Opinion
CIVIL ACTION NO. 99-11349-JGD.
October 23, 2001
MEMORANDUM OF DECISION ON JUDGMENT RE 93A CLAIM
After the plaintiff-in-counterclaim John Tsagaroulis ("Mr. Tsagaroulis") presented his evidence in support of his Mass. Gen. L. ch. 93A claim against Federal Home Loan Mortgage Corp. ("Freddie Mac"), this court, on its own motion, elected to treat Freddie Mac's "Trial Memorandum Regarding Mass. Gen. L. ch. 93A" (Docket #44) as a motion for judgment on the pleadings and invited further briefing on the question whether Mr. Tsagaroulis has stated a claim as a matter of law. After consideration of the briefs of the parties and applicable case law, I find that Mr. Tsagaroulis may, as a matter of law, state a claim for a violation of Mass. Gen. L. ch. 93A based on the allegation that Freddie Mac improperly prosecuted a lawsuit against him. While the factual burden on Mr. Tsagaroulis is quite high, whether he has met that burden should not be decided until the trial is concluded.
Bringing and/or maintaining a lawsuit in spite of evidence showing that such a claim is baseless or frivolous has been recognized as potentially supporting a claim for unfair and deceptive practices under ch. 93A by the First Circuit. See, e.g., Refuse Envtl. Sys., Inc. v. Indus. Servs. of America, Inc., 932 F.2d 37, 43 (1st Cir. 1991). The filing of a legal claim "which proves baseless" is not, however, in itself an unfair trade practice, the claim must have been brought with an "ulterior motive." Northeast Data Sys., Inc. v. McDonnell Douglas Computer Sys. Co., 986 F.2d 607, 611 (1st Cir. 1993) ("a claim of `abuse of process' with nothing more does not state a violation of Chapter 93A"). Even a claim "rooted more in hope than reason" will not support a ch. 93A violation unless the party's "actions were motivated by any pernicious purpose collateral to winning the suit and insuring payment of damages sustained." Quaker State Oil Ref. Corp. v. Garrity Oil Co., Inc., 884 F.2d 1510, 1514 (1st Cir. 1989). See also George Hyman Const. Co. v. Gateman, 16 F. Supp.2d 129, 162-63 (D.Mass. 1998) (more than "unprovable" allegations needed to support a violation of ch. 93A).
Freddie Mac argues that in filing the claim against Mr. Tsagaroulis, it was not acting in a business context, i.e., in "trade or commerce," and therefore cannot have violated ch. 93A. There is some support for the conclusion that litigation is not "trade or commerce," although as noted above the First Circuit and the District Court have concluded otherwise. Moreover, despite the general language in cases that the "mere filing of litigation does not of itself constitute `trade or commerce'" courts recognize that the more appropriate inquiry is whether the allegedly baseless and deceptive litigation arose out of or was related to a pre-existing business relationship. See First Enters., Ltd. v. Cooper, 425 Mass. 344, 347, 680 N.E.2d 1163, 1165 (1997) (citing Arthur D. Little, Inc. v. E. Cambridge Sav. Bank, 35 Mass. App. Ct. 734, 743, 625 N.E.2d 1383, 1387 (1994)).
E.g., Savers Prop. Cas. Ins. Co., No. 96-3460 BLS, 2000 WL 33223227 (Mass.Super. Oct. 16, 2000).
For example, in First Enterprises, the court ruled that a lawyer could not be found to have violated ch. 93A where he filed allegedly baseless claims arising out of an internal business dispute between shareholders. Significantly, the suit against the lawyer was dismissed because "the underlying transaction here was an internal dispute within the corporate structure," and thus did not relate to actions undertaken in "trade or commerce," not because pursuing litigation could never constitute unfair or deceptive acts or practices. 425 Mass. at 347-48, 680 N.E.2d at 1165-66.Arthur D. Little, Inc. ("ADL") arose out of a bank's handling of a trustee process proceeding brought as part of ADL's attempt to collect a debt from a third party. ADL's 93A claim was dismissed because "[n]o commercial relationship ever existed between the parties; their only contact occurred in the context of this litigation." 35 Mass. App. Ct. at 743, 625 N.E.2d at 1389. In cases where the challenged litigation itself arose out of a relationship which could support a 93A claim, claims that pursuing the litigation violated ch. 93A have been allowed to proceed.See, e.g., Greater Boston Legal Servs., Inc. v. Haddad, No. 93-5961, 1999 WL 513885, at *2 (Mass.Super. May 3, 1999) (summary judgment denied on ch. 93A claim relating to acts occurring in the context of litigation where parties had an underlying commercial relationship out of which the litigation arose); Turner Bros. Constr., Inc. v. Tr. of Nichols Coll., No. 92-00415, 1995 WL 809508 (Mass.Super. May 31, 1995), aff'd without opinion, 43 Mass. App. Ct. 1102, 680 N.E.2d 954 (1997) (ch. 93A claim premised on conduct related to arbitration proceedings allowed to proceed where parties had a business relationship and arbitration was about claims arising during the business relationship).
In the instant case, Freddie Mac's suit against Mr. Tsagaroulis asserted claims for indemnification based on the terms of the parties' agreement, implied indemnification and contribution. It is clear that the first count based on the parties' contract arises out of their business relationship. Freddie Mac does not dispute that it was acting as part of its business, which it defined as "all phases of mortgage investment," when it contracted with Mr. Tsagaroulis, and was therefore engaged in "trade or commerce." The fact that, as Freddie Mac argues, it "is not engaged in the `business' of litigation" does not end the inquiry. Since the litigation about which Mr. Tsagaroulis complains stems from the parties' business relationship, the claim of unfair and deceptive acts or practices in connection with the conduct of the litigation states a claim as a matter of law.
ORDER
For the reasons detailed herein, the jury-waived trial of the ch. 93A claim is to proceed. Mr. Tsagaroulis has put in all of his evidence. In accordance with prior orders of this court, Freddie Mac may cross-examine as to the amount of attorneys' fees being claimed, and can put on its evidence.
A status conference will be held on October 30, 2001 at 12:00 noon to discuss scheduling of the balance of the trial and related case management issues.