Massachusetts Lower Court Upholds Covid Defense

In what is reported to be a first-of-its-kind ruling in Massachusetts, the Superior Court in UMNV 205-207 Newbury, LLC v. Caffe Nero Americas, Inc., No. 2084 CV01493-BLS2 (February 8, 2021), held that a restaurant tenant’s obligation to pay rent under its lease was discharged for a 3-month period under the doctrine of frustration of purpose when tenant was barred by government order concerning the COVID-19 pandemic from allowing any consumption of food or beverages within the leased premises.

The facts of Caffe Nero are straightforward. Caffe Nero entered into a 15-year lease starting June 1, 2017 for premises to be used “solely” for the operation of a Caffe Nero-themed café. Caffe Nero spent $1.3M to build out the space, opened for business in June 2018 and vacated the premises in October 2020. Caffe Nero paid no rent from April to October 2020. By order of the Governor, from March 24 through June 22, 2020, Caffe Nero was prohibited from allowing any on-premises consumption of food or beverages. Restaurants were able to resume limited indoor table service on June 22, 2020. When Caffe Nero stopped paying rent, landlord brought a summary process action for possession and rent.

Caffe Nero argued that none of the rent from April to October 2020 was due by virtue of the COVID-19 pandemic. The court, in response, held that at least for the period during which Caffe Nero was prohibited from operating within its leased premises ‌— March 24 to June 22, 2020 ‌— it was excused from paying rent by virtue of the legal doctrine known as frustration of purpose. The court did not rule on whether that, or any other doctrine, would relieve Caffe Nero of its obligation to pay rent when it was allowed to partially open its indoor operations.

In so ruling, the court relied upon the authority of a North Dakota case and a fairly obscure provision of the Restatement (Second) of Contracts. The court rejected specific language in the force majeure clause of the lease requiring continued rent payment even if it was “impossible” to use the space as a result of an Act of God such as a hurricane. The court drew a distinction between performance being “impossible” (rent still owed) and the purpose of the lease being “frustrated” (rent excused). Thus, if a hurricane destroys the premises, rent still must be paid but if the state orders closure of the premises, rent is excused. That seems like a difficult distinction to defend.

Moreover, the court rejected a provision of the lease that requires the payment of rent to be independent of any other covenants of the lease (rent must be paid in all events unless the lease is terminated). The court, by its own admission, substituted its perceived “business sense” of the transaction for that of the parties who entered into the lease. Like the court’s distinction between a hurricane and a state order discussed above, the court’s rejection of a negotiated provision of the lease appears to be a difficult judgment to defend.

There are some opportunities for a landlord to deal with the ruling of the Superior Court in this case (note that the Superior Court in Massachusetts is not a court of record and therefore the case is not “precedent”). Be that as it may, landlords could add “frustration of purpose” to the force majeure clause of its commercial lease form, thereby requiring rent to be paid even if there was a frustration of the purpose of the lease. Also, the court seemed to be influenced by the fact that there was only one narrowly-defined allowed use of the premises. A less limited use clause, or perhaps a conditional use clause (e.g. in the event of government ordered shutdown, the premises may be used for any commercially reasonable purpose), may have compelled a different result.

And finally, it appears that the landlord in Caffe Nero refused to engage in any negotiations with the tenant. That is usually not helpful for a landlord in subsequent litigation.

Attorney Personally Liable For Debts of Professional Corporation | Under “Mere Continuation” Theory of Successor Liability

In Smith v Kelley, SJC No. 12759 (Feb. 11, 2020), the Supreme Judicial Court addressed the issue of corporate successor liability, finding an attorney personally liable for the obligations of a professional corporation of which he was the sole officer and shareholder. The Court found that the attorney, who ceased operating the PC on one day and began serving the PC’s clients on the next, was personally liable as a “mere continuation” of the PC. As such, the attorney was personally liable to a judgment creditor of the PC to pay the judgment which had prompted the PC’s windup and dissolution.

Robert Kelley (“Kelley”), the Defendant attorney, was the sole shareholder and officer of a professional corporation, R Kelley-Law, PC (the “PC”), a law firm that at one point employed 15 people. Unbeknownst to Kelley, an associate employed by the PC engaged in a fraudulent mortgage loan scheme to defraud banks that were clients of the firm. He did so by creating a false financial profile and supporting documents for Plaintiff Smith, a mentally ill, functionally illiterate homeless veteran in whose name the associate purchased two properties at inflated prices. The mortgage loans went unpaid, Smith’s credit was ruined, he was unable to rent a home or find work, and he became more depressed and even suicidal.

Smith sued the PC and Kelley individually. The suit led to wholesale layoffs at the PC, leaving only Kelley remaining practicing at the firm. A court eventually found the PC vicariously liable to Smith but found that Kelley, who had no knowledge of the fraudulent scheme, was not liable to Smith.

The day after a judgment for more than $200,000 entered against the PC, Kelley, as sole shareholder of the PC, resigned as officer of the PC and voted to wind up the corporation. Immediately thereafter, Kelley began serving the PC’s clients from the offices of the PC using PC equipment. For a substantial period, he continued using the PC email address and telephone number. He deposited payments made to the PC in his sole proprietorship business accounts.

When it became clear that the PC could not or would not pay Smith and that Kelley had taken over the assets of the PC, Smith brought a claim against Kelley as the successor-in-interest to the PC. When the PC thereafter filed for bankruptcy, the Trustee in the bankruptcy made a claim against Kelley for assets of the PC that he had appropriated. The claim settled with Kelley paying the bankruptcy estate $85,000 in return for a release from the estate. However, the bankruptcy court specifically declined to determine whether the release of Kelley included a release of any potential veil piercing or alter ego claims against Kelley.

In the Superior Court action which followed, the trial court judge rejected Smith’s successor-in-interest claims against Kelley, holding that successor liability was only applicable to corporations and could not be applied where the alleged successor was a natural person.

On appeal, the Supreme Judicial Court noted the general rule that “the liabilities of a corporation are not imposed upon its successor”, but noted at least four exceptions to this principle. Slip op. at 15. The salient one for purposes of the case was the “mere continuation” exception which allows “a creditor to recover from the successor corporation whenever the successor is substantially the same as the predecessor.” Id. at 17. Although no one factor is dispositive, key factors a court will review in performing such an analysis are “the continuity or discontinuity of the ownership, officers, directors, stockholders, management, personnel, assets, and operations of the two entities.” Id. at 17-18.

In this case, the Court noted that “[i]n almost every respect, Kelley’s sole proprietorship mirrored the P.C. that immediately preceded it.” Id. at 19. The Court cited, among other things, the continuity of clients, owner, sole officer, employees, contact information, office space and equipment, concluding that “Kelley’s sole proprietorship amounted to a “reincarnation” of the predecessor professional corporation.” Id. at 19-20.

The Court acknowledged the heightened concern of applying the doctrine of successor liability to an individual, which effectively eviscerates the limitations of liability that come with the corporate form and puts at risk all of Kelley’s assets, whether derived from the PC, the successor sole proprietorship or from any other source. Id. at 20-23.

Notwithstanding this concern, the Court had no problem imposing personal liability on Kelley as a successor in interest, even though the jury had specifically found that he was not individually liable to Smith. Id. at 24-25. The Court concluded that Kelley had put himself in this position by winding up the PC in an effort to avoid liability and then restarting what was essentially the same enterprise. Id. However, noting that imposing successor liability was an equitable remedy, the Court did limit Kelley’s liability to revenues derived from the sole proprietorship and remanded the case with instructions for the trial court to fashion an appropriate remedy including, if necessary, an appropriate payment plan. Id. at 27-28.

Appeals Court Dissolves Lis Pendens for Failure to Include Statutorily-Required Certification in Plaintiff’s Verified Complaint

In what has become an increasingly common occurrence, in Ferguson v. Maxim, Appeals Court No. 18-P-1098 (November 6, 2019), the prospective buyer of commercial real estate sued the seller for specific performance based on imperfect negotiations which were never memorialized in a purchase and sale agreement. This is a so-called McCarthy v. Tobin claim based on the seminal case of McCarthy v. Tobin, 429 Mass. 84 (1999). In McCarthy, the Supreme Judicial Court declared that it was the law of the Commonwealth that a buyer may enforce a real estate transaction based on imperfect negotiations even though a contemplated purchase and sale agreement was never executed.

The Ferguson case is notable for two reasons. First, the Appeals Court reversed a decision by the Trial Court dismissing Plaintiff’s Complaint on the grounds that it omitted information regarding ongoing negotiations toward a purchase and sale and the fact that there were five sellers who needed to be in agreement. The Appeals Court held that all of those facts were irrelevant since the key question in assessing a McCarthy v. Tobin claim is whether the agreement among the parties was capable of being enforced by the Court notwithstanding the fact that a subsequent purchase and sale agreement was not executed.

Second, the Appeals Court did affirm the Trial Court’s decision to dissolve the lis pendens that was recorded on the subject property, based on a technicality. The Massachusetts Legislature has implemented a detailed procedure for requesting and granting lis pendens due to the powerful effect on title to real estate of recording a lis pendens. Thus, the lis pendens statute, G.L. c. 184 § 15, requires a plaintiff seeking a lis pendens to certify under penalties of perjury that the complainant has read the complaint, that the facts stated therein are true, and that no material facts have been omitted therefrom.

In Ferguson, Plaintiff failed to make such certification; however, he did file the Complaint as a Verified Complaint which, under the penalties of perjury, swears that Plaintiff read the Complaint and that the facts are true to the best of his knowledge and belief. The Appeals Court found that the certification requirement was “not one of mere form” and affirmed the dissolution of the lis pendens. It did so, notwithstanding the fact that the Court concluded that any omitted facts did not foreclose the viability of Plaintiff’s legal theory, and notwithstanding the liberal pleading rules in Massachusetts which freely allow amending pleadings when there is no showing of harm. The Court concluded that it was not an abuse of discretion for the judge to refuse to allow Plaintiff to amend his Complaint to cure the technical deficiency.

Landscaping Activities Sufficient to Support Adverse Possession Claim In Residential Neighborhoods

On August 29, 2019, the Appeals Court issued two decisions, Miller v. Abramson, Appeals Court No. 18-P-514 (Aug. 29, 2019) and Mancini v Spagtacular, LLC, Appeals Court No. 18-P-593 (Aug. 29, 2019), each finding that ownership by adverse possession can be established on residential property by activities as limited as mowing and pursuing other landscaping and yard maintenance tasks typical of homeowners of similar properties.

Adverse possession is a doctrine that allows a party to acquire legal ownership of property of another by essentially acting as the owner for a twenty year period. Specifically, “[t]itle by adverse possession can be acquired only by proof of nonpermissive use which is actual, open, notorious, exclusive and adverse for twenty years. Acts of possession which are ‘few, intermittent and equivocal’ do not constitute adverse possession.” Miller, Slip op. at 6. (internal quotations and citations omitted).

The Miller and Mancini decisions were similar insofar as both involved residential properties in which vegetation and other natural features clearly demarcated the extent of the land claimed by adverse possession. Further, in each case, there was some maintenance or activity on the claimed area by the party claiming the property by adverse possession and no apparent use or activity in the relevant twenty year period by the record owner.

Miller involved two adjacent residential properties in a suburban setting. The disputed property was a triangular area at the side and rear of both lots. The extent of the claimed area was demarcated by what the court called a “natural boundary”, a line of shrubs and small trees that served for many years as the de facto property line, cutting off direct access to the area by the Abramsons, the record owner. The only real use the Millers made of the property they were claiming by adverse possession was as a portion of their lawn, which their landscaping company continued to fertilize, mow and maintain for more than twenty years. The court held that the vegetative boundary was sufficient to put the Abramsons on notice of the area that the Millers were using as their own. Further, the court found that the relatively passive use of the property as a portion of the Millers’ lawn and “typical suburban lawn care” activities were “precisely as the average owner of similar property would use it in a suburban neighborhood populated with single family homes” and, thus, sufficient to support a claim of adverse possession.

Mancini involved a residential lot owned by Mancini, the party claiming adverse possession of two portions of the bordering Spagtacular property, a largely undeveloped, wooded lot, the far side of which was used for commercial activity. The two disputed areas once again were clearly demarcated by a tree line, which constituted the edge of the lawn area on the Mancini (claimant) side and the beginning of the wooded area on the Spagtacular (record owner) side. The Mancini family continuously mowed and maintained the lawn areas of the claimed property, initially, through the activities of their sons, and, after the sons grew up and moved away, through the services of a lawn care company Mrs. Mancini hired and used until she died, and then, which the sons retained thereafter. In one of the disputed areas, the Mancinis built a basketball court which the Mancini sons used regularly as children and relatively irregularly when visiting their aging mother in later years.

Spagtacular sought to defend the adverse possession claim in part by noting that the site was largely undeveloped and densely wooded, at least at the Mancini end. Based on this, Spagtacular sought to rely on cases involving “wilds and woodlands”, which applied a stricter adverse possession standard, requiring that land would have to have been “enclosed or reduced to cultivation” in order to put the record owner on notice of the adverse claimant’s hostile use. The court rejected this argument, noting that the property was located in an area that “is not remote, isolated or rural in nature”, but, rather, in a well-developed neighborhood that, at one end, is typically suburban and, at the other end, is commercial. The court also noted that, in view of the clear tree line, the basketball court and the lawn maintenance activities, Spagtacular was clearly on notice that the disputed areas had essentially been incorporated into the Mancini house lot.

The court also rejected arguments that the Mancinis’ relatively limited use of the basketball court and lawn areas of the property once Mrs. Mancini became elderly cut off the continuous use period, noting that

  • [i]n the normal course of family life, a residential back or side yard may be used intensively in years when young, active children live on the property, but much more passively when the inhabitants are older, less mobile, or infirm. Accordingly, the relevant question in this context is not whether the use of land is equally intense for the entire twenty-year period, but whether the possessor has maintained dominion and control for that same amount of time.

In sum, a determination of whether the use of property is sufficient to support a claim of adverse possession is context- and fact-specific. However, courts will look at these issues practically and with an eye to parties’ reasonable expectations. Thus, in a residential setting, if the adverse use is similar to that of a typical property owner in the area for a twenty year period, the use likely will be sufficient to support a claim of ownership by adverse possession.

Court Relies on Principles of Rescission to Reject Plaintiff’s Effort to Share in $65 Million Facebook Settlement

In Chang v. Winklevoss et. al., SJC No. 18-P-329 (April 24, 2019), plaintiff asserted a claim to a share of the proceeds of the $65 million settlement entered into between the Winklevoss brothers and Mark Zuckerberg. The Court, in wholly rejecting the effort, relied on principles of rescission to reject plaintiff’s breach of contract claim and also rejected plaintiff’s quasi-contract claims as well as malpractice claims against plaintiff’s former attorney.

In 2004, Chang, the Winklevoss brothers and others, agreed to integrate Chang’s company into Winklevoss’s company, Connect U, and discussed forming a jointly-owned holding company, later referred to as the Winklevoss Chang Group (WCG), which would own both companies as well as other internet-based entities that they would jointly develop. On November 23, 2004, the parties entered into a Memorandum of Understanding to that effect. Over the next several months, the parties worked collaboratively on the venture, but beginning in early April 2005, the business relationship quickly deteriorated. At that time, the Winklevoss brothers informed Chang that they would cease funding his operation and claimed that Chang owed them $18,000 for certain expenses. Over the next two months, there were many exchanges of electronic communications indicating that the parties had decided to end their business relationship. For example, in an instant message from Chang, Chang said that WCG was “a non-existent holding company,” claiming that he “never agreed to a holding company”. After May 25, 2005, there was little contact between the parties and they went their separate ways.

On these facts, Winklevoss moved for summary judgment. The Court, in allowing the motion, concluded that the parties’ undisputed words and conduct demonstrated that by the end of 2005 they had mutually agreed to rescind any partnership and that the relationship going forward would be as if no partnership had ever existed. The Court reasoned that whether there was sufficient record evidence to support a finding of agreement, any agreement was rescinded — “mutual assent to a rescission may be inferred from the attendant circumstances and conduct of the parties”. Id. at 22. The Court cited a 1980 case which relied on the same principle in a case where plaintiff sought to enforce a purchase and sale agreement that buyer simply walked away from after agreeing to extend the date for performance under the agreement. Puma v. Gordon, 9 Mass. Ct. 489.

The Court concluded that since there was no enforceable agreement, there was no basis on which plaintiff could claim a piece of the Facebook settlement on contract or partnership grounds.

Non-Party Liable for Contempt for Failure to Comply with Preliminary Injunction

A recent case decided by the Massachusetts Appeals Court, Martinez v Lynn Housing Authority, Docket No. 17-P-1274 (January 18, 2019), is a good reminder that a non-party to a case with actual notice of an injunction can be held in contempt of court if it fails to comply with the terms of the injunction.

Martinez is a case arising out of a mortgage default situation. Specifically, a property owner, Martinez, alleged that he was defrauded by two individuals, Reyes and Rega, who claimed that they would be able to assist Martinez in obtaining a modification of his mortgage but only if Martinez transferred an interest in the subject property to them. When Reyes and Rega failed to obtain any mortgage relief but began collecting rents from tenants on the property, Martinez sued in the Land Court, seeking rescission of the transfer of the property interest to them.

At Martinez’s request, the Land Court entered an injunction which, among other things:

  1. Restrained Rega and Reyes from leasing the property; and
  2. Restrained Rega and Reyes “and their agents, representatives, employees, contractors, and others acting in concert with them or otherwise having actual knowledge of this Order” from
    • a. collecting rents or exercising any rights to ownership of the property;
    • b. interfering with Martinez’s exercise of ownership rights to the property.
    The Lynn Housing Authority is a public housing authority (“PHA”) that administers subsidized housing vouchers pursuant to the Massachusetts Rental Voucher Program (“MRVP”). In the MRVP program, like the federal Section 8 housing program, the rent received by the property owner is partially from the lease with the low-income tenant and partially from the subsidy agreement with the PHA.

    At some point after Martinez transferred an interest in the property to Rega and Reyes, they entered into a lease with a residential tenant and related subsidy agreement with the PHA.

    After entry of the injunction in the Land Court, Martinez and his counsel on at least two separate occasions provided copies of the injunction to PHA staff, including both a caseworker and the caseworker’ s manager. The manager, who apparently had attended law school but was not a practicing lawyer, determined that the injunction did not prohibit the PHA from continuing to make MRVP payments to Reyes and Rega. Thereafter, not only did the PHA continue to make MRVP payments to Reyes and Rega, but it entered into a renewed MRVP subsidy agreement with them pursuant to which it released back rent payments to the pair and made further payments on an ongoing basis.

    Martinez filed a complaint for contempt against Rega and Reyes, as well as against the PHA. The Trial Court found Reyes and the PHA in contempt, entering judgment for civil contempt against them. Only the PHA appealed.

    On appeal, the Appeals Court rejected a series of challenges by the PHA. First, it rejected the PHA’s claim that it had not been “formally” served with the injunction, noting that Massachusetts Rule of Civil Procedure 65(d) binds persons “who receive actual notice of the order by personal service or otherwise.” (emphasis added). The Court held that the “or otherwise” language would be meaningless under the PHA’s interpretation of the rule. Second, the Appeals Court noted that the conceded receipt of the injunction by both the caseworker and the manager was clearly sufficient to constitute actual notice of the injunction.

    Finally, the Court rejected the Authority’s argument that, as a non-party, it should not be bound by the injunction. The Court noted that Rule 65(d) “allows a judge, for good cause shown, to issue an injunction that binds not only the parties to the action, but also ‘those persons in active concert or participation with them who receive actual notice of the order.’” The Court rejected the PHA’s argument that it could only be bound by the injunction if it was acting on behalf of or subject to the direction and control of Reyes and Rega. Finding this argument inconsistent with the language of Rule 65(d), the Court found clear evidence that the PHA was acting in active concert or participation with Rega and Reyes, noting in particular that the PHA actively solicited and required Rega and Reyes to enter into the renewed MRVP subsidy agreement and then unfroze previously withheld rental payments. The PHA took these actions while clearly on notice of the terms of the injunction.

    Martinez is, therefore, a reminder that mere non-party status will not prevent liability for civil contempt for a party with actual (though informal) notice of the injunction for actions inconsistent with its terms.

Court Invalidates Standard Forum Selection and Choice of Law Provisions

In Oxford Global Resources LLC v. Hernandez, SJC – 12439 (September 7, 2018), the Supreme Judicial Court invalidated standard forum selection and choice of law provisions in a confidentiality, non-solicitation and non-competition agreement (“Agreement”) between a Massachusetts recruiting and staffing company and one of its account managers. As a result of this decision, the issue of whether such provisions are enforceable under Massachusetts Law is very much an open question.

In Hernandez, the employee, Hernandez, entered into the Agreement with a Massachusetts company, Oxford Global Resources LLC. Oxford is a recruiting and staffing company with twenty-four offices throughout the United States and Europe that places consultants with specialized technical expertise. Its headquarters are located in Beverly, Massachusetts. Account managers, like Hernandez, assist Oxford’s recruiters and recruiting managers in placing consultants with clients using, among other means, a secure database of detailed client information developed by Oxford. Shortly after joining Oxford, Hernandez voluntarily terminated his employment and commenced work with a competing company in California. Oxford brought suit when it discovered that Hernandez was violating the Agreement by soliciting Oxford’s customers and consultants, improperly competing with Oxford, and misappropriating and disclosing Oxford’s trade secrets and confidential information.

The Superior Court judge allowed Hernandez’s motion to dismiss on forum non conveniens grounds based on the judge’s conclusion that the Agreement was a contract of adhesion. The SJC reached the same result in the case but on very different grounds, putting aside the Superior Court judge’s finding that the contract was one of adhesion.

The Court began its analysis by stating that Massachusetts courts uphold the parties’ choice of law so long as the result is not contrary to public policy. In deciding whether the result is contrary to public policy, the Court adopted a two-part test set forth in the Restatement (Second) of Conflict of Laws § 187 (2) (1971) and Hodas v. Morin, 442 Mass. 544 (2004).

In applying the first part of the Restatement’s two-part test, the Court concluded that Massachusetts has a substantial relationship to the parties and the transaction, in that Hernandez worked for Oxford in Massachusetts pursuant to the Agreement which was executed in Massachusetts.

In applying the second part of the Restatement’s test, the Court analyzed, at length, whether application of Massachusetts law “would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state”. The Court explicated at length California’s strong public policy against non-compete and non-solicitation provisions. The Court then cited a case wherein New York dismissed a case in deference to Massachusetts’ superior interest in enforcing the Massachusetts Wage Act, reasoning that if the Court expects other states to defer to Massachusetts, the Court should honor the fundamental public policy of California with regard to non-compete agreements. In what perhaps was a driving force behind its decision, the Court stated as follows: “without such a commitment to honor the fundamental public policy of another state regarding open competition and employee mobility, an employer might successfully execute an ‘end run’ around that policy by including a choice of law provision in its employment agreements.” The Court then concluded that the choice of law provision of the Agreement was unenforceable.

The Court then turned to the question of the enforceability of the Agreement’s forum selection clause. Beginning with the notion that forum selection is a matter of procedure and therefore subject to the law of the forum state, the Court conducted a forum non conveniens analysis under Massachusetts law. This involved a consideration of both public concerns such as administrative burdens and the desirability of holding the trial in a forum familiar with the governing law, and private, practical concerns such as the ease of access to proof, the availability of compulsory process and the cost of witnesses’ attendance. The overarching consideration, said the Court, citing G.L. c. 223A § 5, was the interest of substantial justice. The Court stated that while Hernandez, in the Agreement, waived any objection to the forum based on the inconvenience of the forum to him, such a waiver did not waive an objection to the forum based on other private factors including the convenience of witnesses, the location of relevant evidence in California, and the ease and efficiency for both Hernandez and Oxford of trying the case in California.

Noting that Massachusetts has very little interest in the outcome of the lawsuit, the Court concluded that, in the interest of substantial justice, the action should be dismissed on the ground of forum non conveniens so that the case can be resolved by a California court.

This case raises substantial questions as to the continuing validity of choice of law and forum selection provisions under Massachusetts law, at least without doing the extensive analysis conducted by the Court in the Hernandez case.

America’s Test Kitchen v. Kimball Case Addresses Numerous Issues Involving Attorney-Client Privilege and Work-Product Doctrine

In a recent case in the Business Litigation Session of the Suffolk Superior Court, America’s Test Kitchen, Inc. v Kimball, Suffolk Superior Court Docket No. 1864-CV-03325 (April 2, 2018), on dueling motions to compel, the Court parsed a number of issues involving the assertion of the attorney-client privilege and the work-product doctrine, adopting a highly protective approach to such communications.

The ATK case arose out of a split between America’s Test Kitchen, Inc. (“ATK”) and its long-time host, Chris Kimball (“Kimball”), who left ATK and started a competing business. Others from ATK supported and/or joined Kimball in his competing venture, leading to significant animosity and litigation initiated by ATK against Kimball and those who joined or assisted him. During the course of the litigation, both sides sought to withhold numerous documents from production on the basis of attorney-client privilege and/or work-product doctrine.

Addressing these matters, the Court cited the core principle that the attorney-client privilege protects communications between a lawyer and a client for the purpose of seeking or providing legal advice. Because corporations must act through their agents or employees, the attorney-client privilege extends to “communications that gather or convey information from knowledgeable employees or agents that is needed by counsel in formulating legal advice, as well as communications that relay legal advice obtained from an attorney to employees or other agents of the client who must understand and help to implement the advice.” ATK, at 76 (citing RFF Family Partnership, LP v Burns and Levinson, LLP, 465 Mass. 702, 708 (2013)). The Court noted that the work-product doctrine “exempts from discovery things that were prepared in anticipation of litigation or for trial by or for an opposing party.” ATK, at 78 (internal quotations omitted).

  • Applying these basic principles to the case at hand, the Court found as follows:
  1. Protection of Communications with Non-Employee. The Court rejected ATK’s effort to protect communications with an outside consultant, William Sutton, who advised ATK to obtain counsel and recommended a particular lawyer. In so doing, the Court recognized that communications with non-employee agents or consultants who are the “functional equivalent” of an employee and whose involvement is necessary to obtain or implement legal advice are protected by the attorney-client privilege. ATK, at 77. However, the Court found that ATK had failed to establish that Sutton was the functional equivalent of an ATK employee.
  2. Protection of Communications under Common Interest Doctrine. The Court noted that if two or more clients have a “common interest” in any legal matter, are represented by counsel, and agree to exchange information concerning the matter, those communications are protected from disclosure to third parties under the attorney-client privilege. ATK, at 77. While the Court found that ATK had established a common interest with an investor, William Thorndike, communications with Thorndike were not protected because Thorndike did not have an attorney representing him in connection with the matter.
  3. Non-Waiver of Work-Product Material Shared With Aligned Party Not Represented by Counsel. The Court noted that work-product protection is more difficult to waive than the attorney-client privilege. ATK, at 78. Thus, while there was no attorney-client privilege applicable to communications with the unrepresented Thorndike, given that Thorndike was “closely aligned with and unlikely to become adverse to” ATK, the disclosure to Thorndike of such materials did not constitute a waiver of their work-product protection.
  4. Protection of Client-to-Client Communications Among Clients Represented by the Same Attorney. The Court rejected ATK’s efforts to obtain communications between Kimball and a former ATK employee, Melissa Baldino, who joined Kimball’s new venture. The Court held that two clients represented by the same lawyer, as Kimball and Baldino were, “may speak in confidence among themselves regarding what advice to seek from their lawyer or regarding what to do based on their lawyer’s advice.” ATK, at 79. On that same principle, the Court rejected Kimball’s efforts to obtain communications among ATK board members regarding legal advice provided by ATK’s counsel simply because counsel was not copied on the communication.
  5. Work-Product Protection of Communications With Public Relations Consultant. Kimball sought disclosure of communications with two public relations firms hired by ATK’s attorneys to provide “crisis management communications services.” The Court acknowledged federal court decisions, including one from Massachusetts, which held that work-product protection does not apply to such crisis management consultants. Relying on Commissioner of Revenue v Comcast 453 Mass. 293, 316-317 (2009), the Court declined to follow those decisions, holding instead that:
    • [i]t does not matter whether the disputed communications with [the consultants] contain or reveal any opinions of legal counsel or whether they were created to assist with the litigation itself, as distinguished from more general public relations efforts. So long as the documents were created because of the threat of litigation, which they were, they fall within the scope of the work product doctrine.

When Is A 93A Claim Triable To A Jury As Of Right?

Answer: when the 93A claim is brought in Federal Court. Probably.

In Full Spectrum Software Inc. v. Forte Automation Systems, Inc., 858 Fd. 3rd 666 (2017), a case which probably reverses federal precedent on the issue, the First Circuit Court of Appeals recently held that the 93A claim for damages involved in that case was properly tried to a jury as a matter of right.

In Full Spectrum, the parties, Full Spectrum and Forte, engaged in negotiations for Full Spectrum to provide specialized software for use in a cancer treatment hospital setting. Full Spectrum alleged that Forte induced it to commence substantial work on the project and “strung it along” without the protection of a formal contract. When Full Spectrum finally insisted upon a contract, Forte presented to Full Spectrum, as a take it or leave it proposition, a contract with terms substantially different from those more or less agreed to by the parties.

When Full Spectrum sued for damages under Chapter 93A and otherwise, the District Court submitted Full Spectrum’s 93A claim to the jury and rendered judgment thereon pursuant to the jury verdict and not as the court’s conclusion based on an advisory jury verdict. Forte contended that Full Spectrum was not entitled to a jury trial on its 93A claim, and, therefore, appealed.

The First Circuit analyzed the issue as a matter of Seventh Amendment law, which guarantees a trial by jury in suits “at common law”, undertaking a three part inquiry. First, the court stated, it is necessary to compare the new statutory action, i.e., 93A, to 18th century actions brought in the courts of England prior to the merger of the courts of law and equity. In analyzing this element, the Court observed that the 93A claim submitted to the jury was what it called an “undifferentiated 93A claim” which presumably means that plaintiff didn’t differentiate between the equitable remedies available under 93A from the damages remedies available. The court then stated that even though some aspects of 93A implicate claims tried at equity, others are clearly analogous to actions at law for damages. It then concluded that since the issue before the jury in Full Spectrum “necessarily encompassed a claim for deception”, the 93A claim was “analogous to 18th century actions at law, such as fraud, deceit, or misrepresentation.” Thus, the court concluded that the first element of the three part inquiry was satisfied.

The court gave short shrift to the second and third elements which ask whether the remedy sought is legal or equitable, and whether Congress had assigned resolution of the claim to a non-Article III adjudicative body.

Therefore, the court concluded that Full Spectrum was entitled to a jury trial on its undifferentiated 93A claim as a matter of right. In so doing, the court distinguished prior precedent in the First Circuit as either dicta or based on the Massachusetts constitution. The court left open for another day the scope of a Seventh Amendment jury right for 93A claims.

Recent Appeals Court Lis Pendens Case Highlights “Trap for the Unwary” in Section 118 Interlocutory Appeals

A recent decision by the Massachusetts Appeals Court, DeLucia v Kfoury, Docket No. 17-P-609 (April 25, 2018), highlights one potential trap for an unwary party seeking such an interlocutory appeal of a lower court decision granting issuance of a memorandum of lis pendens. In sum, because the appellant chose the wrong statutory subsection by which to appeal, he lost his right to an interlocutory appeal of the issuance of the lis pendens, potentially burdening the property with a cloud on its title at least until the resolution of the underlying litigation.

DeLucia arose out of joint venture between DeLucia and Kfoury to develop property owned by Kfoury. When the deal went awry, DeLucia sued, seeking, among other relief, a memorandum of lis pendens to put parties on notice of DeLucia’s claim to an interest in the property. After the trial court approved the memorandum of lis pendens, Kfoury filed a motion to dissolve the lis pendens and a special motion to dismiss the case, which were denied. Kfoury appealed the denial of his special motion to dismiss pursuant to the first paragraph of M.G.L. c. 231, §118 (a so-called “Single Justice Appeal”). The single justice denied the appeal, ruling that he had no authority to dismiss a complaint. Kfoury requested that the single justice reconsider his decision and refer it to a full panel of the Appeals Court. Before that motion could be acted upon , Kfoury returned to the trial court and, recognizing that the 30 day period to take an appeal to a full panel of the Appeals Court under paragraph 2 of Section 118 had run, Kfoury requested and received an extension of time to file such an appeal. The single justice thereafter took no action on the motion for reconsideration, apparently in the belief that Kfoury would obtain interlocutory review of the matter in light of the extension of time to appeal.

On appeal, the Appeals Court held that the single justice had properly determined he had no authority to dismiss a complaint and properly denied the relief sought by Kfoury. It also found that the trial court had no authority to waive or extend that statutory 30 day deadline to appeal the grant of a memorandum of lis pendens. Accordingly, because the notice of appeal was untimely, Kfoury’s appeal to the full panel must be dismissed. Finally, the Appeals Court noted that Kfoury would still have an opportunity for appellate review of the issuance of the lis pendens on direct appeal after the case was tried or otherwise disposed of by the trial court.