 (50). For example, the exemption in clause (28) allows
the “retail sale of greeting cards and photographic films and the processing of photographic
films” on Sunday. G.L. c. 136, § 6 (28). Thus, a retail store selling greeting cards “qualifies for
exemption” under clause (28), not (50), and is not subject to the premium pay requirement.
Likewise, a restaurant, qualified to open on Sunday by clause (42), is not subject to the premium
2 There are now 55 exemptions in c. 136, § 6.
3 In 2003, the Legislature enacted exemption (52) applicable to the retail sale of alcoholic
beverages not to be drunk on the premises. Retail stores operating under that exemption must pay
premium pay for Sunday work.
pay requirement. That is because, applying basic principles of statutory construction requiring
that (a) the words of a statute should be given their plain meaning, and (b) subsections of a
statute should be interpreted harmoniously, it must be concluded that the Legislature intended
that a retail business authorized to operate on Sunday by a statutory provision other than clauses
(25), (27) and (50), is not required to pay premium pay. If the Legislature intended to require
premium pay for all retail activity allowed on Sunday, it would have attached the premium pay
requirement explicitly to all the clauses of c. 136, § 6 allowing retail business to operate on
Sunday.4 Instead, the Legislature elected to use the words “qualifies for exemption under this
clause” in clause (50)(emphasis added) to limit the application of the premium pay requirement.
The operation of movie theaters on Sunday and holidays is authorized by a separate
section of the General Laws. Under G.L. c. 140, § 181, local authorities may grant a license to a
movie theater “for the exhibition of motion pictures . . . seven days per week.” The Sunday
closing laws in c. 136 specifically recognize that the “exhibition of motion pictures by a movie
theater” on Sunday and holidays is governed by c. 140, § 181, and not by c. 136. See G.L. c. 136,
§ 4(8A). Consistent with that statutory structure, the operation of a movie theater is not
mentioned in any of the 55 exemptions authorized by c. 136, § 6. In short, the operation of a
movie theater on Sunday does not “qualify for exemption” under clauses (25), (27) or (50) of c.
Given that there is no other statutory obligation to pay Sunday workers premium pay (the
4 The Attorney General appears to agree that only “[c]ertain retail establishments that
operate on Sundays are subject to” the premium pay obligation. Massachusetts Attorney General,
Working on Sundays and Holidays (“Blue Laws”), www.mass/gov/ago/doing-business-inmassachusetts/ (Emphasis added).
statute allowing movie theaters to obtain a license for seven days per week does not impose a
premium pay obligation), Showcase succeeds on its argument that its operation as a movie
theater does not trigger the requirement to pay premium pay for work on Sunday.
But what is the effect of Showcase’s practice of selling food, snacks, confections, and
alcoholic beverages to movie goers for consumption on the premises? Plaintiffs argue that such
sales are “the retail sale of . . . soft drinks, confectioneries . . . dairy products” that come within
clause (25) of § 6.5 As a result, plaintiffs contend that Showcase’s sale of food and drink items
“qualifies for exemption” under clause (25).
Plaintiffs fail to recognize that Showcase’s sale of food and drink items is for
consumption on the premises. Therefore, it is “[t]he conduct of the business of . . . [a] common
victualler.” Such business qualifies for exemption under G.L. c. 136, § 6 (42), not clause (25).
As alleged in the FAC, plaintiffs serve food and drink to patrons of the movie theater to be
consumed on the premises. While there is no statutory definition of “common victualler” the
meaning is well established. “The words ‘common victualler,’ in Massachusetts, by long usage,
have come to mean the keeper of a restaurant or public eating house. . . . [providing] suitable
food for all purchasers who resort to the place where the business is carried on, for such
refreshment as is to be consumed upon the premises.” Commonwealth v. Meckel, 221 Mass. 70,
72 (1915). See also, Town of Wellesley v. Javamine, Inc., 21 Mass. L. Rptr. 12, *3 (Mass.
Superior Ct. 2006)(citing Meckel). Thus, as a common victualler, Showcase qualifies to do
business under clause 42 of c. 136, § 6 and is not subject to the premium pay requirement.
5 Clause (25) of G.L. c. 136, § 6 provides an exemption for “[t]he retail sale of tobacco
products, soft drinks, confectioneries, baby foods, fresh fruit and fresh vegetable, dairy products
and eggs, and the retail sale of poultry by the person who raises the same.”
Further, all of Showcase’s commercial activity on Sunday “qualifies for exemption” under
statutory provisions other than clauses (25), (27) and (50) of c. 136, § 6. That being so, there is
no statutory obligation to pay workers premium pay as a result of working on Sunday.6
B. Holiday Pay
The FAC alleges that plaintiffs are required to work “on holidays, including one or more
of the holidays listed in M.G.L. c. 136, § 13.” FAC ¶ 44. They do not receive premium pay for
such work. FAC ¶ 45. Thus, they sue to recover.
Section 13 of c.136 is in two paragraphs. In the first paragraph the statute says, in
essence, that the Sunday closing laws in c. 136, §§ 5 to 11 apply to legal holidays. Thus, because
a movie theater does not have to pay premium pay on Sunday, as concluded above, it does not
have to pay premium pay on most legal holidays.7
In the second paragraph of § 13, however, it is mandated that “[a]ny retail establishment”
pay employees time and one-half for work performed on three dates: January 1, the second
Monday of October and November 11. It is also mandated that the employer shall not force an
employee to work on those dates.
In Drive-O-Rama, Inc. v. Attorney General, 63 Mass. App. Ct. 769 (2005), the Appeals
Court distinguished between the statutory authority to operate on Sunday and the statutory
authority to open for business on the enumerated legal holidays in the second paragraph of § 13.
6 Of course, if a worker is employed for a work week longer than forty hours there is a
separate obligation to pay at a rate of time and one half. G. L. c. 151, § 1A.
7 Certain dates are excepted from coverage as legal holidays. For example, March 17 and
the third Monday in April are not subject to legal holiday pay governed by the Sunday pay
The Court held that the second paragraph of § 13 requires premium pay for work in “any retail
establishment” on New Year’s Day, Columbus Day and Veteran’s Day, regardless of whether the
employer is, or is not, subject to premium pay requirements for workers on Sunday. Id. at 772 –
773. The establishment (Mill Stores) in Drive-O-Rama, Inc. operated a retail store on Sundays
and legal holidays. Mill Stores was open on Sundays because it qualified for exemption from the
Sunday closing laws under clause (29) of c. 136, § 6. Id. at 771. Because stores operating under
clause (29) are not subject to the premium pay requirement, Mill Stores argued that it should not
be obligated to pay premium pay on New Year’s Day, Columbus Day and Veteran’s Day. The
Appeals Court held that the statutory authority to operate on those enumerated holidays derived
solely from G.L. c. 136, § 13, and not from the Sunday closing laws. Accordingly, Mill Stores
was obligated to pay premium pay on those enumerated holidays even though it operated on
Sundays and other holidays without the obligation for premium pay. Id. at 771-772.8
The somewhat odd result of Drive-O-Rama (requiring premium pay on three dates but not
Sundays and other holidays) applies directly to the present case. As concluded above, Showcase,
like Mill Stores, is not obligated for premium pay under the Sunday closing laws. If Showcase is
a “retail establishment”, however, it, like Mill Stores, is obligated to pay premium pay to workers
on New Year’s Day, Columbus Day and Veteran’s Day.
According to the FAC, Showcase is engaged in two lines of business – – the sale of movie
tickets and the sale of food and alcohol for consumption on the premises. Plaintiffs do not
explicitly plead in the FAC that Showcase is a retail establishment. The word “retail” is not used
8 It is noted that the only issue before the Court in Drive-O-Rama was whether § 13
required premium pay. The Court, however, in analyzing that issue accepted, without discussion,
that the employer was not obligated to pay premium pay on Sundays or other holidays.
in the FAC. Instead, plaintiffs argue in their memorandum that the descriptions of Showcase’s
lines of business in the FAC are sufficient to state a claim that Showcase is a “retail
establishment.” The issue, therefore, is whether either the sale of movie tickets or the sale of food
and alcohol for consumption on the premises makes Showcase a “retail establishment.”
There is no definition in c. 136 of “retail establishment” or “retail.” Absent a definition,
statutory language should be given effect consistent with its plain meaning. Sullivan v.
Brookline, 435 Mass. 353, 360 (2001). Black’s Law Dictionary (rev. 9th ed. 2009) defines
“retail” as “[t]he sale of goods or commodities to ultimate consumers, as opposed to the sale for
further distribution or processing.” “Goods” is defines as “[t]angible or movable personal
property other than money.” Similarly, the American Heritage Dictionary defines “retail” as
“[t]he sale of goods or commodities in small quantities to the consumer.” Am. Heritage
Dictionary 1186 (4th ed. 2002). Both of these sources suggest that the term “retail” is to be given
a broad definition. There is no limitation placed on the kinds of goods or commodities that can
be sold, nor does the definitions distinguish food and beverages from other types of retail items
that can be sold.9
With respect to Showcase’s operation as a restaurant (common victualler) or tavern
(provider of alcoholic beverages for consumption on the premises), the Supreme Judicial Court
9 Plaintiffs note that Massachusetts sales tax law defines “retail sale” broadly to include
“a sale of services or tangible personal property or both for any purpose other than resale in the
regular course of business.” G.L. c. 64H, § 1. A “retail establishment” includes “any premises in
which the business of selling services or tangible personal property is conducted, or, in or from
which any retail sales are made.” Id. The definition of “retail sale”, however, does not include
“sales of tickets for admissions to places of amusement and sports.” Id. Reliance on these
definitions is made unnecessary by the holding of the Supreme Judicial Court in Moriarty,
discussed infra.
has definitively held that such operations are “retail” and the premises are a “retail
establishment.” In Commonwealth v. Moriarty, 311 Mass. 116 (1942), the Court determined that
a tavern was a “retail store” within the statute (then existing) requiring that “retail stores” be
closed between 7 a.m. and 1 p.m. on Columbus Day. Id. at 121. The Court considered the
argument that the sale of food for consumption on the premises is not a sale at retail. The
argument was rejected. Id. at 123 (“The [tavern], therefore, is not aided by any analogy of a
tavern to a restaurant”). Moriarty is direct precedent for holding that Showcase’s food and
beverage sales make it a “retail establishment” for purposes of the second paragraph of § 13.10
Consequently, plaintiffs’ claims for payment of premium pay for work on New Year’s Day,
Columbus Day and Veteran’s Day may not, under the authority of Drive-O-Rama and Moriarty,
be dismissed.
10 Because Showcase is a “retail establishment” for purposes of § 13 as a result of its sales
of food and alcohol, it is unnecessary to decide on this record whether the sale by Showcase of
movie tickets also makes Showcase a “retail establishment” under that statute.
For the reasons stated, defendants’ motion to dismiss Count III of the FAC (Paper No. 14)
is allowed, in part, and denied, in part. The motion is allowed with respect to claims for premium
pay for work performed on Sundays and holidays other than New Year’s Day, Columbus Day
and Veteran’s Day. The motion is denied with respect to claims for premium pay for work
performed on those three enumerated holidays.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
Date: August 29, 2017
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Therapy Resources Management LLC, et al. v. Whittier Health Network, Inc., et al. (Lawyers Weekly No. 12-120-17)

No. 1784CV0942 BLS 1
Count IV of the Amended Complaint seeks a declaratory judgment to the effect that
defendants (referred to collectively as “Whittier”) are barred from seeking indemnity from
plaintiffs (referred to collectively as “Therapy”). Whittier has not yet answered the amended
complaint or asserted a counterclaim, but the record is clear that Whittier believes it has the right
to be indemnified by Therapy for litigation costs and a settlement payment incurred by Whittier
in connection with an investigation and lawsuit under the False Claims Act (“FCA”), 31 U.S.C.
§3729.1 There is an actual controversy between the parties regarding whether, as a matter of law,
Whittier can obtain indemnification under its contracts with Therapy which state that “[Therapy] shall indemnify and hold [Whittier] harmless from and against all claims, demands, costs,
expenses, liabilities and losses (including reasonable attorney’s fees) which may result against
[Whittier] as a consequence of any malfeasance, negligence . . . caused . . . by [Therapy] . . . .”
1 Whittier has effectively obtained some indemnification by refusing to pay invoices for
services rendered by Therapy. Thus, Therapy is the plaintiff in this action seeking recovery for
non-payment of invoices. The claim for indemnification by Whittier is anticipated because such
claim is the stated basis for Whittier’s refusal to pay the invoices.
Therapy’s argument for summary judgment on Count IV is based on the following
undisputed facts. The losses that Whittier wants indemnification for arise from the fact that
Whittier was sued, along with Therapy, for fraud under the FCA. The suit was brought by a
former employee of Therapy. There was also another suit by a different former employee of
Therapy against Therapy alone. The filing of the suits triggered an investigation by federal
officials. The gist of the FCA claims was that Whittier and Therapy knowingly presented false
claims for Medicare reimbursement. Both Whittier and Therapy denied the allegations.
At some point, the claims against Therapy were dismissed. It is unclear from the record
whether the dismissal was a result of a settlement or whether it was a dismissal without
prejudice. Sometime later, Whittier entered into a settlement with the FCA plaintiffs, including
the government, requiring, among other things, payment by Whittier of $ 2.5 million. Therapy
was not a party to the settlement. FCA claims against Therapy were not released in the Whittier
The settlement agreement alleges that Whittier failed “to take sufficient steps to prevent
[Therapy] from engaging in a pattern and practice of fraudulently inflating the reported amounts
of therapy provided to Medicare Part A patients.” There is no admission of liability by Whittier
in the settlement agreement and there was no finding by a court or jury that Whittier engaged in
the fraudulent conduct alleged.
Therapy seeks a declaration that the indemnity provision, quoted above, is unenforceable
as against public policy and the FCA. In short, Therapy argues that indemnification of Whittier
would relieve it of liability for its own fraud. The parties concede that if Whittier had been found
by a court to have committed fraud, or admitted to fraud, case law under the FCA would prohibit
Whittier from obtaining indemnification. Therapy argues that the FCA preempts state law claims,
based on contract or common law, for indemnification that would offset liability for fraud.
But Whittier asserts that it did not commit fraud. There has been no finding or admission
that it committed fraud. The issue presented is identical to what was presented to the United
States Court of Appeals for the Ninth Circuit in Cell Therapeutics, Inc. v. Lash Group, Inc., 586
F. 3d 1204, 1205 (2009)(“But what happens when a target defendant settles with the government
and the relator and then seeks recovery against a third party for contractual indemnity and
independent claims?”). The facts of Cell Therapeutics are closely aligned with the facts in the
present case.
The Court in Cell Therapeutics answered its rhetorical question by holding that a
defendant settling FCA claims with no admission of liability is free to seek indemnification from
a third party. Id. at 1212. “In resolving disputes under the FCA, we have recognized ‘the general
policy in favor of encouraging parties to settle disputes.’ Treating a qui tam settlement as a de
facto finding of liability would inevitably chill the settlement spirit.” Id. (Citation omitted). After
considering both the policy behind the FCA and principles of issue and claim preclusion, the
Court reversed a lower court’s dismissal of a settling defendant’s claim for indemnification. Id. at
I find the reasoning and conclusion in Cell Therapeutics to be thoroughly persuasive. The
cases cited by Therapy are all distinguishable from the facts of both Cell Therapeutics and the
present case. Whittier should not be precluded from making a claim for indemnification merely
because it settled the FCA case. Ultimately, whether Whittier can recover indemnification will
depend on its ability to prove its contract claim (whether Whittier’s losses were “as a
consequence of any malfeasance” of Therapy). Therapy, however, will have the opportunity to
prove that Whittier’s conduct was fraudulent. If so, Whittier may be precluded from
indemnification. These issues are not ripe for determination on the present record.
The cross-motions for partial summary judgment on Count IV of the amended
complaint (Docket Nos. 20 and 21) are DENIED.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
Date: August 3, 2017
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