United States District Court, D. Massachusetts
For Helming Co., P.C., Plaintiff: Steven Joseph Bolotin, Morrison Mahoney LLP, Boston, MA.
For RTR Technologies, Inc., Defendant: James C. Donnelly, Jr., LEAD ATTORNEY, Mirick, O'Connell, DeMallie & Lougee, Worcester, MA; Amanda M. Baer, Mirick, O'Connell, DeMallie & Lougee, LLP, Westborough, MA.
MEMORANDUM AND ORDER RE: DEFENDANT'S MOTION TO DISMISS OR. IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT AND PLAINTIFF'S CROSS-MOTION FOR SUMMARY JUDGMENT (Dkt. Nos. 12 & 20)
MICHAEL A. PONSOR, United States District Judge.
On September 29, 2014, the court denied, in summary form, Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment (Dkt. No. 12) and allowed Plaintiff's Cross-Motion for Summary Judgment (Dkt. No. 20). (Mem. & Order 3, Dkt. No. 35.) This memorandum will set forth the court's rationale for these rulings in more detail.
Helming & Co., P.C. (" H& C" ), a Connecticut business, provided tax, business, and accounting services, including turnaround consulting services. RTR Technologies, Inc.(" RTR" ), a New York corporation with its principal place of business in Stockbridge, Massachusetts, supplied heating products and systems for rail and mass transit. The sole owner and president of RTR was Rosalie Berger; her husband, Craig Berger, was an employee of RTR.
In 2002, RTR applied for and received from the Small Business Administration
(" SBA" ) an Economic Injury Disaster Loan in the amount of $687,5000. In 2003, after failing to make payments on its loan, RTR " entered into a forbearance agreement with the SBA that required [RTR] to employ a turnaround manager to help it recover from its financial difficulties." RTR Techs., Inc. v. Helming, 815 F.Supp.2d 411, 416 (D. Mass. 2011). The first company hired by RTR discovered that, from 1994 until 2003, Ms. Berger had withdrawn from RTR's accounts sums totaling over $1 million. RTR's balance sheets carried these withdrawals as " loans to officer." Id. This first turnaround company identified these " loan to officer" transactions as compromising the financial health of the company and characterized Ms. Berger's management practices as a liability to RTR. Perhaps not surprisingly, Ms. Berger terminated RTR's contract with the first turnaround company and, thereafter, hired H& C to perform the same services. Id. at 417.
On September 29, 2003, RTR and H& C entered into an Engagement Agreement, which Ms. Berger signed in her capacity as president of RTR. (Engagement Agreement, Dkt. No. 1, Attach. 5, Ex. 1 (hereinafter " Agreement" ).) The contract contained the following indemnification provision:
[RTR] ... agree[s] to indemnify and hold harmless [H& C] to the full extent lawful against any and all losses, claims, damages, liabilities and cost and all actions in respect thereof and any reasonable legal or other expenses in giving testimony or furnishing documents in response to a subpoena or otherwise including the cost of investigating, preparing or defending any such action or claim, whether or not in connection with litigation in which H& C is a party, as and when incurred, directly or indirectly, caused by, relating to, based upon or arising out of (a) any transactions (as contemplated by the letter agreement dated as of September 25, 2003, as it may be amended from time to time...), or (b) HSC acting for [RTR] in the manner authorized and described in the Agreement including, without limitation, any act or omission by [RTR] in connection with its acceptance of or performance or non-performance of its obligations under the Agreement; provided, however, such indemnity agreement shall not apply to any such loss, claim, damage, liability or cost to the extent it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily and directly from the gross negligence, willful misconduct or unlawful activities of H& C. [RTR] also agrees that H& C shall not have any liability (whether direct or indirect, in contract or tort or otherwise) to [RTR] for or in connection with the engagement of H& C, except for any such liability for losses, claims, damages, liabilities or expenses that is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily and directly from H& C's gross negligence, willful misconduct or unlawful activities.
(Id. at 12 (App'x B)(emphasis added).) Additionally, the Agreement stated that Connecticut law would govern. (Id. at 8.)
Pursuant to the Agreement, H& C performed management advisory services for RTR, including assessing RTR's business operations and financial condition and initiating a management action plan. (Id. at 2.) H& C's initial analysis was to include reviewing the work of the previous turnaround company to ease the transition between service contracts. (Id. at 3.) H& C also pledged to review and validate the integrity of RTR's accounting measurements and forecasts. (Id. at 3 & 4.) If
requested, H& C also agreed to " render such other financial advisory services under separate written agreement(s)." (Id. at 5.)
Part of H& C s review of RTR included an evaluation of the " loan to officer" transactions previously identified by the first turnaround company as a " burden on RTR resources." RTR Techs., Inc., 815 F.Supp.2d at 416. After evaluating RTR's balance sheets and the Berger's personal finances, H& C concluded that the payments carried on RTR's books as " loan to officer" needed to be reclassified as income to the Bergers. Id. at 417. The parties apparently recognized that this process of reclassification would have tax ramifications for the Bergers. In February 2005, the parties signed another agreement wherein H& C agreed to provide tax-related services, including the preparation of amended tax returns. Id. at 417 n.2.
In November 2005, the parties signed a " Side letter dealing with Advances/Loans to Related Parties," in which H& C outlined its recommendations for correcting errors in RTR's books and updating its tax returns. (Dkt. No. 23, Attach. 3 at 44, Ex. D.) This side letter did not contain an indemnification provision. Following H& C's advice, RTR and the Bergers authorized H& C to amend their tax returns to reflect the previous " loan to officer" transfers as income to the Bergers. This change resulted ...