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Pass Corp. v. The Travelers Companies, Inc.

Appeals Court of Massachusetts, Suffolk

November 10, 2016

PASS CORPORATION
v.
THE TRAVELERS COMPANIES, INC., & another. [1]

          Heard: February 24, 2016.

         Civil action commenced in the Superior Court Department on June 7, 2010.

         Motions for summary judgment were heard by Janet L. Sanders, J., and the case was heard by her.

          Anil Madan for the plaintiff.

          Michael F. Aylward for the defendants.

          Present: Katzmann, Maldonado, & Blake, JJ.[2]

          BLAKE, J.

         At issue in the present case is whether the defendant insurance companies, The Travelers Companies, Inc., and Travelers Property Casualty Company of America (collectively Travelers), breached their duties to defend, indemnify, and settle in good faith, as to their insured, the plaintiff, Rass Corporation (Rass). The underlying action, arising out of Rass's decision to cut the underlying plaintiff out of its food marketing and distribution business, alleged that Rass's principal had committed trade libel, defamation, and misappropriation of trade secrets. After a three-month delay in notice, Travelers agreed to defend the case from that point forward under a reservation of rights that disclaimed coverage of the trade secrets claim, and subject to Traveler's limit on defense counsel's hourly rate. Rass ultimately settled the case on its own, refusing the insurer's offer to contribute a nominal amount conditioned on a waiver of Rass's right to seek indemnification. Thereafter, Rass commenced the present action against Travelers, seeking indemnity for the settlement and the reasonable attorney's fees left unpaid by Travelers, and alleging violations of G. L. c. 93A.

         Following a bench trial in the Superior Court, the judge allocated $140, 000 of the settlement to Travelers for indemnification of the covered claims and found that Travelers owed an additional $25, 000 in reasonable attorney's fees. The judge also found that Travelers had committed violations of G. L. c. 93A based on its commission of unfair claim settlement practices. In a summary judgment ruling issued prior to trial, the judge rejected Rass's claim for attorney's fees incurred prior to its notice of the underlying claim to Travelers. Before us now on the parties' cross-appeals are challenges to the judge's summary judgment ruling, the rulings as to coverage of the underlying claims, the judge's allocation of the settlement, and the finding of a c. 93A violation, along with the judge's related findings as to damages and attorney's fees. We affirm.

         Background.

         "We recite the essential facts found by the judge, which we accept 'unless they are clearly erroneous, ' . . . and which the parties do not challenge, supplemented by other undisputed information from the record." Boyle v. Zurich Am. Ins. Co., 472 Mass. 649, 651 (2015) (Boyle), quoting Weiler v. PortfolioScope, Inc., 469 Mass. 75, 81 (2014).

         1. The underlying lawsuit. Ranbir "Paul" Jaggi has been engaged for several years in the sale of food products through various corporate entities. In the early 1990s, Jaggi met Neera Tulshian, who is a food chemist based in New Jersey, through his contact with Nugen, a New Jersey food manufacturing plant. Tulshian, while she was at Nugen, and then through her own company, IAM International, Inc. (IAM), worked with Jaggi to convert Jaggi's Indian sauce recipes into a "shelf stable" product capable of being sold in jars at grocery stores without refrigeration. Over several years, the two had an arrangement whereby IAM would manufacture shelf-stable simmer sauces, and then deliver the product for distribution by Jaggi, through one of his own entities or a corporate parent. In 2004, Jaggi formed Rass, which is based in Sudbury. Between January of 2004, and January of 2008, Rass purchased $5, 445, 968.26 worth of simmer sauces from IAM, which it then sold to the Trader Joe's grocery store chain. Tulshian's personal tax returns indicate that her annual income during that period was about $400, 000.

         In 2007, Tulshian learned that Jaggi, with his brother-in-law, was in the process of setting up his own bottling line that could make the sauces. Knowing that his actions would cut Tulshian out of the business, Jaggi offered Tulshian a stake in the new plant. When that offer failed, Jaggi offered her $100, 000. She again refused. Anticipating a problem with his Trader Joe's account, on November 8, 2007, Jaggi wrote an electronic mail message (e-mail) to Cara Yokomizo, a buyer at Trader Joe's. It states, in relevant part:

"[T]here is an outside chance that the person who is handling this co-packing arrangement for us -- Ms. Neera Tulshian -- may approach you directly for making these sauces. Not only will that be unethical but illegal as well as these are our recipes created by us for Trader Joe's based on our frozen entree sauces. I do not foresee that happening but I wanted to give you a heads up to avoid any confusion."

         As anticipated, Tulshian contacted Yokomizo and informed her that she was the one who had developed the product. Yokomizo, in turn, told Jaggi that he should contact Tulshian and resolve the issue.

         Having learned of the e-mail to Trader Joe's, Tulshian retained an attorney, who sent Rass a demand letter dated December 7, 2007. After negotiation attempts between Jaggi and Tulshian failed, on January 9, 2008, IAM filed a complaint in the Superior Court of New Jersey alleging misappropriation of trade secrets, tortious interference with present and prospective economic advantage, and trade libel. Under the count entitled trade libel, the complaint alleges that Jaggi's statements in the e-mail "constitute trade libel, trade disparagement, and defamation." Jaggi responded by seeking the advice of his own local Massachusetts attorney, and by hiring New Jersey attorney Emery Mishky to defend the IAM lawsuit. Mishky agreed to defend the case at a rate of $275 per hour.

         At all relevant times, Rass was insured by a commercial general liability policy issued by Travelers. The policy covered, among other things, claims against the insured for "[o]ral, written, or electronic publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products, or services." The policy also required Travelers "to defend the insured against any 'suit' seeking [covered] damages."

         On March 6, 2008, Rass notified Travelers of the New Jersey lawsuit. A Travelers senior technical specialist, John Banks, responded by letter dated March 19, 2008. It states that "a potential for coverage" exists under the policy, and that Travelers agrees to defend Rass subject to a reservation of its rights "to deny indemnification for any alleged acts which do not fall within the enumerated personal injury offense ... or [fall within] any of the exclusions [listed in the policy]." In the letter, Travelers also disclaimed coverage for any claim related to the trade secrets allegations, but acknowledged that the claims based on the e-mail to Trader Joe's obligated Travelers to defend the action. Finally, Travelers agreed to have Mishky remain on the case, but unilaterally set a rate of payment of $200 per hour.

         Throughout the duration of the underlying case, Mishky regularly reported to the Travelers personnel assigned to the case, including Banks; Amy Baker, a claims adjustor in Travelers's major case unit specializing in business torts; and John Scott, an attorney from a New Jersey law firm retained as independent monitoring counsel. Despite Tulshian's claim of $675, 000 in lost profits and Baker's acknowledgment that no policy exclusions applied, Mishky's initial assessment of IAM's case was that Travelers had minimal exposure. As for the claims arising out of the e-mail, Mishky applied a common-law defamation analysis. The pretrial reports and notes indicate that he thought it was defensible on the grounds that the e-mail was limited in its publication and expressed only Jaggi's opinion, and because a qualified privilege could apply to the statements made. On the trade secrets claim, Mishky pointed to the fact that Tulshian had done nothing to protect any trade secret she claimed as hers, and the fact that the sauces were made from generic Punjabi recipes that Jaggi had supplied to Tulshian. Nevertheless, as the case neared a July 21, 2009, trial date, in a report dated May 20, 2009, Mishky predicted a possible verdict of $100, 000 to $500, 000, recommended a settlement range of $100, 000 to $150, 000, and indicated that the chance of a defense verdict was fifty to seventy-five percent.

         On the July 21, 2009, trial date IAM dropped its demand from $675, 000 to $200, 000, and then to $175, 000. Extensive settlement discussions occurred between IAM and Rass, with communications to Travelers inquiring about contribution. Travelers first offered $10, 000 on the condition that Rass waive its right to dispute Mishky's reasonable hourly rate. When that offer was rejected, Travelers made a second offer of $20, 000 on the condition that Rass waive its right to seek indemnification under the policy. Rass likewise rejected that offer and, not wanting to lose the opportunity to avoid trial, settled the case for $175, 000 without any contribution from Travelers.

         2. The present action.

         Having settled the New Jersey case on its own, Rass filed a complaint in the Superior Court on June 7, 2010, alleging that Travelers had breached its contract and had committed unfair or deceptive acts in violation of G. L. c. 93A, § 2.[3] Following discovery, Rass moved for partial summary judgment as to liability on the settlement and attorney's fees, while Travelers sought a summary judgment ruling limited to its obligation to pay the attorney's fees Rass incurred prior to its March 6, 2008, notice to Travelers of the underlying claim. The judge allowed Travelers's motion and denied Rass's.

         A bench trial was held over multiple days in October and November, 2012, at which Jaggi, Baker, and Mishky testified. Rass also hired New Jersey attorney Gregg Paradise, a specialist in intellectual property law, who testified as an expert for Rass on the reasonableness of the settlement and provided his opinion of the viability of IAM's claims under New Jersey law. The focus of Paradise's and Mishky's testimony was that Rass's settlement was reasonable because IAM had a viable trade disparagement claim[4] based on the contents of the e-mail. Counsel for Travelers and Baker, the major case unit adjuster, who is also an attorney, disputed that a trade disparagement claim would be covered under Jaggi's policy because the e-mail did not "disparage[] a person's or organization's goods, products, or services" as provided in the policy language but, rather, disparaged Tulshian herself, or her ownership of the sauces. Counsel for Travelers also emphasized the absence of any written records generated prior to the settlement discussing, or even mentioning, trade disparagement.

         Looking at the facts known to the parties at the time of the settlement, the judge concluded that "Rass has proved by a preponderance of the evidence that the settlement in large part (but not entirely) reflected Rass's exposure to plaintiffs' claims for lost profits due to the Trader Joe's e-mail and that these claims were covered." The judge accordingly found that Travelers had breached its contractual duties by failing to contribute $140, 000 to the $175, 000 settlement. On the attorney's fees issue, the judge found that there was little dispute that Mishky's hourly rate of $275 was reasonable, and awarded Rass damages for the difference that Travelers had failed to pay, which amounted to $25, 000.

         Assessing Travelers's conduct in relation to the requirements of G. L. c. 176D, § 3(9), the judge found Travelers's failure to contribute to the settlement, and its failure to pay Mishky's reasonable attorney fees, to be unfair and unreasonable in the face of the facts known to it and reasonably available at the time and, therefore, to constitute a violation of G. L. c. 93A. Rass subsequently requested attorney's fees totaling $676, 302.77. The judge awarded half that figure, criticizing counsel for his obfuscating trial tactics and noting that he had repeatedly filed frivolous and unnecessary motions. After incurring more legal expenses for work related to bringing the case to final judgment, Rass submitted an additional motion for an updated fee award seeking another $29, 997.94. The judge summarily denied the motion, citing the reasoning stated in Travelers's opposition. These appeals followed. Additional facts will be set forth as necessary.

         Discussion.

         1. Standa ...


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