Opinion
19-P-38
04-23-2020
PRISM GROUP, INC. v. SLINGSHOT TECHNOLOGIES CORPORATION & others.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Defendant Slingshot Technologies Corporation (Slingshot) appeals from an amended judgment in favor of the plaintiff, Prism Group, Inc. (Prism). Following the jury-waived trial, a judge of the Superior Court allowed Prism's motion to amend the pleadings to conform to the evidence presented at trial, adding claims for breaches of two contracts not pleaded in the original complaint. The judge subsequently found in Prism's favor on both of those claims. The sole issue presented is whether the judge erred in allowing Prism's motion to amend. While we discern no abuse of discretion in the allowance of that motion, we conclude that Slingshot should have been given the opportunity, as it requested, to present additional evidence. Consequently, we vacate the judgment and remand the case for further proceedings.
Background. "We summarize the facts as found by the judge, supplemented by undisputed information from the record, with certain facts reserved for later discussion." Schultz v. Tilley, 91 Mass. App. Ct. 539, 540 (2017). The president of Slingshot, Adam Pasternack, and the president of Prism, Nick Baran, have had a business relationship since at least August 2004. At that time, Pasternack was the president of another company named Rocket Messaging, Inc. (Rocket), which provided outbound fax broadcasting services. In 2004, Rocket entered into an agreement with Prism to pay approximately a fifty-five to sixty percent commission for fax broadcast customers that Prism procured for Rocket (the Rocket agreement). Prism referred a number of customers to Rocket in 2004 and 2005 and was paid pursuant to the Rocket agreement.
The Rocket agreement required Rocket to pay Prism the difference between the retail rate per faxed page that Rocket charged and "the wholesale rate of $.0155 per [faxed] page." This aspect of the Rocket agreement corresponds to the fifty-five to sixty percent commission mentioned, supra. The fax broadcast customers that Prism brought to Rocket pursuant to this agreement would typically broadcast a single page of marketing related content to numerous fax numbers.
In early 2006, Baran, on behalf of Prism, contacted Pasternack regarding a new customer, Curaspan, Inc. (Curaspan). Curaspan was a health services company. Its need for fax services pertained to the transmission of protected health care information to various parties. Nearly all communications in response to Baran from Pasternack concerning Curaspan appeared under the Slingshot logo. Slingshot agreed to pay Prism a commission of fifteen percent on Curaspan's invoices. About seven years later, in 2013, Prism brought another health services company named eClinical Works (eClinical) to Slingshot. Like Curaspan, eClinical also used Slingshot's fax services to send protected health care information to various parties. Slingshot agreed to pay Prism a ten percent commission on eClinical's invoices.
Slingshot reduced the amount of those commission payments over time.
Slingshot disputes that the eClinical agreement was for a flat ten percent commission and contends that the parties instead agreed to a sliding commission rate based on the retail rate per faxed page that Slingshot charged. This factual dispute does not impact our conclusion and is immaterial given that we remand for further proceedings, where it may be addressed.
Eventually, Slingshot stopped making the Curaspan and eClinical commission payments to Prism. Prism then filed suit against Slingshot and Rocket for, among other claims, breach of contract. Specifically, as alleged in the complaint, the breach of contract claim was based on the Rocket agreement. Prism alleged that Slingshot was the successor corporation or alter ego of Rocket. Summary judgment entered in Slingshot's favor on the theory that it was liable as a successor corporation, and the case proceeded to trial on the theory that Slingshot was liable for breach of contract as Rocket's alter ego.
No arguments are raised with respect to the other claims on appeal.
Prism's theory of recovery was that Slingshot was bound by the higher commission rate in the Rocket agreement because Prism never voluntarily agreed to the lower commission rates in the Curaspan and eClinical agreements.
At the start of trial, the issue whether Prism's complaint also alleged breaches of the Curaspan and eClinical agreements arose. Counsel for Slingshot maintained that neither one of those contracts was at issue if only because, as stated in opening arguments, those contracts "were never [pleaded] in this case." Regardless, Baran testified extensively about the Curaspan and eClinical agreements during Prism's case-in-chief. The issue arose again when Slingshot moved for a directed verdict and the judge noted that "there [were] various theories at play," including whether Prism had a "separate and distinct contractual claim against Slingshot based on an agreement other than the [Rocket agreement]." However, the judge explicitly declined to address the issue at that time, noting that he would give Prism an opportunity to persuade him that its complaint alleged breaches of the Curaspan and eClinical agreements.
After the close of all evidence, Prism submitted a motion pursuant to Mass. R. Civ. P. 15 (b), 365 Mass. 761 (1974), to amend its pleadings to conform to the evidence to allege breaches of the Curaspan and eClinical agreements. The motion was allowed. In a written memorandum and order, the judge explained that the parties were aware throughout discovery and at trial that the Curaspan and eClinical agreements existed between Slingshot and Prism, independent of the Rocket agreement, and that Slingshot was not prejudiced by the allowance of Prism's motion to amend the complaint to conform to the evidence presented on those agreements. On the issue of liability, the judge ultimately found that Slingshot was not liable under the Rocket agreement but that it was liable under the newly pleaded Curaspan and eClinical agreements. The judge explained that Baran, on behalf of Prism, knew when he negotiated the Curaspan and eClinical agreements that Prism was not entitled to the commission rate established in the Rocket agreement and that the Curaspan and eClinical agreements governed instead. The judge found that Prism performed its obligations under the Curaspan and eClinical agreements and that Slingshot breached those agreements when it failed to pay Prism the agreed-upon commissions for its services.
Slingshot argues that the judge abused his discretion in allowing Prism's motion to amend its pleadings to conform to the evidence because Slingshot never consented, either explicitly or implicitly, to a trial on Prism's claims for breaches of the Curaspan and eClinical agreements. Slingshot primarily relies on the fact that it asserted, throughout trial, that Prism never pleaded breaches of those agreements.
Slingshot further argues that Prism's motion to amend should have been denied on the bases of prejudice to Slingshot and undue delay by Prism.
Discussion. Massachusetts Rule of Civil Procedure 15 (b), 365 Mass. 761 (1974), provides that "issues not raised by the pleadings [but] tried by express or implied consent of the parties ... shall be treated in all respects as if they had been raised in the pleadings." To find implied consent under rule 15 (b), "it must [a]t least ... appear that the parties understood [that] the evidence [was] aimed at the unpleaded issue" (quotations and citation omitted). Allen v. Allen, 86 Mass. App. Ct. 295, 304 (2014). Rule 15 (b) further provides as follows:
"If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence."
We are not persuaded that Slingshot's assertions throughout trial that Prism never pleaded breaches of the Curaspan and eClinical agreements are dispositive. Slingshot relies on the first sentence of rule 15 (b), which provides that issues not raised by the pleadings may be tried by express or implied consent. The rule further provides that a judge may allow the pleadings to be amended to conform to the evidence even if an objection is timely raised to evidence as outside the scope of the pleadings if the amendment would not prejudice the objecting party. See K.G.M. Custom Homes, Inc. v. Prosky, 468 Mass. 247, 257 n.17 (2014). See also Goulet v. Whitin Mach. Works, Inc., 399 Mass. 547, 550 n.3 (1987) ("It is well-settled that prejudice to the non-moving party is the touchstone for the denial of an amendment" [quotation and citation omitted] ).
Because Slingshot did raise a timely objection, the judge thus had to be satisfied that Slingshot would not be prejudiced in maintaining its defense upon the merits. See Mass. R. Civ. P. 15 (b), 365 Mass. 761 (1974). The judge explicitly found that Slingshot was not prejudiced because "the record [was] clear that the parties were well aware during the course of discovery, and certainly during the trial, that there were agreements between Slingshot and Prism, separate and distinct from the [Rocket agreement]." There was thus no basis to conclude that Slingshot would have been unable to defend against Prism's claims for breaches of the Curaspan and eClinical agreements by reason of late notice or surprise. See Novel Iron Works, Inc. v. Wexler Constr. Co., 26 Mass. App. Ct. 401, 407 n.4 (1988).
Slingshot did not object to the evidence of the Curaspan and eClinical agreements as outside the scope of the pleadings, ostensibly because that evidence supported Slingshot's defense that it was not liable under the Rocket agreement. Regardless, Slingshot did make clear that it objected to any use of the Curaspan and eClinical agreements as a separate basis for liability.
In fact, Slingshot did present some evidence to defend against Prism's claims for breaches of the Curaspan and eClinical agreements, such as evidence that Slingshot was no longer obligated under the Curaspan agreement because Curaspan had been taken over by another company and evidence that Slingshot never agreed to pay Prism a flat ten percent commission on eClinical's invoices.
As the judge made clear that there would be no prejudice to Slingshot, we are also unpersuaded by Slingshot's arguments regarding undue delay. See Goulet, 399 Mass. at 552 (some factor in addition to delay usually required).
Here, however, the parties and the judge were also well aware that there was an issue as to whether Prism had alleged claims for breaches of the Curaspan and eClinical agreements and the judge explicitly declined to address that issue until after the close of all evidence. As a result, Slingshot was caught between trying to preserve its objection to the use of those agreements as a separate basis for liability and offering additional evidence in its defense on those putative claims. Slingshot emphasized this point to the judge when the motion was allowed, and made an offer of proof regarding the additional evidence that it would have introduced and the need for limited additional discovery. The amendment having been allowed on the premise that Slingshot would not be unfairly prejudiced, it was necessary to take additional steps that Slingshot showed were required to prevent such prejudice. In the context of this case, we conclude that it was an abuse of discretion for the judge not to allow Slingshot to obtain and present additional evidence in its defense on Prism's newly pleaded claims for breaches of the Curaspan and eClinical agreements. See Mass. R. Civ. P. 15 (b), 365 Mass. 761 (1974) (judge may "grant a continuance to enable the objecting party to meet ... evidence" regarding new claims).
This included more evidence on the issues discussed in note 9, supra.
Accordingly, we vacate the judgment and remand the case for further proceedings consistent with this memorandum and order.
Slingshot also argues that the judge made clearly erroneous factual findings with respect to Prism's claims for breaches of the Curaspan and eClinical agreements. Because we are remanding the case for further proceedings, we need not address this argument.
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So ordered.
Vacated and remanded