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Posts Tagged ‘breach of contract’

Massachusetts Highest Court Rules Benefit of the Bargain Damages Can Include Expectancy Loss in Value of Laboratory for Medical Researcher

Posted on: June 16th, 2020

By: Catherine Scott

It is a long-settled principle of contract law that an individual who seeks to recover  damages under a broken contract will only be allowed to recover a figure sufficient to put that person in the place he or she would have been had the contract been performed. Courts have routinely referred to these types of damages as “benefit of the bargain” or “expectancy” damages. These damages often consist of a party’s out-of-pocket damages, as well as any consequential damages flowing from the breach of contract. However, what happens when the expectancy interest under the contract includes items that cannot be easily quantified, such as loss of reputation, future pay, or, in this instance, the cost of re-building a laboratory for medical research?  

In Hlatky v. Steward Health Care System, LLC, the Supreme Judicial Court ruled that a medical researcher whose hospital-employer had pulled its support of her laboratory, ultimately resulting in its demise, could recover $10 million in expectancy damages to “re-build” the laboratory based on the hospital’s breach of contract and breach of the covenant of good faith and fair dealing. The Court allowed the researcher to do so despite her not having provided any expert testimony as to the value of her laboratory at the time of its demise. Moreover, the researcher could not demonstrate any ownership interest in the laboratory as her laboratory had been fully funded by federal research grants. This fact did not stop the Court from holding the researcher had an expectancy interest in the full value of the laboratory given that it represented the culmination of her life’s work. This ruling was in spite of defendant’s and amicus curiae argument that the researcher could only recover the value of the “expected use” of the laboratory — i.e., her own lost future earnings based on the researcher’s use of the laboratory — but not the laboratory’s full value itself. It is worth noting the researcher established only $200,000 in out-of-pocket damages from the loss of her laboratory and did not pursue damages for loss of future earnings, reputational harm, or emotional distress stemming from the breach of contract. 

Though the Court limited its ruling to these specific circumstances, the Court’s decision has longstanding implications for what would constitute benefit of the bargain damages in other breach of contract actions. The ruling demonstrates that plaintiffs can and will be successful on creative theories of damages in these types of actions. Plaintiffs can recover a significant amount of damages without expert testimony as to value or loss of profit so long as their lay testimony has some basis or foundation in the record. Defense counsel should be vigilant about attacking such theories of damages prior to, during, and after trial, and be careful about preserving significant damages issues for appeal.  

If you have any questions about this ruling or other breach of contract matters, please feel free to contact Catherine Scott at [email protected] or any other member of FMG’s Commercial Litigation group.  

Court Rules No Coverage For Pa. Law Firm’s Malpractice Suit

Posted on: November 26th, 2018

By: Barry Brownstein

An insurer does not have to cover a Pennsylvania law firm in a professional malpractice suit that a client filed after the firm allegedly used privileged information to benefit its attorneys’ side business in a real estate development.

The United States District Court for the Western District of Pennsylvania granted Westport Insurance Corp.’s motion for summary judgment in its case against Hippo Fleming & Pertile Law Offices (“HFP”) and attorney Charles Wayne Hippo Jr., agreeing with the insurer that the dispute over a shopping center development was exempted from coverage by the outside businesses exclusion in the firm’s professional liability policy.

Gregory Morris and Morris Development, one of HFP’s longtime clients, alleged that HFP had used information disclosed to the firm under attorney-client privilege to benefit a project by its side businesses, Templar Development and Templar Elmerton. Westport’s insurance policy contained a clear and unambiguous exclusion for lawsuits stemming from any of the policyholders’ outside businesses, and Hippo had not disclosed his involvement in the Templar companies when applying for the policy.

HFP argued that since the underlying lawsuit’s first two allegations of legal malpractice and breach of contract stemmed from the firm’s attorney-client relationship to Morris, Westport had a duty to defend them under the professional liability policy. The court, however, said it was Hippo’s dual role that gave rise to the claims against him.

The court emphasized that the plain language of the complaint in the underlying suit entirely discredits defendants’ argument that counts I and II are based solely on HFP’s role as Morris’s attorney. Counts I and II of the complaint allege that Hippo committed legal malpractice and breach of contract by simultaneously acting as Morris’s attorney and a competing real-estate developer. Therefore, the court held that Westport has no duty to defend because each claim in the underlying suit falls unambiguously within the policy’s outside business exclusion.

If you have any questions or would like more information, please contact Barry Brownstein at [email protected].

The Cannabis Industry Takes Another Step Towards Mainstream

Posted on: November 12th, 2018

By: David Molinari

In 1996, the People of the State of California first passed an initiative to legalize medicinal cannabis. The legislature toyed with drafting the statutory framework regulating the medical cannabis industry. Finally, in 2014 the first “legal” medicinal dispensaries began to open throughout the state. The economic impact of medicinal cannabis was so significant that four years later recreational cannabis was overwhelmingly voted into existence. The cannabis industry has elbowed its way to the table claiming a seat alongside tech industry, manufacturing industry and agricultural industry. One tell-tale sign that the cannabis industry has taken steps toward mainstream, its “inventory” is an insurable commodity under a commercial property and general liability insurance policy.

Green Earth Wellness Center operated a retail medical marijuana business and an adjacent growing facility. Atain Specialty Insurance Company issued Green Earth a commercial property and general liability insurance policy. A wildfire broke out and advanced toward Green Earth’s business. Although the fire did not destroy the business, smoke and ash from the fire overwhelmed Green Earth’s ventilation system; causing damage to Green Earth’s marijuana plants. Green Earth made a claim under the policy for loss of its inventory due to the smoke and ash which Atain denied.

Separately, thieves entered Green Earth’s growing facility and stole some of the marijuana plants. Again, Green Earth made a claim under its policy and again Atain denied the claim. Green Earth eventually commenced an action for breach of contract and bad faith. Atain filed a Motion for Summary Judgment raising, among other issues, that in light of federal law and federal public policy, it was illegal for Atain to pay damages to marijuana plants and products. Atain argued that the application of an exclusionary provision in the policy for contraband or property in the course of an illegal transportation or trade requires that coverage be denied; even if the policy would otherwise have provided coverage.

The Court noted that the policy itself did not define the term “contraband.” The Court acknowledged application of federal law, particularly 21 U.S.C. 841(a)(1) that makes possession of marijuana for distribution a federal crime. However, the Court took note that such a federal prohibition has become more “nuanced” as an increasing number of states have enacted regulations for medicinal and recreational cannabis. Enforcement of the Controlled Substance Act in states that have enacted statutes regulating use and distribution is at times ambivalent and erratic. Other than pointing to the federal criminal statutes, Atain offered no evidence that the application of existing federal public policy would result in criminal enforcement against Green Earth. Atain also failed to assert Green Earth’s operations were in violation of state law.

In rejecting Atain’s public policy and illegality defense to coverage for inventory damage, the Court turned to the parties’ intention regarding coverage of Green Earth’s marijuana. The evidence suggested that the parties mutually intended to include coverage for the marijuana plants constituting Green Earth’s inventory. Atain drafted the medicinal marijuana dispensary supplemental application form that asked several questions about inventory: Such as, how much inventory is displayed to customers, how much inventory is kept on the premise during non-business hours and whether the inventory is stored in a locked safe. Before entering the policy, Atain knew Green Earth was operating a cannabis business. Atain knew or should have known at the time of the policy inception that federal law (at least nominally) prohibited such a business; but Atain nevertheless elected to issue the policy and collect premiums.  Atain never sought to disclaim coverage for Green Earth’s inventory before the claims were made. By issuing the policy and taking premiums, it was clear that the carrier would not raise the contraband exclusion to marijuana inventory.

The Court assumed Atain had legal counsel and obtained opinions and assurances from its own legal counsel before embarking on the business of insuring marijuana operations. The Court viewed the case as a breach of contract action. Atain, through its policy, made contractual promises and then breached them refusing to entertain Atain’s argument that the Court must declare the policy unenforceable as against public policy. It was irrelevant under the Court’s analysis that possession and sale of marijuana was a federal crime or that marijuana should under a public policy argument be determined an uninsurable commodity.

The lesson for insurers: the cannabis industry is an expanding multi-billion-dollar industry where entrepreneurs will spend money on insurance premiums to protect its investment and inventory. A carrier entering a policy knowing the insured’s business is cannabis very well may be obligated to cover claims or face the risk of damages for breaching the policy.

If you have any questions or would like more information, please contact David Molinari at [email protected].

Non-Disclosure Provisions – Who Is Bound?

Posted on: September 5th, 2018

By: Josh Ferguson

A California Appellate Court recently ruled that the non-disclosure and confidentiality terms of a settlement agreement bind only the parties, and not counsel, unless specifically stated otherwise.

The case involved Monster Energy Company suing Bruce Schecter and R. Rex Parris Law Firm for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) unjust enrichment, and (4) promissory estoppel. Monster Energy Co. v. Schechter, No. E066267, 2018 Cal. App. LEXIS 711 (Cal. Ct. App. Aug. 13, 2018).   Those claims were based on Defendants disclosing terms of settlement to a news outlet in violation of the executed settlement agreement.  Monster pointed out that the plain terms of the settlement agreement bound the attorneys to the confidentiality provision. The Court of Appeal of the State of California, Fourth Appellate District acknowledged “ the confidentiality provisions of the settlement agreement did at least purport to bind the Attorneys.” The terms provided, “Plaintiffs and their counsel agree that they will keep completely confidential all of the terms and contents of this Settlement Agreement … .” They also stated, “Plaintiffs and their counsel of record … agree and covenant, absolutely and without limitation, to not publicly disclose” the provisions of the settlement agreement. Finally, the agreement said, “the Parties and their attorneys … hereby agree that neither shall make any statement about the Action … in the media … .”

However, the court ultimately opined that was not the issue.  They stated the issue is not one of contractual interpretation. A party cannot bind another to a contract simply by so reciting in a piece of paper.  No matter how clearly the contract provided that the Attorneys were bound, they could not actually be bound unless they manifested consent. In this case, that did not happen.

The settlement agreement identified the “Parties” as the Fourniers and Monster. The Attorneys then signed under the words, “Approved as to form and content.”  The signature block identified them as “Attorneys for [the Fournier] Plaintiff[s].” The court went on to say that “The only reasonable construction of this wording is that they were signing solely in the capacity of attorneys who had reviewed the settlement agreement and had given their clients their professional approval to sign it. In our experience, this is the wording that the legal community customarily uses for this purpose.”

The moral of the story is that if you want to bind someone to a provision, you need to get them to explicitly agree to same and require their execution.

If you have any questions or would like more information, please contact Josh Ferguson at [email protected].

Insuring Against Rule 68 Offers of Settlement

Posted on: June 28th, 2018

By: Matt Grattan

One tool defense lawyers in Georgia frequently use to induce settlements is an offer of settlement under O.C.G.A. 9-11-68.   Rule 68 allows either party to a tort action to serve a written offer to settle the claim, so long as the offer is made within a certain time and satisfies several other elements under the statute.  If a Rule 68 offer is properly made by a defendant and rejected, that code section allows a defendant to recover its post-rejection attorney’s fees and expenses from a plaintiff in the event the plaintiff does not recover at least 75% of the offered amount at trial.

It is easy to see how the fee-shifting provision in Rule 68 can provide defense attorneys with leverage during settlement negotiations.  Simply put, it forces plaintiffs to put some skin in the game.  Because paying the defendant’s attorney’s fees and costs can significantly reduce or even eliminate a plaintiffs’ award at trial (and in turn a plaintiffs’ attorneys’ fees), plaintiffs may be more inclined to settle rather than face such risks at trial.

The fee-shifting benefit from Rule 68, however, could potentially be diminished by companies like LegalFeeGuard.   Established in Florida in 2012 to combat that state’s offer of settlement statute, LegalFeeGuard has recently started offering insurance policies in Georgia that cover attorney’s fees and costs under O.C.G.A. 9-11-68.  LegalFeeGuard offers no-deductible policies with limits as low as $10,000 and as high as $250,000.   Policies are triggered by a judgment in a bench trial or the return of a verdict in a jury trial, and are available to plaintiffs and defendants for a wide array of cases, including personal injury, breach of contract, and intentional torts.

What does the availability of fee-shifting insurance mean for defense lawyers and their clients?  LegalFeeGuard recently launched in Georgia (and the author is unaware of any other similar companies), so it is tough at this point to determine what kind of impact fee-shifting insurance will have on litigation in Georgia.  But this is certainly a development for lawyers to keep an eye on (particularly since LegalFeeGuard claims on its website to have sold over 1,000 policies in Florida) as such insurance may persuade more plaintiffs to roll the dice and take their case to trial knowing the downside risk of paying fees and costs is reduced, if not altogether eliminated.

If you have any questions or would like more information, please contact Matt Grattan at [email protected].