Year in review: the Massachusetts Business Litigation Session, 2020

The Massachusetts Superior Court Business Litigation Session will see personnel changes in 2021. In the BLS-2 Session, Judge Michael D. Ricciuti will replace Judge Janet L. Sanders, who is nearing retirement. Judge Ricciuti will share BLS-2 with Judge Kenneth W. Salinger, who will also serve as the BLS’s administrative judge. Meanwhile, Judge Karen F. Green and Judge Brian A. Davis have returned to the BLS-1 Session. And Gloria Brooks and Brenda Shisslak now serve as clerks for BLS-1 and BLS-2, respectively.

In 2020, the BLS decided several matters that will be of interest to both litigators and non-litigators alike:

• CommCan, Inc. v. Baker, No. 2084CV00808-BLS2 (Salinger, J.) (April 16, 2020) (denying preliminary injunction in constitutional challenge to governor’s order requiring non-medical marijuana retailers to close because of COVID-19)

In March 2020, the governor declared a state of emergency to address the spread of the COVID-19 virus. The governor ordered all businesses in Massachusetts to close their brick-and-mortar facilities unless they provided “COVID-19 essential services.” Liquor stores and medical marijuana treatment centers were included as providing “essential services,” but non-medical marijuana retailers were not.

In CommCan, Inc. v. Baker, the plaintiffs brought a constitutional challenge to the governor’s orders, arguing that requiring non-medical marijuana retailers to close, while allowing liquor stores and medical marijuana centers to remain open, violated the federal and state requirements of equal protection. The plaintiffs sought a preliminary injunction barring enforcement of the governor’s orders.

The court rejected the plaintiffs’ request, concluding they would not succeed on the merits of their claims. Citing the seminal decision, Commonwealth v. Pear, 183 Mass. 242 (1903), which upheld the legality of a mandatory smallpox vaccination program, the court emphasized the broad powers of the state to restrain liberty and the use of private property to protect the public health.

Nonetheless, the court rejected the governor’s argument that the court lacked subject matter jurisdiction over the case because the Massachusetts declaratory judgment statute does not allow for declaratory relief against the governor. Instead, the court concluded that it could review the legality of the governor’s orders as part of the plaintiffs’ request for injunctive relief.

Turning to the merits, the court held that because the “right to pursue one’s business” is not a “fundamental right,” the constitutional question turned on whether there was a “rational basis” for the governor’s orders.

The governor put forth two justifications for not exempting non-medical marijuana retailers from the closure orders. First, non-medical marijuana retailers attract large crowds of customers because there are so few of these business licensed in the commonwealth. Second, non-medical marijuana retailers attract out-of-state customers.

The plaintiffs “convincingly” argued that both concerns could be addressed by less burdensome alternative measures. Yet, as the court explained, equal protection requires only a “rational basis” for the governor’s executive orders, not the least burdensome alternative. The governor also was not required to cite or rely on these justifications when he issued the orders. Thus, the orders were not “arbitrary or capricious” and passed constitutional muster.

• Attorney General v. Facebook, Inc., No. 1984CV02597-BLS1 (Davis, J.) (Jan. 16, 2020) (concluding documents created in internal Facebook investigation were not protected from disclosure by attorney-client privilege or as work product)

Beginning in late 2015, Facebook’s privacy policies came under increasing scrutiny after media outlets reported that a University of Cambridge professor, Aleksandr Kogan, collected personally identifying information from the accounts of approximately 87 million Facebook users through a Facebook app that he had developed.

Professor Kogan sold some of this data to a political advertising firm, Cambridge Analytica, which used the data to send targeted campaign advertisements to Facebook users during the 2016 U.S. presidential election cycle.

Facebook responded to these news reports by launching an internal App Developer Investigation, or ADI, to audit Facebook apps for compliance with Facebook’s policies on the collection and use of user data. Facebook retained a law firm to design and direct the ADI. In the ensuing months and years, Facebook issued periodic statements to update the public on the ADI’s progress.

In March 2018, Massachusetts’ attorney general opened her own investigation into Facebook’s user data policies, issuing three civil investigative demands, or CIDs. The CIDs sought, among other things, information about the ADI and any apps that Facebook had identified as problematic through the ADI.

Facebook refused to produce many documents generated in the ADI, arguing that the material was protected by the work-product doctrine and attorney-client privilege. The AG moved to compel Facebook’s compliance with the CIDs.

In its decision, the court first addressed Facebook’s claims of work product, emphasizing that the doctrine only protects material “prepared in anticipation of litigation or for trial.” As the court concluded, the history of the ADI and Facebook’s own public statements showed that the ADI was not undertaken in anticipation of litigation, but rather as part of Facebook’s normal business operations. In the end, the ADI was simply another iteration of Facebook’s continuous efforts to ensure that app developers complied with Facebook’s user data policies.

Turning to Facebook’s claims of attorney-client privilege, the court concluded that internal communications generated in the course of the ADI were not categorically privileged. The attorney-client privilege, for example, did not extend to underlying facts that Facebook discovered during the ADI.

Facebook’s public statements about the ADI were also inconsistent with its broad assertion of attorney-client privilege because Facebook “touted the ADI as an investigation and enforcement program undertaken for the benefit of the Company’s users,” and Facebook had “pledged to share information of suspected data misuse uncovered in the course of the ADI with its user community.”

The court therefore concluded that the vast majority of the material sought by the CIDs was not privileged.

Facebook appealed the court’s decision. The Supreme Judicial Court granted direct appellate review and heard oral argument on Dec. 4, 2020.

• Jinks v. Credico (USA) LLC, No. 1784CV02731-BLS2 (Salinger, J.) (March 31, 2020) (holding that common-law “right to control” test determines “joint employer” status and that statutory ABC Test is limited to questions of independent contractor classification)

In Jinks v. Credico (USA) LLC, the plaintiffs sued their former employer, DFW Consultants, a marketing and sales company. Credico (USA) LLC retained DFW to provide marketing services for Credico’s clients, and DFW hired the plaintiffs to do door-to-door marketing work for Credico’s clients.

The plaintiffs brought claims alleging that they were improperly classified as independent contractors and for violation of the Massachusetts minimum wage and overtime statutes. In addition to their direct employer, DFW, the plaintiffs brought claims against Credico, alleging that DFW and Credico were “joint employers.”   

The court disagreed, granting Credico’s motion for summary judgment on the ground that Credico was not a joint employer. The court held that the common law “right to control” test determines whether a defendant can be deemed a joint employer. Under this test, a defendant is a joint employer if it has “sufficient control over the work of the employees of another company.”

The plaintiffs argued that the so-called “ABC Test,” outlined in a Massachusetts statute that distinguishes “independent contractors” from “employees,” had supplanted the common law “right to control” test.

The court rejected that argument, holding that the ABC Test only applies to determine whether a worker is properly classified as an independent contractor. Because the plaintiffs never provided services to Credico directly, the “right to control” test applied, and under the “right to control” test, Credico could not be deemed a joint employer because it had no authority over the plaintiffs or their work.

In another ruling of note, the court addressed the “outside sales” exceptions to the Massachusetts minimum wage and overtime statutes. To be exempt under the minimum wage statute, a worker engaged in “outside sales” cannot make daily reports or visits to the employer. The court denied the summary judgment motions of DFW and its manager because there was a genuine dispute of material fact as to whether the plaintiffs did so.

By contrast, the court held that the outside sales exception to the overtime statute applies regardless of whether an employee makes daily reports. As such, it granted summary judgment for DFW and its manager on the overtime claims.

Judgment ultimately entered against the plaintiffs, and the case is on appeal.

• University of Massachusetts v. Phio Pharmaceuticals Corp., No. 1984CV02455-BLS1 (Davis, J.) (Sept. 24, 2020) (holding sovereign immunity bars Chapter 93A claim against governmental entity acting in business capacity)

In University of Massachusetts v. Phio Pharmaceuticals Corp., the court squarely addressed the open legal question of whether a governmental entity acting in a business capacity is subject to suit under G.L.c. 93A.

The University of Massachusetts filed four patents involving therapeutic uses of ribonucleic acid interference invented by a UMass professor, Anastasia Khvorova. Professor Khvorova’s former employer, Phio Pharmaceuticals Corp., f/k/a RXi Pharmaceuticals Corp., alleged that this technology belonged to RXi because it was developed while Professor Khvorova was working there.

UMass and Professor Khvorova brought a lawsuit seeking a declaration of UMass’s rights with respect to the patented technology. RXi counterclaimed, asserting a violation of G.L.c. 93A, among other claims.

UMass moved to dismiss, arguing that RXi’s counterclaims were barred by sovereign immunity. As to the Chapter 93A counterclaim, the court agreed.

As the court explained, whether a governmental entity like UMass can be subject to suit under 93A when acting in a business capacity is a question that Massachusetts appellate courts have “repeatedly flagged, but never actually resolved.” Because Chapter 93A does not expressly waive sovereign immunity, the analysis turned on whether the statute waived sovereign immunity “by necessary implication.”

Applying Bates v. Director of the Office of Campaign & Political Finance, 436 Mass. 144 (2002), in which the SJC addressed a challenge to sovereign immunity under the Clean Elections Law, the court concluded that Chapter 93A does not waive sovereign immunity “by necessary implication.”

Unlike the law at issue in Bates, sovereign immunity would not render 93A “an ineffective statute” with “no meaningful function” because “in most instances” it would still provide aggrieved parties with substantive rights and procedural devices to enforce those rights.

Sovereign immunity thus barred the Chapter 93A counterclaim against UMass.

The court likewise concluded that sovereign immunity barred RXi’s various common-law claims for intentional interference with contractual and business relations.

The court, by contrast, held that RXi’s counterclaim for declaratory judgment survived UMass’s motion to dismiss because a claim for declaratory judgment does not implicate the primary rationale for the doctrine of sovereign immunity; namely, protecting the public fisc.

Michael J. Tuteur is a litigation partner at Foley & Lardner in Boston. Andrew C. Yost is a litigation associate at the firm.