Opinion
No. 97-1294C
Dated: January 4, 2001
MEMORANDUM OF DECISION AND ORDER ON PARTIES' MOTIONS FOR SUMMARY JUDGMENT
INTRODUCTION
The parties have brought this class action, breach of contract law suit before the court for resolution of their respective motions for summary judgment. Each side suggests that it ought to prevail without the necessity of trial.
Maintaining that the plain language of the "Broker Agreements" (hereinafter the "Agreements") and the parties' course of conduct over the years has foreclosed plaintiffs' breach of contract and G.L.c. 93A claims, defendants seek Rule 56 relief. Defendants further contend that, with regard to defendants UnumProvident and Paul Revere Corporation (hereinafter the "Holding Companies"), there can be no liability because of their "holding" nature.
Plaintiffs oppose defendants' motions for summary judgment and have offered their own cross-motions for summary judgment. Suggesting that there is no genuine issue of material fact that defendants, by their 1991 and 1995 reductions in broker commissions, breached the Agreements, plaintiffs request Rule 56 judgment in their favor. Plaintiffs also seek summary judgment upon defendants' conditional counterclaim, a cause of action to be pressed by defendants only if plaintiffs obtain judgment on their breach of contract suit. Defendants, in turn, dispute plaintiffs' contentions regarding the conditional counterclaim.
For the reasons stated infra, the court finds no merit in any of the motions and cross-motions for summary judgment.
The court will, however, excise one of the defendant holding companies, Provident Life and Accident Insurance Company, from the suit, a result urged by all parties at the hearing of the instant Rule 56 motions.
BACKGROUND
Prior to 1991, Paul Revere paid each broker a 55% first year commission on every new disability policy the broker sold and a 5% commission for renewal of each policy during the second through tenth years of the policy's term ("renewal commissions"). At the time of the policy purchase, the insured was also offered the opportunity to purchase the right to exercise riders by which the amount of his or her disability coverage might be increased in subsequent years. Although the company's written commission schedule did not, prior to January 1, 1991, expressly provide for commissions upon the exercise of those riders ("rider commissions"), brokers consistently received first-year rider commissions of 55% whenever the disability riders were exercised by the insured.
In 1991, the base rate for first year commissions was reduced to 50%; the renewal commissions remained at 5%. On January 1, 1995, Paul Revere further revised its commission schedule to include disability riders, providing a flat base rider commission of 10% for the first ten years after a rider was exercised. The 10% commission replaced the first year commissions Paul Revere had paid brokers for disability riders prior to 1991. Thus, instead of receiving commissions of 50% or 55% for the first year in which the rider was exercised and 5% for the next nine years, brokers received, after 1995, 10% commissions for the first year and for each of the following nine years the rider remained in effect. The reduction in rider commission payments was made applicable to disability policies which had originally been issued prior to 1995.
Plaintiffs argue that the reduction in their rider commissions violated their Agreements with Paul Revere. The parties concur that the Agreements prevented Paul Revere from reducing commissions "under any schedule" and from reducing commissions on "in-force" policies. They part company, however, with respect to the meaning to be accorded the quoted language in the context of the Agreements.
The Agreements provide that "Paul Revere will pay commissions . . . on premiums accepted by it . . . on all policies issued and placed . . . in accordance with the schedules of sales commission rates for brokers then in force. `Placed' means that the applicant has accepted the policy as issued and paid the balance of the premium required for the policy to be in force . . . Paul Revere may adopt new schedules of commission rates from time to time. However, the rates and conditions for the payment of first year and renewal commissions under any schedule may not be reduced or restricted for in-force policies by the adoption of any subsequent schedule . . ."(emphasis added).
The plaintiffs contend that Paul Revere, by its conduct, included rider commissions as part of its commission "schedule" prior to 1995. Plaintiffs also contend that, because the riders increased the amount of coverage on existing disability policies, the riders were, ipso facto, exercised on "in-force policies." The plaintiffs conclude, therefore, that commissions on the disability riders were protected by both aspects of the anti-reduction language of the Agreements and were insulated from the sort of adjustments effected by defendants.
Defendants respond that the language of the Agreements did not prohibit them from reducing commissions on disability riders because there was no schedule for such riders prior to 1995 and because the exercise of the rider created a new "in-force" policy. This lawsuit centers, therefore, on two major issues, to wit, whether defendants, by their practice of paying commissions on riders prior to 1995, implicitly included rider commissions in their commission "schedule" and whether the reach of the phrase "in-force" policies extends to policies upon which riders are subsequently exercised. The dispute before the court in this summary judgment exchange squarely implicates the parties' different interpretations of the language in the Agreements.
DISCUSSION
Summary judgment is granted where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991);Cassesso v. Commissioner of Correction, 390 Mass. 419, 422 (1983); Mass.R.Civ.P. 56(c). The moving party bears the burden of affirmatively demonstrating that there is no triable issue of fact. Pederson v. Time, Inc., 404 Mass. 14, 17 (1989). At bar, each party contends that, because its suggested interpretation of the contract language is unarguably correct, there are no material facts in dispute. Accordingly, the parties say, the underlying contract claim may be resolved by this court as a matter of law. See USM Corp. v. Arthur D. Little Sys., Inc., 28 Mass. App. Ct. 108, 116 (1989) (where material facts are not in dispute, interpretation of contract is question of law for the court). The court is unpersuaded, however, that the parties' respective suggestions as to the purport of the contractual terms are of a sort that can be assayed as a matter of law.
Where the wording of a contract is unambiguous, the agreement must be enforced according to its terms. See In re Biotech Corp., 186 F.3d 1356 (D.Mass. 1999). A party's mere claim of ambiguity may not defeat a motion for summary judgment "if the documents do not reflect ambiguity on the point in question, and the party resisting summary judgment adduces no evidence of ambiguity." US Trust v. Henley Warren Mgt., Inc., 40 Mass. App. Ct. 337, 343 (1996). Thus, where the language of a contract is clear and unambiguous, summary judgment is an appropriate vehicle for judicial interpretation because the court may interpret the meaning of the contract as a matter of law without resort to extrinsic evidence or determinations of fact. See ER Holdings, Inc. v. Norton Co., 735 F. Supp. 1094, 1097 (D.Mass. 1990). On the other hand, where the contract language is indeed ambiguous, a fact finder must resolve the ambiguity by considering the factual evidence offered by the parties to support their differing interpretations. See Commercial Union Ins.Co. V.Boston Edison Co., 412 Mass. 545, 557 (1992); see also Trafton v.Custeau, 338 Mass. 305, 307-08 (1959). In such circumstances, summary judgment is inapposite.
The foundation determination of whether or not a contract is ambiguous is, concededly, a question of law. See Allen v. Adage, Inc., 967 F.2d 695, 698 (1st Cir. 1992). A contract's language is ambiguous where "the phraseology can support reasonable difference[s] of opinion as to the meanings of the words employed . . ." Coll v. PB Diagnostic Systems, Inc., 50 F.3d 1115, 1122 (1st Cir. 1995). We are confronted with such phraseology at bar. The parties have presented the court with conflicting, yet reasonable, interpretations of "schedule" and "in-force policies." Because their interpretations demonstrate reasonable differences of opinion as to both the meaning of the contract's words and the intent of the parties, the language is, as a matter of law, ambiguous. Having thus concluded that there is an ambiguity, we are bound by the Commercial Union precept that ambiguity presents a question of fact. Hence, summary judgment is precluded at bar because of the ambiguity suggested by the following instances of factual friction.
1. Commission "schedules"
The parties agree that, under the language of the Agreements, defendants could not reduce "the rates and conditions for the payment of first year and renewal commissions under any schedule." (emphasis added). The parties dispute, however, whether, prior to 1995, defendants had a commission schedule for disability riders. Defendants maintain that there was no commission schedule for such riders prior to January 1, 1995. The plaintiffs respond that the company did indeed employ a schedule, albeit unstated, for rider commissions and that the schedule, even if never published, was clearly evidenced by the company's actions and course of conduct prior to 1995. Thus, there is a material factual dispute as to whether Paul Revere's payment of commissions for disability riders prior to 1995 constituted a "schedule" under which, according to the language of the Agreement, the rates and conditions for the payment of commissions could not be reduced or restricted. That ambiguity in the Agreement's terms precludes deciphering by summary judgment.
2. "In-force" policies
The parties also agree that, under the Agreements, defendants could not reduce commission schedules for "in-force policies". They disagree, however, as to whether the quoted language permitted Paul Revere to reduce commissions for disability riders in instances where both the policies and the right to purchase riders on those policies were "in force" prior to January 1, 1995, but the riders were not exercised until after that date. Thus, as to disability riders, the parties dispute whether "in-force" contemplates the time when the policy originally issued, as plaintiffs claim, or the time when the rider option was exercised, as defendants urge. Because the phrase "in-force policies" might reasonably support either interpretation, the wording is ambiguous and the ambiguity cannot be resolved as a matter of law.
3. Defendants' conditional counterclaim
Plaintiffs argue that, for the purpose of determining their entitlement to rider commissions, policies and any subsequent riders must be considered to have been "in-force" at the time the policy issued. They also contend that the exercise of a rider constitutes "new business" and that a broker is therefore entitled to a first year commission in the year in which the rider is exercised as well as to renewal commissions for the second through ninth years that the rider is in place. Defendants contend that plaintiffs' positions are mutually inconsistent because a rider on an "in-force" policy cannot also be "new business." Thus, defendants postulate that, if the plaintiffs prevail in their argument that the exercise of rider commissions constituted activity on "in-force" policies, plaintiffs may not, in logic, also prevail in their contention that the riders represented "new business" as to which they were entitled to first-year commissions.
At bottom, defendants suggest that a verdict for plaintiffs on the breach of contract claim will establish that the riders were "in-force" at the time the initial policy was placed. In that case, defendants urge, the commissions paid when the riders were exercised should have been renewal commissions, not first-year commissions upon "new business," and defendants would be entitled to a refund of the difference between the 50-55% first-year commissions which the brokers received for the exercise of rider commissions and the 5% renewal commissions to which they were entitled for renewals. Accordingly, as a shield in the event that plaintiffs prevail in their breach of contract action, defendants have filed a conditional counterclaim seeking the refund of alleged overpayments to brokers.
Plaintiffs now assail that conditional counterclaim by means of a Rule 56 challenge. Plaintiffs argue that the conditional counterclaim merely seeks to relitigate an issue that will have already been decided by the breach of contract determination. Defendants oppose the motion for summary judgment, arguing that there will remain, after the contract claim is resolved, a disputed question of fact as to whether brokers were entitled to "new business" commissions for the exercise of disability riders on "in-force" policies.
This court concludes that, under the language of the Agreements, the fact that the rider was exercised on an "in-force" policy would not necessarily prohibit the exercise of the rider's being also treated as "new business." At a minimum, that determination will turn on such evidentiary factors as the intent of the parties, the past practice of the parties, and, perhaps, industry custom. There are numerous factual issues to be resolved, and the conditional counterclaim may not, therefore, be resolved as a matter of law.
4. Liability of holding companies
Defendants seek summary judgment on behalf of two holding companies,viz., the Paul Revere Corporation ("Paul Revere Corporation") and UnumProvident Corporation ("UnumProvident"), formerly known as Provident Companies, Inc. Defendant holding companies argue that they are entitled to judgment as a matter of law because the defendant operating companies are independent, solvent companies that will be able to pay any judgment favoring plaintiffs. Consequently, defendants contend that, in order to avoid summary judgment and subject the holding companies to liability, plaintiffs must demonstrate the existence of genuine issues of material fact as to the holding companies' responsibility for the actions of the operating companies. That is, plaintiffs must show factual disputes as to whether or not the separateness of the corporate forms of the holding companies from the corporate forms of the operating companies ought to be disregarded. Because plaintiffs have failed, in defendants' view, to present evidence that would so show, defendants maintain that they are entitled to judgment as a matter of law.
In considering a motion for summary judgment, a court must consider the evidence in the light most favorable to the non-moving party. SeeCorrellas v. Viveiros, 410 Mass. 314, 316-17 (1991). See Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991). "All doubt as to the existence of a genuine issue of material fact must be resolved against the party moving for summary judgment." Correllas at 317, quotingAttorney General v. Bailey, 386 Mass. 367, 371 cert. denied sub nom Bailey v. Bellotti, 459 U.S. 970 (1982). Application of those sentiments in the matter at bar compels the conclusion that plaintiffs have sufficiently identified disputed issues of fact to defeat defendants' motion for summary judgment on the issue of the holding companies' exposure to liability. For example, the record at bar reveals evidence that certain individuals, in their capacity as officers of the holding companies, authorized the commission diminutions in connection with the exercise of the disability riders. The same individuals, in their role as the officers of the operating companies, then implemented those commission reductions.
The existence and implications of those circumstances are factually contested by the parties and are indisputably material to the question of the corporate veil stripping proposed by plaintiffs. Where a parent company (here, the holding companies) pervasively controls the activities of its subsidiaries, (here the operating companies), the parent company may be liable for the wrongful conduct of the subsidiary. See My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614, 618-19 (1968) (jury could conclude that corporation was liable for actions of subsidiaries where facts showed that common enterprise existed and where corporation acted through satellite companies for its own benefit). These are the genuine factual issues lurking in this record which might bring the My Bread precept to bear upon the defendant holding companies.
Massachusetts law requires a substantial quantum of proof if the stand-alone existence of a corporation is to be disregarded. The corporate veil may be pierced when the evidence is compelling that:
1] there is active and pervasive control of related business entities by the same controlling persons and there is a fraudulent or injurious consequence by reason of the relationship among those business entities; or 2] there is `a confused intermingling of activity of two or more corporations engaged in a common enterprise with substantial disregard of the separate nature of the corporate entities, or serious ambiguity about the manner and capacity in which the various corporations and their respective representatives are acting.
Evans v. Multicon Construction Corp., 30 Mass. App. Ct. 728, 733 (1991), quoting My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614, 620 (1968). Evans added twelve additional criteria to be considered in deciding whether to pierce the corporate veil; the Evans gloss on My Bread includes such indicators as thin capitalization, nonobservance of corporate formalities, absence of corporate records, no payment of dividends, siphoning away of corporate assets by the dominant shareholders and use of the corporation for transactions of the dominant shareholders.
As the My Bread and Evans criteria suggest, the question of whether to pierce the corporate veil is undeniably fact-intensive. At bar, plaintiffs have presented an affidavit reciting that the Paul Revere Corporation was in serious financial difficulty in 1994 and implemented the commission cuts in response to an order from its largest shareholder, Textron, to reduce expenses and improve the company's financial condition. In addition, plaintiffs aver in their affidavit that the officers of the holding companies were also officers of the operating companies, with the result that the individuals who made policy decisions were responsible for implementing those decisions through the operating companies. Thus, plaintiffs assert that, at a minimum, the evidence illumines intermingling of corporate activity, active manipulation of related business entities by the same controlling persons, and employment of the corporation to effect transactions for the dominant shareholder. That evidence is indeed adequate to demonstrate the presence of sufficient issues of material fact to defeat a motion for summary judgment on the liability of the holding companies.
5. G.L.c. 93A
Finally, defendants seek summary judgment on plaintiffs' G.L.c. 93A claim, arguing that there is no evidence that their interpretation of the contracts constituted unfair or deceptive trade practices. Contending that plaintiffs have presented no evidence that defendants breached the Agreements knowingly, defendants assert that, on the contrary, the record reveals that defendants honestly believed that the disputed reduction in commissions was authorized by the plain language of the Agreements and was consistent with the parties' long-standing practices. Even if the language of the Agreements is found to be ambiguous, defendants argue, the c. 93A claim still fails as a matter of law if the parties had a genuine difference of opinion about the meaning of the contract language. See Duclersaint v. Federal National Mortgage Assn., 427 Mass. 809, 814 (1998) ("a good faith dispute as to whether money is owed, or performance of some kind is due, is not the stuff of which a c. 93A claim is made").
The party urging summary judgment bears the burden of affirmatively demonstrating that there is no triable issue of fact. See Pederson v.Time, Inc., 404 Mass. 14, 17 (1989). Once the moving party (here, defendants) suggests the absence of a triable issue, the party opposing the motion (here, plaintiffs) must respond and allege specific facts establishing the existence of a genuine disputed material issue. Id. at 17. At bar, plaintiffs have submitted an affidavit from Paul Revere's former Brokerage General Manager, Paul Zietlow, alleging that defendants, at the time they reduced commissions on disability riders, were fully aware that such a decrease violated the Agreements with brokers. Zietlow asserts that, despite this knowledge, Paul Revere implemented the change in order to remedy the company's worsening financial situation. Plaintiffs assert, therefore, that the breach of the Agreements was knowing and willful. The Zietlow affidavit, inter alia, raises sufficient issues of material fact to defeat defendants' motion for summary judgment upon the c. 93A claim.
Zietlow, as a former general manager, is one of the plaintiffs in a separate action against these defendants (Worcester Superior Court #97-2149C through 97-2189C). In that action, he is represented by counsel for plaintiffs in the matter at bar. At oral argument, upon the instant motions, defendants suggested that Zietlow's affidavit be stricken as infected with a conflict of interest. Because the credibility of testimony is traditionally a question for the fact-finder, striking the affidavit at this stage of the proceedings seems both nuclear and premature.
CONCLUSION
Because each of the parties' assertions with respect to the absence of issues of material fact is unpersuasive, the parties' several motions for summary judgment will be denied.
ORDER
For the foregoing reasons, it is hereby ORDERED that:
1. Defendants' motion for summary judgment on plaintiffs' breach of contract claim and G.L.c. 93A claim is DENIED .
2. Plaintiffs' motion for partial summary judgment on their breach of contract claim is DENIED .
3. Plaintiffs' motion for summary judgment on defendants' conditional counterclaim is DENIED .
4. Defendants' motion for summary judgment on the exposure of the holding companies, Paul Revere Corporation and UnumProvident, is DENIED .
5. By agreement of the parties, plaintiffs' complaint against defendant Provident Life and Accident Insurance Company is DISMISSED .
_____________________________ Daniel F. Toomey Justice of the Superior Court