Court Opinion

ID: 2963854
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:16:17.12509+00
Date Added: 2024-06-11T11:21:06.715480
License: Public Domain

USCA1 Opinion

	

                            United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________

        No. 95-1827

                                 FRANCIS P. MITRANO,

                                Plaintiff, Appellant,

                                          v.

                           TOTAL PHARMACEUTICAL CARE, INC.
                          AND ABBEY HEALTHCARE GROUP, INC.,

                                Defendants, Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                       [Hon. Rya W. Zobel, U.S. District Judge]
                                           ___________________

                                 ____________________

                                        Before

                                  Cyr, Circuit Judge,
                                       _____________
                            Bownes, Senior Circuit Judge,
                                    ____________________
                              and Stahl, Circuit Judge.
                                         _____________

                                 ____________________

            John Traficonte for appellant.
            _______________
            Joseph L.  Stanganelli, with whom David  H. Erichsen  and Hale and
            ______________________            __________________      ________
        Dorr, were on brief for appellees.
        ____

                                 ____________________

                                   February 9, 1996
                                 ____________________

                      Per Curiam.   Appellant Francis P. Mitrano  brought
                      Per Curiam.
                      __________

            this  diversity action against  his former employer, appellee

            Total    Pharmaceutical    Care,   Inc.    ("TPC"),   seeking

            indemnification  for litigation expenses as provided in TPC's

            corporate  bylaws.     Mitrano   also  sued  appellee   Abbey

            Healthcare Group,  Inc. ("Abbey"), which had  acquired TPC in

            1993  and affirmed at that time its obligation to honor TPC's

            indemnification  bylaw.   In  October  1994,  shareholders of

            Abbey  filed a  securities fraud  class action  in California

            against  Abbey and  various individuals,  including appellant

            Mitrano, a former  officer of appellee TPC.   Mitrano brought

            the  instant lawsuit  to recover  attorney fees  and expenses

            incurred in defending the securities class action, as well as

            the  fees and expenses incurred in this suit to establish his

            right to indemnification.

                      The   corporate   bylaws  of   TPC,   a  California

            corporation, provide  that TPC "shall  indemnify its Officers

            and  Directors to  the fullest  extent permitted by  law" and

            that TPC "is required to advance expenses to its Officers and

            Directors   as  incurred,  including   expenses  relating  to

            obtaining a  determination that  such Officers  and Directors

            are  entitled to  indemnification."   It  is undisputed  that

            Mitrano  is entitled to  indemnification only  for litigation

            expenses that are "reasonably incurred."

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                      To defend the securities class  action, Mitrano and

            four  other   individual   defendants  jointly   retained   a

            California  law  firm.    Mitrano,  who  worked  for  TPC  in

            Massachusetts and still resides there, also retained a Boston

            lawyer,  Curtis C.  Pfunder, as  personal counsel.   In  late

            October 1994, Mitrano made a written demand to  Abbey/TPC for

            advancement and indemnification  of his litigation  expenses.

            On  November   21,   1994,  Abbey/TPC   responded,   offering

            advancement  and indemnification, but  only if Mitrano agreed

            to,  inter  alia, (1)  forego  any  unrelated claims  against
                 _____  ____

            Abbey/TPC, (2)  refrain from  assisting others in  any action

            against Abbey/TPC, and (3) mortgage  his home as security for

            fee advances.   Mitrano  found these  conditions unacceptable

            and, on  November 30,  1994, had  attorney Pfunder  file this

            lawsuit.

                      After   Mitrano  filed  suit,  Abbey/TPC  took  the

            position that his retention  of Pfunder as individual counsel

            was  unreasonable and  informed Mitrano that  Abbey/TPC would

            not indemnify him  for the  Pfunder representation.   At  the

            same  time,  Abbey/TPC  also   softened  its  conditions  for

            indemnification  of the  fees  for the  California firm,  and

            eventually it paid those fees, which are not in dispute here.

            Several months later,  Abbey/TPC made an offer  to settle the

            dispute  over Pfunder's fees, but the offer fell far short of

            the  fees Mitrano had already incurred.  In February 1995, by

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            agreement   Mitrano   was  dismissed   from   the  underlying

            securities class action.

                      In March  1995, after the  district judge's efforts

            to encourage  settlement  failed,  the  parties  filed  cross

            motions  for summary  judgment.   The only  issue on  summary

            judgment was the reasonableness of the fees that  Mitrano had

            incurred with Pfunder,  which at that point amounted to about

            $54,000.  The district judge found that it was reasonable for

            Mitrano  to  retain  Pfunder  as individual  counsel  in  the

            securities class action, and  that Pfunder's $195 hourly rate

            and the hours  expended in that action were  also reasonable.

            Accordingly,  the  district  judge  granted  partial  summary

            judgment for  Mitrano in  the  amount of  $22,170, which  the

            parties  agreed was  the amount  allocable to  the securities

            class action.  Neither party challenges those rulings.

                      The district judge, however, found that Mitrano was

            unreasonable in  prematurely filing the  instant lawsuit,  in

            failing to  negotiate with  Abbey/TPC over the  conditions it

            sought to impose, and in not  accepting the settlement offer.

            The judge,  therefore, granted  partial summary  judgment for

            Abbey/TPC, ruling that all the  fees and expenses incurred in

            this lawsuit were not recoverable because it was unreasonable

            to have filed suit in the first place.  Accordingly, it found

            Abbey/TPC  not  liable  on  the portion  of  Mitrano's  claim

            arising from this indemnification action.  

                                         -4-
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                      The district judge also  ruled that Mitrano was not

            entitled  to prejudgment interest  under Massachusetts law on

            the $22,170 award because he had not actually paid those fees

            to Pfunder.

                      Mitrano appealed, asserting that the district court

            erred in (1) denying his claim for fees and expenses incurred

            in  this action to enforce  his right to indemnification, (2)

            denying  sub silentio his claim for fees and expenses in this
                     ___ ________

            appeal, and (3) denying prejudgment interest.

                      We review a grant  of summary judgment de  novo and
                                                             __  ____

            are  guided by  the same  criteria as  the district  court; a

            grant of summary judgment cannot  stand on appeal "unless the

            record discloses  no trialworthy  issue of material  fact and

            the moving party is entitled to judgment as a matter of law."

            Alexis v. McDonald's Restaurants of Mass., Inc., 67 F.3d 341,
            ______    _____________________________________

            346 (1st Cir. 1995).

                      We are  convinced that the district  judge erred in

            granting  summary judgment  for Abbey/TPC on  Mitrano's claim

            for  fees  and  expenses incurred  in  this  action.   First,

            Abbey/TPC does not challenge the district judge's ruling that

            it was obligated  to indemnify Mitrano for  Pfunder's fees in

            the  securities  class  action,  contrary to  its  unyielding

            position in  refusing Mitrano's demand.   Second, TPC's bylaw

            requires   advancement   and  indemnification   of  "expenses

            relating to  obtaining a  determination that [an  officer is]

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            entitled  to indemnification,"  and that  requirement clearly

            applies  to this action.  Third, for several reasons, Mitrano

            was not unreasonable in  bringing this suit against Abbey/TPC

            to enforce his indemnification rights.  

                      Abbey/TPC  attempted  to  strong-arm  Mitrano  into

            accepting  onerous  conditions,  not requiring  the  relevant

            bylaw, in order to obtain his clear right to indemnification.

            Mitrano  was aware  that Abbey/TPC  had refused  to indemnify

            another former officer, who eventually won a judgment against

            Abbey/TPC    for    indemnification.       And,   Abbey/TPC's

            intransigence was  confirmed when,  only two weeks  after the

            suit  was  filed,  Abbey/TPC  announced  that  it  would  not

            indemnify Mitrano  for his  expenses for  individual counsel,

            expenses  which the  district  judge ultimately  found to  be

            reasonable.   Based on the  summary judgment record,  we hold

            not only that  the district judge  erred in granting  partial

            summary judgment  for Abbey/TPC, but also  that Mitrano acted

            reasonably, as a matter  of law, in prosecuting this  lawsuit

            to enforce  his right  to indemnification.   Consequently, we

            further  hold that  Abbey/TPC is  liable  to Mitrano  for the

            reasonable fees  and expenses incurred in  bringing this suit

            to  a conclusion,  including the fees  and expenses  for this

            appeal  and for proceedings on remand.  See Fed-Mart Corp. v.
                                                    ___ ______________

            Price,  168  Cal.  Rptr.  525,  533  (Cal.  Ct.   App.  1980)
            _____

            (indemnification authorized by California corporation statute

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                                          6

            covers fees for appeal as well as trial).1  Because       the

            district  court  found  Pfunder's  $195  hourly  rate  to  be

            reasonable,  on remand the only issue as to fees and expenses

            will  be  the time  reasonably  expended by  Pfunder  and the

            expenses reasonably  incurred in pursuing this  action to its

            conclusion  (including this  appeal  and  the proceedings  on

            remand).   See Flanders & Medeiros, Inc. v. Bogosian, 65 F.3d
                       ___ _________________________    ________

            198, 204  (1st  Cir. 1995)  (leaving intact  part of  summary

            judgment ruling while reversing and remanding other part).

                      The district judge also erred in denying  Mitrano's

            claim  for  prejudgment  interest,  which  Mitrano  expressly

            sought  in  his  complaint  and in  his  motion  for  summary

            judgment.   The  judge stated  in a  notation order:   "Since

            plaintiff has  not paid  the legal  fees in  issue he  is not
                               ____

            entitled  to prejudgment  interest."   The  legal premise  is

            correct under Massachusetts law, but the factual predicate --

            Mitrano's non-payment  -- cannot be resolved  on this summary

            judgment record.  We explain.

                      As an initial matter,  we agree with the choice-of-

            law  analysis  in Mitrano's  brief:    Massachusetts has  the

            highest  relative  interest  in   the  issue  of  prejudgment

            interest.  See Quaker State Oil Refining Corp. v. Garrity Oil
                       ___ _______________________________    ___________

                                
            ____________________

            1.  The parties  agree that California law  governs the scope
            of TPC's indemnification obligation under its bylaws  because
            TPC is a California corporation. 

                                         -7-
                                          7

            Co.,  884 F.2d 1510, 1514-15 (1st Cir. 1989).  Abbey/TPC does
            ___

            not argue to the contrary.

                      The  substantive question  of Massachusetts  law is

            controlled by  Sterilite Corp.  v. Continental Cas.  Co., 494
                           _______________     _____________________

            N.E.2d  1008  (Mass.  1986).2    In  Sterilite,  the  Supreme
                                                 _________

            Judicial  Court   of  Massachusetts  held   that  prejudgment

            interest on an award of attorney fees ran from the date  that

            the  plaintiff paid the fees, not from  the date on which the

            insurer  breached its  duty to  defend the  insured.   Id. at
                                                                   ___

            1011.  The Court explained: 

                      The dates of  the payment of  the various
                      bills,  which  are  readily  discernible,
                      determine the points  at which  Sterilite
                      was  obliged  to  commit  sums  which  it
                      rightfully should not  have been  obliged
                      to commit.  Before those bills were paid,
                      Sterilite was not deprived  of the use of
                      those  sums.  Any other rule would result
                      in  a windfall  for Sterilite,  which the
                      Legislature did not intend.

            Id.  That explanation applies squarely to this case.
            ___

                      The  district  judge  was  incorrect,  however,  in

            finding on  the summary judgment  record that the  bills were

            not paid.   It is true that the record  does not indicate the

            dates  on which Mitrano paid  Pfunder's bills.  But Mitrano's

            affidavit states that he  was "forced to litigate and  pay my
                                                                   ___

                                
            ____________________

            2.  We note with displeasure that  Mitrano cited this case in
            his brief  without indicating  that its holding  was directly
            contrary  to his assertion that interest  should run from the
            date on which Abbey/TPC breached its obligation to indemnify,
            as opposed to the dates on which he paid Pfunder's bills.

                                         -8-
                                          8

            counsel" (emphasis added);  while that statement is  somewhat

            ambiguous,  it  is uncontroverted.    Nothing  in the  record

            indicates that  Mitrano did not  pay Pfunder.   Abbey/TPC has

            not argued that Mitrano  did not pay; instead it  argues that
                                         ___

            Mitrano failed to  establish that  he did pay  Pfunder.   But
                                                  ___

            that  is  a burden  that Mitrano  does  not bear  in opposing

            summary judgment.   Therefore, on remand,  the district court

            should determine  whether and when Mitrano  actually paid the

            reasonably  incurred   litigation  expenses,  both   for  the

            underlying securities class action as well  as this action to

            enforce  his  indemnification  right.    Prejudgment interest

            should be  awarded to Mitrano,  accruing from those  dates of

            payment in accordance with  Massachusetts General Laws c. 231

              6C.

                      Accordingly,  we  reverse   the  partial  grant  of
                                        _______

            summary  judgment for appellees Abbey and TPC on the issue of

            fees and expenses in this action, and we reverse the notation
                                                     _______

            order denying  Mitrano's claim for prejudgment  interest.  We

            remand for  further proceedings consistent with this opinion.
            ______

            Because  the costs of this  appeal will be  part of Mitrano's

            indemnification  award, no  costs are  awarded under  Fed. R.

            App. P. 39.

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