It’s All A Matter Of Context

Today’s installment comes courtesy of the Massachusetts Appeals Court with its decision in Merrimack College v. KPMG LLP, No. 15-P-122.

For several years, KPMG performed annual audits for Merrimack College. At some point, serious financial irregularities in the College’s financial aid office were discovered relating to the 1998-2004 fiscal years that KPMG had failed to detect during its audits. The College then sued KPMG for malpractice.

KPMG moved to compel arbitration based upon an arbitration provision in the parties’ engagement letter for the 2005 fiscal year, which applied to disputes “arising out of or relating to” the engagement letter, the services provided thereunder, or to “any other services provided” by KPMG. Notwithstanding the fact that none of the parties’ engagement letters for the earlier fiscal years contained a similar provision, KPMG argued that its pre-2005 services fell within the scope of “any other services provided” within the meaning of the 2005 engagement letter, and, therefore, were subject to compulsory arbitration. The trial court denied KPMG’s motion.

KPMG fared no better in the Appeals Court. The Appeals Court conceded that KPMG’s interpretation was linguistically possible – if the phrase “any other services provided” was read in isolation – but noted that the meaning of contractual language is dependent upon context. When placed in the context of what it described as a wholly “forward-looking agreement,” the Court held that the “any other services provided” language applied only to services provided by KPMG after the 2005 engagement letter was executed. In so holding, the Court noted that, “The fact that KPMG’s preferred reading is linguistically possible does not make it a reasonable interpretation of the parties’ agreement.”

What struck me about the Court’s decision is how nicely the conclusion that a linguistically possible interpretation is not necessarily a reasonable one illuminates questions of contractual ambiguity. In Massachusetts (as well as in Maine and New Hampshire), the standard for determining whether contractual language is ambiguous is if it is reasonably susceptible of more than one interpretation. Although producing an alternative interpretation that is linguistically possible is a prerequisite to establishing ambiguity, it is not enough to meet the reasonable susceptibility threshold – that linguistically possible interpretation must also be plausible in light of the language of the rest of the contract. In other words, it is the context in which the language is used that ultimately determines whether a linguistically possible interpretation is a reasonable one.

A Desire To Say “Me Too” Is Not A Basis For Intervention As Of Right

Harvard University proudly proclaims that it considers race in its admissions decisions in order to increase “student body diversity.” Students for Fair Admissions, Inc. (“SFFA”) has a different view of Harvard’s admissions policy and filed a complaint challenging that policy as racially and ethnically discriminatory in violation of both Title VI of the Civil Rights Act of 1964 and the Equal Protection Clause of the Fourteenth Amendment. There is, however, one aspect of the litigation on which SFFA and Harvard see eye-to-eye – that a group of current and prospective Harvard students benefitted by Harvard’s current admissions policy (the “Students”) should not be permitted to intervene on behalf of Harvard’s position. The dispute over the Students’ effort to intervene culminated in Wednesday’s decision by the First Circuit in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, No. 15-1823.

The Students filed a motion under Fed.R.Civ.P. 24(a)(2) and (b) seeking to intervene both as a matter of right and by permission of the court. The District Court denied their motion, but did grant the Students leave to participate in the case as amici curiae. Wanting full party status for themselves, the Students appealed from the District Court’s denial of their motion seeking to intervene as a matter of right.

The First Circuit focused on the District Court’s finding that the Students failed to show that their interests were not adequately represented by an existing party, i.e., Harvard. Although characterizing the Student’s burden on this issue as “minimal,” the First Circuit nevertheless found the Students’ position to be wanting, noting that: (1) the Students and Harvard have the identical goal of defending Harvard’s right to consider race in its admissions decisions; (2) Harvard has plenty of resources with which to litigate; (3) the Students had offered no criticism of Harvard’s choice of counsel (a former U.S. Solicitor General); and (4) Harvard exhibited plenty of incentive to defend the case by going so far as to characterize it as a threat to its “most fundamental values.” To further drive home the point, the Court pointed out that the Students’ stated desire to highlight the effects of Harvard’s legacy policy (admissions preference given to relatives of alumni), which allegedly decreases diversity, would actually hinder, rather than help, Harvard’s defense of the case.

The takeaway: when the best you can do is agree with the arguments of an existing party fully capable of advancing them, you should reconsider filing that intervention motion.

A New Hampshire Court Cannot Vacate A Divorce Decree Simply Because The Parties Have Since Reconciled

It’s been five months since I last posted, but none of the opinions issued by the four courts that I follow – the Maine Law Court, the Massachusetts Supreme Judicial Court, the New Hampshire Supreme Court, and the First Circuit – have been striking my fancy of late. That streak ends today, courtesy of the New Hampshire Supreme Court’s decision in In the Matter of Terrie Harman and Thomas McCarron, No. 2015-0273. This decision simply presents a situation too extraordinary to pass up.

Terrie Harman and Thomas McCarron were married in 1989. Unfortunately, after 25 years the marriage deteriorated and the parties were granted an uncontested decree of divorce based on irreconcilable differences in July 2014. By March 2015, however, the parties had reconciled (apparently the differences were reconcilable after all), and they jointly filed a petition to vacate the divorce decree. The trial court denied the petition on the ground that it lacked authority to vacate the decree.

On appeal, Terrie, with Thomas’ agreement, argued that the trial court erred because New Hampshire courts have the general authority to set aside, vacate, modify, and amend their orders. The New Hampshire Supreme Court agreed that New Hampshire courts possess that general authority, and stated that it had previously held that a final divorce decree could be vacated when it had been procured by fraud, accident, or mistake. The problem for Terrie was that she had asserted none of those grounds; each of those grounds calls into question the validity of the decree, and Terrie asserted not that the divorce decree was invalid, but rather that she and Thomas had subsequently reconciled.

In affirming the trial court’s decision, the Supreme Court noted that in New Hampshire, divorce is purely statutory, and, as such, the courts have only those powers conferred upon them by statute. It concluded, therefore, that because there is no statute authorizing the trial court to vacate a final divorce decree on the ground of the parties’ subsequent reconciliation, the trial court correctly held that it had no authority to vacate the decree. The remedy for Terrie and Thomas is to re-marry.

Granted, it’s an unusual fact pattern, but Harman and McCarron is a good reminder that there are limits to what actions courts can take even when the litigants are in agreement.

First Things First – Interlocutory Appeals From Pre-Removal Preliminary Injunctions

The First Circuit has scratched my procedural nerd itch with its decision in Concordia Partners, LLC v. Pick, No. 14-1233, a decision in which the underlying facts are truly irrelevant. Concordia sued Pick in the Maine Superior Court and obtained a preliminary injunction against her in the process. Pick then removed the case to federal court and filed a notice of interlocutory appeal.

As the First Circuit pointed out, under 28 U.S.C. § 1292(a)(1), the court’s jurisdiction over appeals from interlocutory orders extends only to “orders of the district court.” Since the order she was appealing from was entered by the Maine Superior Court, Pick relied on 28 U.S.C. § 1450, which provides that “[w]henever any action is removed from a State court to a district court of the United States, … [a]ll injunctions, orders, and other proceedings had in such action prior to its removal shall remain in full force an effect until dissolved or modified by the district court.” In her view, Section 1450 essentially transformed the Maine Superior Court’s injunction into one issued by the U.S. District Court upon the filing of her notice of removal.

The First Circuit, however, was having none of it. It noted that the text of Section 1450 served only to preserve the status quo in a removed case, rather than to convert a state court order into a federal court order. In order to provide the court with the jurisdictional basis to hear Pick’s interlocutory appeal, the Court concluded, the District Court would have had to have entered an order re-affirming, enforcing, dissolving, or modifying the state court injunction – only then would the Court have been presented with an interlocutory order of a federal district court.

In short, when confronted with a state court preliminary injunction issued prior to removal, move the federal court to take some action of its own with respect to that injunction before filing your interlocutory appeal.

Forewarned Is Forearmed – The First Circuit Has No Patience For Sandbagging

Today’s installment comes to us courtesy of the First Circuit. Last week, the court issued its decision in Sparkle Hill, Inc. v. Interstate Mat Corp., No. 14-1618. The case itself is an action seeking statutory damages of $500 (to be trebled, of course) for the sending of an unsolicited fax advertisement in May of 2006 in violation of the federal Telephone Consumer Protection Act. I confess that I had no idea that: (a) Congress had created such a federal cause of action; or (b) anyone was really making much use of fax machines in 2006. What caught my attention about this case is that the opinion centers on one of the scourges of litigation practice – the practice by some lawyers of saving arguments for their reply briefs.

In Sparkle Hill, the plaintiff did not respond to the statute of limitations defense raised by the defendant’s summary judgment motion. The District Court took the plaintiff’s failure to respond as a concession, and entered summary judgment in the defendant’s favor, though not without also addressing the merits of the summary judgment defense.

On appeal, the plaintiff’s opening brief was devoted exclusively to the merits of the statute of limitations defense. The plaintiff did not address the District Court’s decision to hold it accountable for its lack of opposition to the defendant’s limitations defense – the actual, procedural basis for the ruling below – until its reply brief, when the defendant would not have an opportunity to respond.

Suffice it to say, the First Circuit was not impressed. After noting the court’s clear precedent that issues raised for the first time in an appellant’s reply brief are deemed waived, Judge Kayatta offered the following refreshingly blunt assessment: “Sandbagging of this type deprives the appellee of an opportunity to respond in writing on the issue. And any attempt to remedy that unfairness by allowing a second opposition, or sur-reply, brief can both increase costs for the appellee and result in considerable delay.” Amen, Judge.

The First Circuit clearly has no patience for sandbagging, and in Sparkle Hill basically told the Bar to “knock it off.” Ignore the lesson at your peril.

A Study In Judicial Restraint – The Maine Law Court’s Decision In Hartwell v. Town of Ogunquit

It took a while, but a court finally gave me something to write about today. What struck my fancy is the Law Court’s decision yesterday in Hartwell v. Town of Ogunquit, 2015 ME 51, a case involving an appeal from the Ogunquit Planning Board’s site plan and design review approval of an application to convert a garage into a lobster pound. The Planning Board approved the application. As aggrieved neighbors are wont to do, some abutting landowners sought judicial review.

Two facts are noteworthy for our purposes:  (1) not all of the information required by the Ogunquit Zoning Ordinance to be submitted for design review was provided by the applicant; and (2) the Ogunquit Zoning Ordinance does not authorize the Planning Board to waive any of the design review submission standards. The Superior Court, however, noted that Ogunquit had a longstanding practice of not enforcing every submission requirement listed in its Zoning Ordinance (and my experience is that this is by no means unique to Ogunquit). The Superior Court, however, vacated the Planning Board’s approval and was affirmed by the Law Court.

While cognizant of limited municipal resources and the difficulties often encountered by volunteer boards, the Law Court noted that the plain language of the Ordinance could not be ignored: “When a municipal ordinance requires an applicant to submit specific information, and the ordinance neither allows for the submission of written waiver requests nor includes a provision allowing a planning board to determine that certain requirements are not applicable, the planning board has no authority to disregard or waive the requirements of the ordinance.” Nor, it continued, do the courts have the authority to determine that the failure to submit required material is de minimis or harmless error. If towns do not wish to require strict compliance with every design review criterion in all cases, the Court noted that they should revisit their ordinances, and it provided a handful of examples of what could be done in that regard.

It is rather clear from Hartwell that the Law Court believes that there are some significant problems with our current system of administrative and judicial review of municipal land use decisions. It is equally clear that the Court is not about to rush into the breach, and is instead comfortable with leaving it to the political branches to work towards a solution.

Chutzpah Fails To Persuade Massachusetts Appeals Court

It’s been about two months since I last posted. Just when I was beginning to think that the courts were never going to offer up anything of interest (at least of interest to me), along came the Massachusetts Appeals Court this week with its decision in Celco Construction Corp. v. Town of Avon, No. 13-P-1880, to remind us that parties who create their own messes usually don’t get relief from the courts.

In 2008, the Town of Avon solicited bids to perform work on a water main extension project. Celco Construction’s bid assigned a unit price of $0.01 as its charge to remove each cubic yard of rock from the site despite the fact that its actual cost to remove the rock was much higher. Celco based its bid on its belief that the amount of rock on site would be far less than the expressly unverified estimate contained in the bid documents and that its low unit price would give it a competitive advantage versus bidders assigning unit prices approximating their actual costs.

Initially, the gamble appeared to pay off – Celco was the successful bidder. Unfortunately, for Celco, the amount of rock on site ended up exceeding the estimate by over 1,500 cubic yards. When the Town rejected its request that the unit price for rock removal be increased from $0.01 to $220 per cubic yard, Celco sued.

Celco’s claim was for “equitable adjustment.” Under Mass. Gen. Laws ch. 30, § 39N, every public construction contract must include a provision allowing either party to request an adjustment in the contract price if, during the course of the work, it is discovered that “the actual subsurface or latent physical conditions encountered at the site differ substantially or materially from those shown on the plans or indicated in the contract documents.” Such a provision allows the contracting authority to obtain bids stripped of risk premiums used as hedges, while assuring bidders that they will be compensated in the event that subsurface or latent conditions impose greater costs than reflected in the bid documents.

Like the Superior Court, the Appeals Court had little difficulty sending Celco packing. The bid documents specifically stated that the amount of rock on site was “indeterminate,” and that the unverified estimate contained therein was solely for the purpose of allowing comparison of the submitted bids. Nor did Celco even suggest that the nature of the rock or the means and cost to remove it differed in any way from what as anticipated in the contract documents.

Most importantly, the court took Celco to task for the chutzpah of its argument, noting that it “defie[d] logic” for Celco to invoke equity as the basis for an adjustment to the contract price when its purported need for an adjustment was the product of its own conscious decision to bid a unit price having no basis in reality in its (ultimately successful) effort to be the low bidder. Celco’s argument was akin to the Melendez brothers seeking leniency for the murders of their parents because they were orphans. Thankfully, common sense prevailed and the court held Celco to the consequences of its own decisions.