New England Biz Law Update
In 2015, Judge Janet L. Sanders once again led the Massachusetts Superior Court’s Business Litigation Session as administrative judge and shared the BLS-2 session with Judge Christine M. Roach. Judges Mitchell H. Kaplan and Edward P. Leibensperger, who replaced Judge Thomas P. Billings, shared the BLS-1 session.
In the first half of 2016, Kaplan will hear cases in BLS-1, and Judge Kenneth W. Salinger will replace Roach in BLS-2.
Last year the BLS adopted additional rules relating to motions for partial summary judgment. In addition to the existing procedural order requiring judicial approval prior to filing such motions, effective July 1, 2015, the moving party now must also file a “Certificate of Compliance” detailing the steps taken by the parties to comply with the procedural order.
The BLS began and ended 2015 with decisions in two very high-profile matters.
In January, the court rejected a proposed consent judgment agreed to by then-Attorney General Martha Coakley to allow Partners Healthcare System to acquire South Shore Hospital and Hallmark Healthcare in Commonwealth v. Partners Healthcare System, Inc., No. SUCV2014-02033-BLS2 (Jan. 29, 2015) (Sanders, J.).
The court found the proposed acquisitions would increase Partners’ market share and drive up prices from insurers, and cast doubt that the controls put in place to limit price increases and further expansion by Partners would be fully enforceable.
The decision not only affected the economic landscape of the health care industry in Massachusetts (in the wake of the decision, Partners abandoned the deal), but also utilized an extraordinary process for review of the settlement agreement.
While judicial approvals of consent judgments between the AG and prospective defendants often do not trigger intense inquiry, here the BLS not only set up a process for the submission of comments from the public but also refrained from deciding the matter until the new attorney general, Maura Healey, had the opportunity to comment on the deal. And, in fact, Healey notified the court her office would sue to prevent the merger from going forward.
In December, the court denied a panoply of challenges to the proposed casino in Everett.
In highly charged litigation, the court rejected suits filed by the cities of Boston and Revere challenging the Massachusetts Gaming Commission’s decision to award a casino license to Wynn MA, LLC, on grounds that neither city had standing to challenge the award, in City of Boston v. Massachusetts Gaming Commission, No. 2015-0012-BLS2 (Mass. Super. Ct., Dec. 3, 2015) (Sanders, J.), and City of Revere v. Massachusetts Gaming Commission, No. 2014-3253-BLS2 (Mass. Super. Ct., Dec. 3, 2015) (Sanders, J.), respectively.
Adding insult to injury, the BLS affirmed the commission’s decision to de-designate Boston as a “surrounding community,” which would have entitled it to fees and mitigation commitments from Wynn.
In Abdow v. Massachusetts Bay Transportation Authority, No. 2015-02026-BLS2 (Mass. Super. Ct., Oct. 15, 2015) (Sanders, J.), the BLS also rejected an indirect attack to the Wynn casino brought by “approximately forty taxable inhabitants of Massachusetts,” again for lack of standing.
The BLS also decided a number of other issues in 2015 with broad legal implications:
• Chitwood v. Vertex Pharmaceuticals, 33 Mass. L. Rep. 36 (Mass. Super. Ct., Aug. 4, 2015) (Sanders, J.) (An inference of wrongdoing by corporate officers and directors is insufficient to demonstrate a “proper purpose” under Massachusetts books and records statute)
In Chitwood, a shareholder of Vertex Pharmaceuticals, Inc., issued a letter to the Vertex board demanding an investigation into the trading of stock by several company directors and officers immediately after a press release that allegedly overstated the efficacy of Vertex drugs and inflated the Vertex share price.
The company subsequently issued a press release correcting the erroneous release, which drove the share price back down. The board convened a special committee consisting of two directors who did not sell company shares after the initial press release and who were considered “independent” under NASDAQ listing standards.
After its investigation, the special committee concluded that no wrongdoing took place and submitted its report and recommendations to the board. The independent members of the board voted unanimously to accept the special committee’s findings and recommendations.
Dissatisfied, the shareholder demanded to inspect the books and records of the special committee. As with its Delaware counterpart, the Massachusetts Shareholder Inspection Statute, G.L.c. 156D, §16.02, allows such access so long as the shareholder party acted in good faith and can show a “proper purpose.”
The court denied the request, concluding that the shareholder did not present a “credible basis” challenging the special committee’s independence or diligence, or that there was, in fact, wrongdoing by those Vertex directors and officers who sold their shares immediately after the announcement.
Absent such evidence, a mere inference of wrongdoing is insufficient, and “the Special Committee’s conclusion (ultimately accepted by the Board) would warrant dismissal of any derivative action the plaintiff might file.”
Equally important, the BLS took pains to endorse (1) the use of a special committee to investigate claims of wrongdoing, and (2) the submission of the special committee’s findings for final decision by the independent directors of the board. Once the board has undertaken such efforts, the burden on a plaintiff to show a “proper purpose” is particularly stringent.
• TIBCO Software, Inc. v. Zephyr Health, Inc., 32 Mass. L. Rep. 637 (Mass. Super. Ct., April 1, 2015) (Kaplan, J.) (employer of employee subject to a non-compete can enforce arbitration clause in employee’s employment agreement with prior employer)
The former employer of an employee sued his new employer to enforce a non-compete clause in the employment contract between the former employer and the employee. The employment contract contained an arbitration provision, and the new employer sought to enforce it against the former employer. The former employer argued that the new employer was not a party to the employment contract and therefore the non-compete claims were not subject to the arbitration provision.
The BLS, however, concluded that because the former employer’s claims arose out of the employment contract, the new employer could enforce the arbitration clause.
Based on this decision, employers should consider limiting the scope of employment contract arbitration clauses to claims brought against them but not by them, or consider other carve-outs to preserve their own litigation rights.
Companies hiring employees with non-compete agreements should determine whether they can force arbitration under those agreements. If claims would not exist but for the contract, Massachusetts courts may allow the new employer to force the former employer to arbitrate those claims.
• Walker v. Boston Medical Center Corp., No. 2015-1733-BLS1 (Nov. 19, 2015) (Leibensperger, J.) (plaintiffs suing over data breach of medical records do not need to allege such records were actually accessed by unauthorized personnel)
With data breaches (both large and small) now becoming everyday news, the BLS has weighed in on an important aspect of data breach law: when can a person whose medical information has been breached — but not yet accessed or “used” by unauthorized personnel — bring a claim against the entity entrusted with the data?
In Walker, the BLS denied a motion to dismiss a class action against Boston Medical Center for the inadvertent disclosure by BMC’s medical record transcription service reflecting patient records from office visits with physicians filed for an indeterminate period of time on its Internet site.
BMC argued that the plaintiffs did not have standing because they did not know whether their medical records were in fact accessed by unauthorized individuals, and there was no evidence the information had been used nefariously against the class members whose records were made available on the online site.
The BLS rejected that argument and held that the plaintiffs’ allegations showed a “serious” risk of injury, given that the records were available to the public on the Internet for some period of time and therefore “likely” to have been accessed by unauthorized personnel.
More important, the court focused on the fact that persons whose medical records are disclosed may bring suit for mental distress, harm to interest in privacy, and special or economic harm, without more specific evidence of harm. As such, the plaintiffs were entitled to discovery to determine whether their records were accessed while they were on the transcription service site.
The Walker decision represents an important stepping stone in the longstanding battle over whether mere disclosure of private data, without more, can constitute an “injury” sufficient to support a claim for damages.
According to the BLS, when the data consists of medical information, the answer may be “yes.”
• Aspinall v. Philip Morris USA Inc., No. 98-6002-BLS1 (Aug. 10, 2015) (Leibensperger, J.) (smokers purchasing “low tar/low nicotine” cigarettes that were allegedly as harmful as regular cigarettes could seek to recover $25 minimum statutory damages, and possibly also “benefit of the bargain” damages)
Seventeen years in the making and at least one trip to the Supreme Judicial Court later, Aspinall went to trial. Prior to trial, the BLS decided two key evidentiary motions and a motion for summary judgment.
First, in Aspinall v. Philip Morris USA Inc. (Mass. Super. Ct., Aug. 10, 2015) (Leibensperger, J.), the BLS denied Philip Morris USA Inc.’s motion for summary judgment and to exclude the testimony of the plaintiffs’ damages expert.
After a lengthy discussion of damages theory under a string of SJC decisions since the landmark decision in Hershenow v. Enterprise Rent-a-Car, 445 Mass. 790 (2006), the BLS concluded that (1) the plaintiffs were entitled to submit proof of $25 minimum statutory damages based on their allegation that “low tar and nicotine” cigarettes were in fact less safe than advertised, and (2) the plaintiffs could potentially recover more if they could show that the difference between the value paid for the misrepresented cigarettes and their “true market value” was more than $25.
The BLS also denied the defendant’s Daubert motion to exclude expert testimony of the “true market value” of the misrepresented cigarettes, and instead ordered a pre-trial evidentiary hearing regarding the expert’s methodology. The court further granted the plaintiffs’ motion to exclude prior deposition testimony from out-of-state smokers in other tobacco cases, given that the instant plaintiffs did not have an opportunity to cross-examine those deponents. Aspinall v. Philip Morris USA Inc. (Mass. Super. Ct., Sept. 10, 2015) (Leibensperger, J.).
The court conducted a five-week bench trial in late 2015, and post-trial briefing is underway.
Beth I.Z. Boland is vice chair of the litigation department, chair of the securities enforcement and litigation group, and a partner in the Boston office of Foley & Lardner. Noah G. Brown is an associate at the firm.
