
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."                                         -2-                                          2                      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                                         -3-                                          3            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.                                           -4-                                          4                      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]                                         -5-                                          5            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                                         -6-                                          6            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.                                          -7-                                          7            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                                                                   ___                                            ____________________            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.                                         -8-                                          8            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.                                         -9-                                          9
