Opinion
SUCV201702494BLS1
05-22-2019
Psychemedics Corporation v. City of Boston
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Kaplan, Mitchell H., J.
MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
Mitchell H. Kaplan Justice of the Superior Court
Plaintiff Psychemedics Corporation (Psychemedics) developed a hair follicle test designed to detect illicit drug use. Beginning in 1998, the defendant City of Boston (City) and Psychemedics entered into a series of contracts pursuant to which the City purchased follicle testing services from Psychemedics for use by the Boston Police Department (BPD). The most recent of these contracts is still in force. The test is administered to BPD officers and recruits. Beginning in 2001, several BPD officers who tested positive for drugs and were terminated by the BPD challenged their termination in appeals to the Massachusetts Civil Service Commission (CSC) and in court. Six officers were successful before the CSC, and its decision was affirmed by the Superior Court and then the Appeals Court. In 2017, the City demanded indemnification from Psychemedics for the damages awarded these officers and the costs that the City incurred defending their claims under a provision that appears in all of the contracts. In response, Psychemedics filed this action seeking a declaration that the City is not entitled to indemnification with respect to damages or defense costs incurred as a result of the proceedings before the CSC or in court. The case is presently before the court on Psychemedics’ motion for summary judgment. For the reasons that follow, the motion is ALLOWED .
BACKGROUND
The following relevant facts are taken from the summary judgment record, read in the light most favorable to the City.
The first contract between Psychemedics and the City was executed in December 1998. Part of the contract was entitled "Amendment to Standard Contract." Article 7.3 of the Amendment provided:
The Contractor [Psychemedics] shall assume the defense of and hold the City, its officers, agents or employees, harmless from all suits and claims against them or any of them arising from any wrongful or negligent act or omission of [Psychemedics], its agents or employees in any way connected with performance under this Contract.
That provision appears in all of the contracts at issue in this action.
Beginning in 2008, a new indemnification provision was included in the parties’ contracts. Instead, of providing indemnification for claims arising out of Psychemedics’ "wrongful or negligent" conduct or omissions, the new language provided for indemnification for claims arising out of Psychemedics’ "tasks, functions, and responsibilities" under the contract. However, this action only addresses officer claims asserted prior to this change in the indemnification language.
Between 2001 and 2006, ten BPD officers were terminated after the hair samples that they submitted to Psychemedics tested positive for cocaine. They appealed their terminations to the CSC asserting that the hair test was not based on scientifically sound and generally accepted methodology, that the process used to collect and test their samples was flawed, and that therefore they were not properly terminated. Eight of these officers eventually joined in a separate civil-rights lawsuit against the City and the BPD, which alleged that the test had a disparate impact on people of color. This action was filed in the Superior Court in July 2005, but removed to federal court. See Jones et al. v. City of Boston et al., No. 1:05-cv-11832 (Jones ).
It may be noted that many other officers who tested positive submitted to rehabilitation, resigned or were terminated after disciplinary hearings and did not appeal to the CSC.
The first evidence of any request by the City for financial assistance in defending these claims appears in early 2006. The BPD, apparently orally, asked Psychemedics to share in the out-of-pocket costs to hire outside counsel to represent the City in Jones . Psychemedics declined to do that but offered to provide, at no charge, the services of its scientific personnel and in house legal staff.
Several months later, in June 2006, the City’s Corporate Counsel, William F. Sinnott, sent a letter to Psychemedics that stated in part:
Article 7.3 of the contract between the City of Boston and Psychemedics Corporation provides that Psychemedics "shall assume the defense of and hold the City ... harmless from all suits and claims against [it] arising from the wrongful or negligent act or omission of [Psychemedics]." The conduct alleged in the Plaintiffs’ Complaint is wrongful or negligent conduct on the part of Psychemedics Corporation. The City’s request that you share in the cost of defending this suit is a reasonable one in light of the alternative remedy provided for in the contract [i.e., defense/indemnification]. I hope you will reconsider your position.
Letter dated June 9, 2006 (emphasis added). Psychemedics again refused to share defense costs. As to Article 7.3, Psychemedics stated:
As a matter of course, plaintiffs typically allege negligence when their drug test result demonstrates the presence of an illegal substance. However, no reasonable interpretation of the Article 7.3 language would sweep in any allegation of negligence or wrongful act with respect to our drug tests ... [The] language [of the provision] only applies to instances in which an act or omission by Psychemedics is adjudicated to be wrongful or negligent, not merely claimed so.
Letter dated June 19, 2006 (emphasis added).
Psychemedics recently made clear that it has abandoned this interpretation of the indemnification provision.
Thereafter, in October 2007, the City, citing Article 7.3, filed a motion seeking leave to file a third-party complaint in Jones against Psychemedics for indemnification and contribution, which Psychemedics opposed. The motion was denied in December 2007.
Over the next decade, Psychemedics provided scientific support and expert witness affidavits and testimony in connection with both the Jones case and the CSC appeals, although the parties dispute the extent to which Psychemedics’ in-house legal team and its outside counsel assisted with Jones and the CSC appeals. There is no dispute that Psychemedics never assumed the defense of either matter.
Jones has been pending for 13 years. Summary judgment was twice entered in favor of the City, but reversed and remanded by the First Circuit Court of Appeals. A six-day bench trial occurred in 2018; it is still under advisement.
The CSC appeals have been completed. In April 2013, the CSC issued a lengthy decision, which upheld the terminations of four officers, but overturned the terminations of the other six officers. The CSC decision was appealed to the Superior Court and then the Appeals Court, where it was affirmed. See Thompson v. Civil Serv. Comm’n, 90 Mass.App.Ct. 462 (2016). As a result of the CSC’s decision, the City is now liable for back pay and benefits to the six officers who were ordered reinstated. The City has already made partial payments to some of the officers.
In February 2017, the City requested, apparently orally, indemnification of losses and expenses from Psychemedics in connection with Jones and the CSC appeals. The City reiterated its request by email on July 13, 2017, demanding "indemnification from Psychemedics in connection with its liability and costs [in the federal and CSC] matters, including anticipated settlement payments, pursuant to the City’s contracts with [Psychemedics], which the City maintains requires indemnification for all suits and claims against the City arising from any wrongful or negligent act or omission of Psychemedics, its agents, or employees." In response, Psychemedics filed this action in August 2017.
In its First Amended Complaint, Psychemedics seeks a declaration (Count One) that the City and the BPD are not entitled to indemnification by Psychemedics and that it has met its obligations to the City and the BPD to provide scientific and legal assistance. The First Amended Complaint also brings claims for breach of contract (Count Two), breach of the implied covenant of good faith and fair dealing (Count Three), quantum meruit (Count Four), unjust enrichment (Count Five), estoppel (Count Six), and detrimental reliance (Count Seven).
The City has not argued that Psychemedics has breached a duty to provide this assistance.
Psychemedics has moved for summary judgment, seeking the declaration requested in Count One. According to Psychemedics, a ruling in Psychemedics’ favor on Count One will render moot its remaining claims as well as the City’s counterclaims, and the entirety of the case will be resolved. The City has not disputed this assertion.
DISCUSSION
Summary judgment is granted when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Mass.R.Civ.P. 56(c); Cassesso v. Commissioner of Corr., 390 Mass. 419, 422 (1983). To prevail on a motion for summary judgment, the moving party must affirmatively demonstrate the absence of a triable issue, and that the summary judgment record entitles it to a judgment as a matter of law. Pederson v. Time, Inc., 404 Mass. 14, 16-17 (1989). "[A]ll evidentiary inferences must be resolved in favor of the [nonmoving party]." Boyd v. National R.R. Passenger Corp., 446 Mass. 540, 544 (2006). In this case, there do not appear to be any material facts in dispute, because the parties’ communications with one another regarding their respective obligations under Article 7.3 are brief and largely stated in writing. Rather, it is the application of these communications to the contract language under the scant legal precedent covering this topic that is at issue.
Psychemedics contends that because the City neither requested nor "allowed" Psychemedics to defend the CSC appeals and Jones, the City failed to satisfy the precondition necessary to enforce Pyschemedics’ obligations under Article 7.3. See Riva v. Ashland, Inc ., 2013 U.S. Dist. LEXIS 43596, at *66 (D.Mass. Mar. 26, 2013), citing Consolidated Hand-Method Lasting-Mach. Co. v. Bradley, 171 Mass. 127, 132 (1898) (Bradley ) ("[U]nder Massachusetts law, in general, once the duty to defend has been triggered, the indemnitee must allow the indemnitor to take over the defense"). The City, in turn, argues that once Psychemedics learned of the claims against the City in these matters, Psychemedics had an obligation affirmatively to assert its rights to assume the defense and that because Psychemedics failed to make such an assertion, the company remains obligated to indemnify the City.
At the hearing, the City stated that should it prevail in Jones, it will not seek to recover its defense costs in connection with that case.
There is surprisingly little case law addressing the obligations of the indemnitee when enforcing a contractual right to indemnification. Perhaps that is because indemnification provisions are frequently quite specific concerning the obligations of the indemnitee to give notice of a claim and tender the defense. Indeed, the court will take judicial notice that these indemnification provisions can be detailed and lengthy. Article 7.3 is, however, quite sparse in this regard. Indeed, a literal reading of its language is very difficult: "[Psychemedics] shall assume the defense of and hold the City ... harmless from all suits and claims against [it] arising from any wrongful or negligent act or omission of [Psychemedics]." It appears that the words "claim of," or their equivalent, belong between "any" and "wrongful." In their absence, it could be argued that the duty to defend arises only following some adjudication or admission that Psychemedics acted negligently or wrongfully. Neither party has asserted that interpretation in this litigation. In any event, Article 7.3 provides only a general obligation to assume the defense and hold harmless the indemnitee.
As noted above, the general counsel of Psychemedics suggested such an interpretation when it refused the City’s request to pay part of the cost of outside counsel in the Jones case in 2006. Psychemedics no longer offers that interpretation.
The few modern cases addressing this question cite Bradley, which was decided in 1898. There the question, as in the present case, was the sufficiency of the notice given the indemnitor, who was aware of the pendency of the law suit in question. The Supreme Judicial Court (SJC) held that:
Whatever may be the form of such notice, we think that, under the circumstances in which it is given, it should call upon the person notified to come in and defend the suit, or should offer him an opportunity to do so. The party notifying cannot insist upon retaining control of the defense, and yet hold the party notified bound by the result of the suit ... [T]he notice must be such in substance as to give the person notified the information that he is called upon to come in and defend the suit, or that he is given an opportunity to do so, and that if he does not defend it he will be held responsible for the result.171 Mass. at 132. See also Bowditch v. E.T. Slattery Co., 263 Mass. 496, 499 (1928) ("One who is liable as indemnitor ... is bound by the result of a suit against that other to establish the liability if he has been notified of the pendency of the suit, given opportunity to take charge of and defend it, and warned that he will be held responsible for the result if he does not defend it").
As the City points out, barring contrary contractual language, the requisite notice need not take the form of an explicit, written demand or request. Nonetheless, the indemnitee must make it clear that it is calling upon the indemnitor to take over the case or be responsible for an adverse outcome. Pasquale v. Shore, 343 Mass. 239 (1961) is a good example of the minimum required of the indemnitee. In Pasquale, a purchase and sale agreement for real estate and a pharmacy included a provision in which the Buyer represented that there was no broker involved in the sale and agreed to "indemnify the Sellers against any claim for brokerage for this sale, provided the Buyer is given the opportunity to defend against any such claim." Id. at 240 (internal quotations omitted). A broker thereafter made such a claim. The Seller’s brother-in-law, authorized to speak for her, then confronted the Buyer and said that the Seller "was getting sued ... and [Buyer] was liable for it"; "it was his duty to defend the ... claim"; and "it was up to him." Id. at 241 (internal quotation marks omitted). The Buyer took no action, and the Seller retained lawyers to defend the law suit. The Buyer met with the lawyers to discuss the suit and testified at trial. The case was tried and lost, and Seller then sued Buyer under the indemnity. There was never another oral or written demand made upon Buyer after the brother-in-law’s statements to him. The SJC held that while unequivocal written notice to the party to be charged is advisable: "Nevertheless, oral notice may serve ..., and no particular form of words is necessary if it is evident that the giver intended to charge the receiver therewith." Id. at 243 (internal quotation marks and citations omitted). While, once the case was in the Seller’s attorneys’ hands, "the attorneys gave no indication of expectation that [Buyer] would take over the defense or of offer to turn over the defense to him ...[,] [t]heir attitude ... [did] not destroy the force of the threshold talk between [brother-in-law and Buyer] as the jury could have found it." Id. at 245. See also Trustees of N.Y., N.H. & Hartford R.R. Co., 345 Mass. 727, 732-33 (1963). (although no demand or request was provided, "[t]he numerous communications between the [indemnitee], the [indemnitor], and the [indemnitor’s] insurance carrier, culminating in the latter’s denial of liability, make it clear that sufficient ‘notice and an opportunity to defend’ were given").
In the present case, there is simply no evidence that the City provided Psychemedics with either explicit or implicit demands that they provide a defense in Jones or the CSC appeals. Rather, it is undisputed that the City immediately assumed the defense in both matters and there is nothing in the summary judgment record indicating that the City discussed Psychemedics’ defense obligations under Article 7.3 before doing so. After the Jones case was filed and removed to federal court, the City’s request that Psychemedics share in defense costs demonstrated a clear intent to maintain continued control of the lawsuit. See Bradley, 171 Mass. at 132 (notice was not sufficient because it "implie[d] that the counsel of [the indemnitee] intended to retain the control of the defence of th[e] suit"). In fact, Sinnott’s June 2006 letter appears to be the first time that the City made reference to Article 7.3 and, rather than asking that Psychemedics assume the defense of Jones, the letter leveraged that contract provision as a means of arguing that Psychemedics should contribute towards defense costs: "The City’s request that you share in the cost of defending this suit is a reasonable one in light of the alternative remedy provided for in the contract." In other words, the letter suggests that the City could but was not demanding that Psychemedics take over the defense of Jones, which would be much more expensive for Psychemedics than sharing the cost of defense. Although, there are no magic words that an indemnitee must recite to invoke the obligation to defend, this letter cannot be read as an offer to allow Psychemedics to assume the defense. While it is understandable that the City might not want to turn over the defense of a sensitive case in which the City’s relationship with BPD police officers and their union is implicated, an opportunity to assume the defense must be clearly articulated in order to charge Psychemedics as indemnitor.
The City’s suggestion that it is Psychemedic’s obligation as indemnitor to come forward and insist upon the right to assume the defense is simply not supported by the Massachusetts case law, which although old is nonetheless binding on this court. Accordingly, the City cannot now seek indemnification from Psychemedics for the costs associated with the defense of Jones or the CSC appeals or charge Psychemedics with the adverse decision in six of the CSC appeals.
Because the Court finds that the City failed to provide Psychemedics with an opportunity to defend, the Court need not address Psychemedics’ alternative arguments based on waiver, judicial estoppel, and proximate cause. The Court notes, however, that none of these other arguments appear persuasive. In particular, the judicial estoppel argument seems odd. The fact that the City claimed that the hair test was reliable when defending the underlying litigation, does not preclude it from asserting that the test was ineffective after an adverse decision before the CSC results in a damages award against the City. Indeed, assume that the City had turned over the defense of the CSC appeals to Psychemedics. The City would still be the defendant and still argue the reliability of the test results, only the attorneys would be paid for and directed by Psychemedics. If the outcome of the appeals was the same, the City would still be left to sue Psychemedics if it did not assume responsibility for the damages. That is always the result in a products liability-type action when the defendant is held responsible for a loss that results from a product manufactured or used by another, even though it defended the product in the first case. See Gens v. Resolution Trust Corp., 112 F.3d 569, 572 (1st Cir. 1997) ("Judicial estoppel is not implicated unless the first forum accepted the legal or factual assertion alleged to be at odds with the position advanced in the current forum").
ORDER
For the forgoing reasons, the Plaintiff’s Motion for Summary Judgment is ALLOWED . Final Judgment shall enter under Count One of the Complaint declaring that Psychemedics does not have an obligation to indemnify the City under Article 7.3 for either the costs of defense or damages awarded in Jones or the CSC appeals. All other counts of the Complaint and Counterclaims are dismissed.