STEARNS, District Judge.
Plaintiff Irving Backman brought this lawsuit against defendants Igor Smirnov and Global Quantech, Inc. (GQI), alleging breach of contract (Count I), quantum meruit (Count II), violation of the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A, § 11 (Count III), and fraud and misrepresentation (Count IV). The dispute arose over a falling out between Smirnov and Backman over the marketing of a water "activator" touted as a fount of miraculous medical benefits. Defendants moved for summary judgment on August 26, 2010, after the close of discovery. A hearing was held on the motion on November 1, 2010.
The material facts, in the light most favorable to Backman as the nonmoving party, are as follows. In January of 2004, Backman found Smirnov on the Internet and contacted him about his "invention" of a means to "activate" water using Magnetic Resonance Effect Technology (MRET). Pl.'s SOF ¶ 89. Backman had a longstanding interest in magnetic resonance (MR) and a thirty-five year history of developing, funding, researching, marketing, and manufacturing products based on "breakthrough" technologies. Id. ¶ 2. Backman invited a discussion with Smirnov as to how his background might be put to use to advance their "common interest." Id. ¶ 89. During these preliminary discussions, Smirnov made oral and written representations that MRET activated water conferred significant therapeutic health benefits on patients suffering from grave illnesses.
In March of 2004, Smirnov and Backman agreed orally that in exchange for compensation "in an amount to be agreed upon and commensurate with the effort expended," Backman would provide consulting services, marketing expertise, and access to his many contacts in a variety of industries to promote and validate MRET on a worldwide basis. Am. Compl. ¶ 17.
On March 9, 2004, Backman and Smirnov (signing on behalf of GQI) entered into a written "Agreement of Non-Circumvention" (NCA). Under the NCA, Backman agreed to market MRET to potential investors, scientific researchers, and end users. Id. ¶ 20. In exchange, GQI agreed to abstain from entering into any contracts or business arrangements with persons or entities introduced by Backman without paying him a finder's fee. Id. ¶ 21. Later in 2004, the NCA was amended to include another GQI product named the MRET Shield or Electromagnetic Radiation Optimum Neutralizer (EMRON).
From 2004 through 2006, Backman conducted extensive market research to identify prospective users, scientific researchers, and licensees of Smirnov's inventions. Am. Compl. ¶ 28. While he initiated and maintained the relationships with these contacts, he depended on Smirnov to provide the scientific and technical information that he used to market MRET and EMRON. Id. Backman and Smirnov frequently discussed the need for the positive health benefits of MRET to be independently verified, utilizing data or studies generated by credible universities. Id. ¶ 30.
Although Smirnov never told Backman directly, he did not agree with Backman that peer review or third-party validation of MRET was necessary or even desirable. Despite Smirnov's reservations, on November 30, 2004, the two men executed an agreement (Toronto Agreement) in which they undertook to sponsor a scientific study of the benefits of MRET (Toronto Study) that would be funded two-thirds by Backman and one-third by Smirnov and GQI.
Under the Toronto Agreement, Backman was to provide a final report and data analysis to GQI that both parties had the "right to use at their own consideration." Id. With respect to Backman's compensation, the Toronto Agreement stipulated that any "fees, royalties[,] or licenses resulting from use of the final report or data analysis" would recognize Backman's contribution by conferring a "reasonable portion of such monetary benefits" as "mutually agreed upon." Id.
Smirnov eventually turned the results of the Toronto Study into an abstract, which he instructed Backman to use in the marketing campaign. Am. Compl. ¶ 33. Smirnov then authored and purportedly published an article entitled "The Physiological Effect of MRET Activated Water on Patients Suffering from AIDS" in the November 2, 2006 issue of Explore: The
During the first two years of the NCA, GQI's revenue remained relatively flat. GQI's gross income totaled $465,000 in 2004 and $485,000 in 2005. After the Toronto Study results were made public, GQI's gross income skyrocketed to almost $1,000,000 in 2006, $1,900,000 in 2007, and $2,900,000 in 2008. Id. ¶¶ 114-116. Smirnov attributes the growth in sales to intensive marketing by BioPro, one of GQI's biggest distributors. Backman, for his part, credits the Toronto Study for the sudden increase in revenues, noting that BioPro made liberal use of the Toronto Study data in its marketing materials. Id. ¶ 118.
Beginning in August or September of 2006, Smirnov began altering Backman's status reports. Among other changes, he excised references to certain corporations and countries previously listed as potential licensees, as well as references to EMRON and to international licensees, claiming that some of these potential customers were already under exclusive distribution agreements. Am. Compl. ¶¶ 42-44. On or about September 21, 2006, Smirnov's wife (Irina) informed Backman that she had assumed the role of Smirnov's business manager and that if his relationship with Smirnov were to continue, the NCA would have to be replaced by a new agreement. Smirnov subsequently drafted, signed, and mailed to Backman an Amended Agreement, but Backman refused to sign it.
On November 6, 2006, Smirnov emailed Backman claiming that he had never recommended that MRET activated water be used for medical purposes. He warned Backman that "[y]our decision to provide MRET Water Activators to medical doctors and other customers is your personal decision and full responsibility." Pl.'s Opp'n—Ex. 10. The relationship between the two men completely collapsed on March 7, 2007, when Smirnov's attorney sent Backman a letter terminating the NCA.
In addition to equitable relief, Backman seeks damages of $29,490.46 for the MRET units that he purchased for marketing purposes, but was unable to resell, $1,557.98 in shipping costs, $5,350 for the unreimbursed costs of the Toronto Study, $2,350 for the funding of additional studies to validate MRET, and $120,000 for secretarial and staffing expenditures from 2004 through 2008. Backman also seeks compensation for the "thousands of hours [he spent] diligently marketing and promoting MRET activated water and EMRON technologies." Sec. Suppl. Answer to Interrog. No. 13. His "conservative" valuation of his services is $500 per hour. Id.
Summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c)(2). "A `genuine' issue is one that could be resolved in favor of either party, and a `material fact' is one that has the potential of affecting the outcome of the case." Calero-Cerezo v. U.S. Dep't of Justice, 355 F.3d 6, 19 (1st Cir. 2004), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
"To state a claim for breach of contract under Massachusetts law, a plaintiff must allege, at a minimum, that there was a valid contract, that the defendant breached its duties under the contractual agreement, and that the breach caused the plaintiff damage." Guckenberger v. Boston Univ., 957 F.Supp. 306, 316 (D.Mass. 1997) (citations omitted). To establish a breach, plaintiff has the burden of proving the failure of the defaulting party to conform to one or more of the contract's material terms. A term is material when it involves "an essential and inducing feature" of the contract. Buchholz v. Green Bros. Co., 272 Mass. 49, 52, 172 N.E. 101 (1930). "[I]f the materiality question in a given case admits of only one reasonable answer (because the evidence on the point is either undisputed or sufficiently lopsided), then the court must intervene and address what is ordinarily a factual question as a question of law." Gibson v. City of Cranston, 37 F.3d 731, 736 (1st Cir. 1994).
Addressing first the NCA, defendants claim that Backman's contract claim is barred by the Business Broker Statute of Frauds, Mass. Gen. Laws ch. 259, § 7. The Statute provides in relevant part:
Id. Backman concedes that he provided Smirnov with some services that could be fairly characterized as those of a broker/finder, but that these made up only a minuscule portion of the work he performed under the NCA.
Cantell v. Hill Holliday Connors Cosmopulos, Inc., 55 Mass.App.Ct. 550, 553-554, 772 N.E.2d 1078 (2002) (italics removed).
The bulk of Backman's efforts were focused on the funding and marketing of MRET as the NCA contemplated. Dr. Lieberman appears to be the only customer of Smirnov's for whom Backman acted in any traditional sense as a broker. In all other instances, Backman alone maintained and managed the relationships with potential investors and promoters of MRET and EMRON. Backman's recruiting and funding of the Toronto Study could not by any definition be categorized as a broker's service.
Defendants' fallback argument is that the NCA is not an enforceable contractual agreement because it lacks an essential term, namely a specification of the exact compensation that Backman was to receive or any mechanism by which the payment could be determined with any degree of certainty. Defs.' Mot. Summ. J. at 4. Defendants contend that the NCA is merely an agreement to agree at some unspecified time in the future. Id. at 5.
Whether a document contains the essential elements of an enforceable contract is a question of law. Schwanbeck v. Federal-Mogul Corp., 412 Mass. 703, 709, 592 N.E.2d 1289 (1992). "It is not required that all terms of the agreement be precisely specified, and the presence of undefined or unspecified terms will not necessarily preclude the formation of a binding contract." Situation Mgmt. Sys., Inc. v. Malouf, Inc., 430 Mass. 875, 878, 724 N.E.2d 699 (2000). Nonetheless, "it is essential to the existence of a contract that its nature and the extent of its obligations be certain." Caggiano v. Marchegiano, 327 Mass. 574, 579, 99 N.E.2d 861 (1951). Ultimately, it is the intention of the parties to be bound that is controlling. Hunneman Real Estate Corp. v. Norwood Realty, Inc., 54 Mass.App.Ct. 416, 421, 765 N.E.2d 800 (2002). "[T]here is no surer way to find out what parties meant, than to see what they have done." Pittsfield & N.A.R. Corp. v. Boston & A.R. Co., 260 Mass. 390, 398, 157 N.E. 611 (1927) (citation omitted).
It is on this last point that Backman's argument proves persuasive. He makes the compelling point that Smirnov's conduct, both personally and through his business agent (wife), contradict any contention that Smirnov did not regard the NCA as a binding contract. In her September 21, 2006 telephone call to Backman, Irina Smirnov demanded that the NCA be rescinded and revised. Smirnov subsequently drafted an "Amended Agreement" intended to replace the NCA and asked Backman to sign it, but Backman refused. In other words, a reasonable jury could find from Smirnov's own conduct—which occurred against a backdrop of over three years of unobjected-to performance by Backman—that the NCA was viewed by both men as a binding agreement.
Defendants cite Caggiano at length, arguing that its language is controlling. The court disagrees. Caggiano is distinguishable on several grounds, the most significant of which is the "entirely executory" nature of the agreement at issue in which "no terms [on the subject of compensation were] expressed at all."
Id. at 734, 96 N.E.2d 702. The compensation terms of the contract between Backman and Smirnov were no less definite than those in the above-cited agreements.
Defendants finally insist that even if the agreement is enforceable, Backman cannot prove that GQI ever earned a penny of profit from his efforts. The argument, however, is one of fact, not law. It is undisputed that after the Toronto Study was published, the gross revenues of GQI saw a sixfold increase. Whether the increased revenues are attributable to the Toronto Study (and Backman's other efforts) is for the jury to determine, and if the proportion of the gross revenues that make up profits have not yet been ascertained, that may eventually be a proper subject of a petition for an equitable accounting. See Noble, 208 Mass. at 82, 94 N.E. 289. Therefore, defendants' motion for summary judgment as to the NCA breach of contract claim will be denied.
With respect to the Toronto Agreement, defendants make the same argument—that the Toronto Agreement is "fatally indefinite as to the essential terms of the promise" and that Backman's damages are therefore "purely speculative." Defs.' Mot. Summ. J. at 7-8. For the reasons previously cited, the argument fails. As in the case of the NCA, the Toronto Agreement is not completely silent as to the compensation Backman was to receive for the use of the Toronto Study data. The agreement provides that "any monetary benefits including fees, royalties[,] or licenses resulting from the use of [the study's data]" will recognize Backman's contribution and that "a reasonable portion of such monetary benefits will be allocated to Irving Backman as mutually agreed upon." As explained above, where the terms relative to compensation are present but "stated in broad and general
Quantum meruit "is a claim independent of an assertion for damages under the contract, . . . ." J.A. Sullivan Corp. v. Commonwealth., 397 Mass. 789, 793, 494 N.E.2d 374 (1986). "The underlying basis for awarding quantum meruit damages in a quasi-contract case is unjust enrichment of one party and unjust detriment to the other party." Salamon v. Terra, 394 Mass. 857, 859, 477 N.E.2d 1029 (1985). Like unjust enrichment, quantum meruit is a theory of recovery and not an independent cause of action. In other words, if a jury finds that the agreement alleged in Count I was inchoate and therefore unenforceable, it may consider quantum meruit as an alternative (but not as an additional) theory under which Backman may recover.
In Massachusetts, the elements of a quantum meruit recovery are: (1) the plaintiff conferred a reasonable benefit upon the defendants; (2) defendants accepted the services with the reasonable expectation of compensating the plaintiff; and (3) the plaintiff provided the services with the reasonable expectation of receiving compensation. See Bolen v. Paragon Plastics, Inc., 747 F.Supp. 103, 106-107 (D.Mass.1990).
In this case, a reasonable jury could find that Backman has established the prima facie elements of a claim in quantum meruit. Backman conferred a benefit on defendants by organizing and funding the Toronto Study, a benefit that defendants recognized by incorporating the data from the Study in the literature ballyhooing the benefits of MRET. Defendants accepted Backman's services with the reasonable expectation of compensating him with a "reasonable portion" of the "monetary benefits," belying defendants' argument that Backman agreed to perform at his own risk. When a party voluntarily accepts a valuable service or benefit, having had the option to accept or reject it, the court may infer and enforce a promise to pay. See Anisgard v. Bray, 11 Mass.App.Ct. 726, 729, 419 N.E.2d 315 (1981). Therefore, defendants' motion for summary judgment as to the claim in quantum meruit as an alternative theory to breach of contract will be denied.
Section 2(a) of Chapter 93A declares unlawful, "[u]nfair or deceptive acts or practices in the conduct of any trade or commerce...." Mass. Gen. Laws ch. 93A, § 2(a). Smirnov argues that the Chapter 93A claims fail because they are derivative of Backman's breach of contract and fraud claims. See Edlow v. RBW, LLC, 2010 WL 2034772, at *8 (D.Mass. May 21, 2010), citing Pimental v. Wachovia Mortg. Corp., 411 F.Supp.2d 32, 40 (D.Mass.2006) ("Since [plaintiff] has failed to allege sustainable breach of contract or negligence claims, and the Chapter 93A claim is based upon the previous two claims, there is no basis for finding [defendant] liable under Chapter 93A."). As a claim under Chapter 93A is equitable and a matter for the court and
To make out a claim for fraud or deliberate misrepresentation,
Backman claims that Smirnov misled him into believing that he fully supported Backman's efforts to obtain independent validation of MRET and would pay a one-third share of the costs of the Toronto Study. Pl.'s Opp'n Mot. Summ. J. at 14. Defendants argue that Backman cannot affirmatively prove that Smirnov gave any knowingly false assurance to Backman about his commitment to the Toronto Study. Defs.' Mot. Summ. J. at 12. The most that Backman can point to is Smirnov's deposition testimony that when Backman broached the idea of the Toronto Study, Smirnov did not believe that it would prove helpful to the MRET marketing campaign and that he "didn't accept" Backman's statement that the Study would open the door to "a broader range of applications." Smirnov Dep. at 129.
As a rule, "nondisclosure does not amount to fraud and is not a tort of any kind," unless the non-disclosing party is under a duty to speak. Greenery Rehab. Grp. Inc. v. Antaramian, 36 Mass.App.Ct. 73, 77, 628 N.E.2d 1291 (1994); see also Rood v. Newberg, 48 Mass.App.Ct. 185, 192, 718 N.E.2d 886 (1999). That Smirnov may not have shared Backman's enthusiasm for the Toronto Study or that Smirnov may have ultimately breached the Toronto Agreement (if the trier of fact so finds) does not advance Backman's argument. It is not a tort, or even a moral
Backman also claims that Smirnov misled him about the (nonexistent) health benefits of the MRET technology. To the extent that Smirnov admits that such statements were made, he alleges that Backman's claim is barred by the relevant statute of limitations, Mass. Gen. Laws ch. 260, § 2A. Backman filed his Complaint on June 2, 2008, three and one-half years after the NCA was negotiated with Smirnov. Given Backman's knowledge and experience with MR technology, Defs.' SOF ¶¶ 12-16, 26, defendants argue that he knew or should have known by the end of 2004 at the latest, that the claims of MRET's preternatural health benefits were sheer quackery. This point is telling. The evidence suggests that Backman not only knew that the health claims were false, but that he willingly engaged with Smirnov in a fraudulent scheme to promote them to others—including vulnerable AIDS/HIV patients—by touting the data of the dubitable Toronto Study. In implicit recognition of the shakiness of his position, Backman is careful to avoid any argument that the health claims were in fact false.
For the foregoing reasons, defendants' motion for summary judgment as a matter of law with respect to the claims for breach of contract (Count I) and quantum meruit (Count II) are
SO ORDERED.
