USCA1 Opinion
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
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No. 95-1827
FRANCIS P. MITRANO,
Plaintiff, Appellant,
v.
TOTAL PHARMACEUTICAL CARE, INC.
AND ABBEY HEALTHCARE GROUP, INC.,
Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
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Before
Cyr, Circuit Judge,
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Bownes, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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John Traficonte for appellant.
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Joseph L. Stanganelli, with whom David H. Erichsen and Hale and
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Dorr, were on brief for appellees.
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February 9, 1996
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Per Curiam. Appellant Francis P. Mitrano brought
Per Curiam.
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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
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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.
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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
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appeal, and (3) denying prejudgment interest.
We review a grant of summary judgment de novo and
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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,
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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.
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Price, 168 Cal. Rptr. 525, 533 (Cal. Ct. App. 1980)
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(indemnification authorized by California corporation statute
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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
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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
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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
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1. The parties agree that California law governs the scope
of TPC's indemnification obligation under its bylaws because
TPC is a California corporation.
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Co., 884 F.2d 1510, 1514-15 (1st Cir. 1989). Abbey/TPC does
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not argue to the contrary.
The substantive question of Massachusetts law is
controlled by Sterilite Corp. v. Continental Cas. Co., 494
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N.E.2d 1008 (Mass. 1986).2 In Sterilite, the Supreme
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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
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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.
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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
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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.
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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
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Mitrano failed to establish that he did pay Pfunder. But
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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
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summary judgment for appellees Abbey and TPC on the issue of
fees and expenses in this action, and we reverse the notation
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order denying Mitrano's claim for prejudgment interest. We
remand for further proceedings consistent with this opinion.
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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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