Mitrano v. Total

Opinion

USCA1 Opinion

United States Court of Appeals
                            United States Court of Appeals

                                For the First Circuit
                                For the First Circuit

                                 ____________________



        No. 95-1827



                                 FRANCIS P. MITRANO,



                                Plaintiff, Appellant,



                                          v.



                           TOTAL PHARMACEUTICAL CARE, INC.

                          AND ABBEY HEALTHCARE GROUP, INC.,



                                Defendants, Appellees.



                                 ____________________



                     APPEAL FROM THE UNITED STATES DISTRICT COURT



                          FOR THE DISTRICT OF MASSACHUSETTS



                       [Hon. Rya W. Zobel, U.S. District Judge]
                                           ___________________



                                 ____________________



                                        Before



                                  Cyr, Circuit Judge,
                                       _____________

                            Bownes, Senior Circuit Judge,
                                    ____________________

                              and Stahl, Circuit Judge.
                                         _____________



                                 ____________________


John Traficonte for appellant.
            _______________

            Joseph L.  Stanganelli, with whom David  H. Erichsen  and Hale and
            ______________________            __________________      ________

        Dorr, were on brief for appellees.
        ____


____________________



                                   February 9, 1996

                                 ____________________



Per Curiam.   Appellant Francis P. Mitrano  brought
                      Per Curiam.
                      __________



            this  diversity action against  his former employer, appellee



            Total    Pharmaceutical    Care,   Inc.    ("TPC"),   seeking



            indemnification  for litigation expenses as provided in TPC's



            corporate  bylaws.     Mitrano   also  sued  appellee   Abbey



            Healthcare Group,  Inc. ("Abbey"), which had  acquired TPC in



            1993  and affirmed at that time its obligation to honor TPC's



            indemnification  bylaw.   In  October  1994,  shareholders of



            Abbey  filed a  securities fraud  class action  in California



            against  Abbey and  various individuals,  including appellant



            Mitrano, a former  officer of appellee TPC.   Mitrano brought



            the  instant lawsuit  to recover  attorney fees  and expenses



            incurred in defending the securities class action, as well as



            the  fees and expenses incurred in this suit to establish his



            right to indemnification.



                      The   corporate   bylaws  of   TPC,   a  California



            corporation, provide  that TPC "shall  indemnify its Officers



            and  Directors to  the fullest  extent permitted by  law" and



            that TPC "is required to advance expenses to its Officers and



            Directors   as  incurred,  including   expenses  relating  to



            obtaining a  determination that  such Officers  and Directors



            are  entitled to  indemnification."   It  is undisputed  that



            Mitrano  is entitled to  indemnification only  for litigation



            expenses that are "reasonably incurred."


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To defend the securities class  action, Mitrano and



            four  other   individual   defendants  jointly   retained   a



            California  law  firm.    Mitrano,  who  worked  for  TPC  in



            Massachusetts and still resides there, also retained a Boston



            lawyer,  Curtis C.  Pfunder, as  personal counsel.   In  late



            October 1994, Mitrano made a written demand to  Abbey/TPC for



            advancement and indemnification  of his litigation  expenses.



            On  November   21,   1994,  Abbey/TPC   responded,   offering



            advancement  and indemnification, but  only if Mitrano agreed



            to,  inter  alia, (1)  forego  any  unrelated claims  against
                 _____  ____



            Abbey/TPC, (2)  refrain from  assisting others in  any action



            against Abbey/TPC, and (3) mortgage  his home as security for



            fee advances.   Mitrano  found these  conditions unacceptable



            and, on  November 30,  1994, had  attorney Pfunder  file this



            lawsuit.



                      After   Mitrano  filed  suit,  Abbey/TPC  took  the



            position that his retention  of Pfunder as individual counsel



            was  unreasonable and  informed Mitrano that  Abbey/TPC would



            not indemnify him  for the  Pfunder representation.   At  the



            same  time,  Abbey/TPC  also   softened  its  conditions  for



            indemnification  of the  fees  for the  California firm,  and



            eventually it paid those fees, which are not in dispute here.



            Several months later,  Abbey/TPC made an offer  to settle the



            dispute  over Pfunder's fees, but the offer fell far short of



            the  fees Mitrano had already incurred.  In February 1995, by


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agreement   Mitrano   was  dismissed   from   the  underlying



            securities class action.



                      In March  1995, after the  district judge's efforts



            to encourage  settlement  failed,  the  parties  filed  cross



            motions  for summary  judgment.   The only  issue on  summary



            judgment was the reasonableness of the fees that  Mitrano had



            incurred with Pfunder,  which at that point amounted to about



            $54,000.  The district judge found that it was reasonable for



            Mitrano  to  retain  Pfunder  as individual  counsel  in  the



            securities class action, and  that Pfunder's $195 hourly rate



            and the hours  expended in that action were  also reasonable.



            Accordingly,  the  district  judge  granted  partial  summary



            judgment for  Mitrano in  the  amount of  $22,170, which  the



            parties  agreed was  the amount  allocable to  the securities



            class action.  Neither party challenges those rulings.



                      The district judge, however, found that Mitrano was



            unreasonable in  prematurely filing the  instant lawsuit,  in



            failing to  negotiate with  Abbey/TPC over the  conditions it



            sought to impose, and in not  accepting the settlement offer.



            The judge,  therefore, granted  partial summary  judgment for



            Abbey/TPC, ruling that all the  fees and expenses incurred in



            this lawsuit were not recoverable because it was unreasonable



            to have filed suit in the first place.  Accordingly, it found



            Abbey/TPC  not  liable  on  the portion  of  Mitrano's  claim



            arising from this indemnification action.  


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The district judge also  ruled that Mitrano was not



            entitled  to prejudgment interest  under Massachusetts law on



            the $22,170 award because he had not actually paid those fees



            to Pfunder.



                      Mitrano appealed, asserting that the district court



            erred in (1) denying his claim for fees and expenses incurred



            in  this action to enforce  his right to indemnification, (2)



            denying  sub silentio his claim for fees and expenses in this
                     ___ ________



            appeal, and (3) denying prejudgment interest.



                      We review a grant  of summary judgment de  novo and
                                                             __  ____



            are  guided by  the same  criteria as  the district  court; a



            grant of summary judgment cannot  stand on appeal "unless the



            record discloses  no trialworthy  issue of material  fact and



            the moving party is entitled to judgment as a matter of law."



            Alexis v. McDonald's Restaurants of Mass., Inc., 67 F.3d 341,
            ______    _____________________________________



            346 (1st Cir. 1995).



                      We are  convinced that the district  judge erred in



            granting  summary judgment  for Abbey/TPC on  Mitrano's claim



            for  fees  and  expenses incurred  in  this  action.   First,



            Abbey/TPC does not challenge the district judge's ruling that



            it was obligated  to indemnify Mitrano for  Pfunder's fees in



            the  securities  class  action,  contrary to  its  unyielding



            position in  refusing Mitrano's demand.   Second, TPC's bylaw



            requires   advancement   and  indemnification   of  "expenses



            relating to  obtaining a  determination that [an  officer is]


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entitled  to indemnification,"  and that  requirement clearly



            applies  to this action.  Third, for several reasons, Mitrano



            was not unreasonable in  bringing this suit against Abbey/TPC



            to enforce his indemnification rights.  



                      Abbey/TPC  attempted  to  strong-arm  Mitrano  into



            accepting  onerous  conditions,  not requiring  the  relevant



            bylaw, in order to obtain his clear right to indemnification.



            Mitrano  was aware  that Abbey/TPC  had refused  to indemnify



            another former officer, who eventually won a judgment against



            Abbey/TPC    for    indemnification.       And,   Abbey/TPC's



            intransigence was  confirmed when,  only two weeks  after the



            suit  was  filed,  Abbey/TPC  announced  that  it  would  not



            indemnify Mitrano  for his  expenses for  individual counsel,



            expenses  which the  district  judge ultimately  found to  be



            reasonable.   Based on the  summary judgment record,  we hold



            not only that  the district judge  erred in granting  partial



            summary judgment  for Abbey/TPC, but also  that Mitrano acted



            reasonably, as a matter  of law, in prosecuting this  lawsuit



            to enforce  his right  to indemnification.   Consequently, we



            further  hold that  Abbey/TPC is  liable  to Mitrano  for the



            reasonable fees  and expenses incurred in  bringing this suit



            to  a conclusion,  including the fees  and expenses  for this



            appeal  and for proceedings on remand.  See Fed-Mart Corp. v.
                                                    ___ ______________



            Price,  168  Cal.  Rptr.  525,  533  (Cal.  Ct.   App.  1980)
            _____



            (indemnification authorized by California corporation statute


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covers fees for appeal as well as trial).1  Because       the



            district  court  found  Pfunder's  $195  hourly  rate  to  be



            reasonable,  on remand the only issue as to fees and expenses



            will  be  the time  reasonably  expended by  Pfunder  and the



            expenses reasonably  incurred in pursuing this  action to its



            conclusion  (including this  appeal  and  the proceedings  on



            remand).   See Flanders & Medeiros, Inc. v. Bogosian, 65 F.3d
                       ___ _________________________    ________



            198, 204  (1st  Cir. 1995)  (leaving intact  part of  summary



            judgment ruling while reversing and remanding other part).



                      The district judge also erred in denying  Mitrano's



            claim  for  prejudgment  interest,  which  Mitrano  expressly



            sought  in  his  complaint  and in  his  motion  for  summary



            judgment.   The  judge stated  in a  notation order:   "Since



            plaintiff has  not paid  the legal  fees in  issue he  is not
                               ____



            entitled  to prejudgment  interest."   The  legal premise  is



            correct under Massachusetts law, but the factual predicate --



            Mitrano's non-payment  -- cannot be resolved  on this summary



            judgment record.  We explain.



                      As an initial matter,  we agree with the choice-of-



            law  analysis  in Mitrano's  brief:    Massachusetts has  the



            highest  relative  interest  in   the  issue  of  prejudgment



            interest.  See Quaker State Oil Refining Corp. v. Garrity Oil
                       ___ _______________________________    ___________


____________________



            1.  The parties  agree that California law  governs the scope

            of TPC's indemnification obligation under its bylaws  because

            TPC is a California corporation. 



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Co.,  884 F.2d 1510, 1514-15 (1st Cir. 1989).  Abbey/TPC does
            ___



            not argue to the contrary.



                      The  substantive question  of Massachusetts  law is



            controlled by  Sterilite Corp.  v. Continental Cas.  Co., 494
                           _______________     _____________________



            N.E.2d  1008  (Mass.  1986).2    In  Sterilite,  the  Supreme
                                                 _________



            Judicial  Court   of  Massachusetts  held   that  prejudgment



            interest on an award of attorney fees ran from the date  that



            the  plaintiff paid the fees, not from  the date on which the



            insurer  breached its  duty to  defend the  insured.   Id. at
                                                                   ___



            1011.  The Court explained: 



                      The dates of  the payment of  the various

                      bills,  which  are  readily  discernible,

                      determine the points  at which  Sterilite

                      was  obliged  to  commit  sums  which  it

                      rightfully should not  have been  obliged

                      to commit.  Before those bills were paid,

                      Sterilite was not deprived  of the use of

                      those  sums.  Any other rule would result

                      in  a windfall  for Sterilite,  which the

                      Legislature did not intend.



            Id.  That explanation applies squarely to this case.
            ___



                      The  district  judge  was  incorrect,  however,  in



            finding on  the summary judgment  record that the  bills were



            not paid.   It is true that the record  does not indicate the



            dates  on which Mitrano paid  Pfunder's bills.  But Mitrano's



            affidavit states that he  was "forced to litigate and  pay my
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____________________



            2.  We note with displeasure that  Mitrano cited this case in

            his brief  without indicating  that its holding  was directly

            contrary  to his assertion that interest  should run from the

            date on which Abbey/TPC breached its obligation to indemnify,

            as opposed to the dates on which he paid Pfunder's bills.



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counsel" (emphasis added);  while that statement is  somewhat



            ambiguous,  it  is uncontroverted.    Nothing  in the  record



            indicates that  Mitrano did not  pay Pfunder.   Abbey/TPC has



            not argued that Mitrano  did not pay; instead it  argues that
                                         ___



            Mitrano failed to  establish that  he did pay  Pfunder.   But
                                                  ___



            that  is  a burden  that Mitrano  does  not bear  in opposing



            summary judgment.   Therefore, on remand,  the district court



            should determine  whether and when Mitrano  actually paid the



            reasonably  incurred   litigation  expenses,  both   for  the



            underlying securities class action as well  as this action to



            enforce  his  indemnification  right.    Prejudgment interest



            should be  awarded to Mitrano,  accruing from those  dates of



            payment in accordance with  Massachusetts General Laws c. 231



              6C.



                      Accordingly,  we  reverse   the  partial  grant  of
                                        _______



            summary  judgment for appellees Abbey and TPC on the issue of



            fees and expenses in this action, and we reverse the notation
                                                     _______



            order denying  Mitrano's claim for prejudgment  interest.  We



            remand for  further proceedings consistent with this opinion.
            ______



            Because  the costs of this  appeal will be  part of Mitrano's



            indemnification  award, no  costs are  awarded under  Fed. R.



            App. P. 39.


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