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Bailey v. CID Equity Capital VIII, LP

Superior Court of Massachusetts, Suffolk

September 27, 2018

Douglas BAILEY


          Brian A. Davis, Associate Justice of the Superior Court

          This is the latest in a long series of legal actions arising out of Astra Tech, Inc.’s ("Astra Tech") acquisition of Atlantic Components, Inc. ("Atlantis") in October 2007 (collectively, the "Astra Tech Litigation"). Appellate decisions in portions of the Astra Tech Litigation have been reported (see Bailey v. Astra Tech, Inc., 84 Mass.App.Ct. 590 (2013), and Bailey v. Astra Tech, Inc., 87 Mass.App.Ct. 1128, 2015 WL 3603974 (Mass.App.Ct., June 10, 2015) (Rule 1:28 Decision), and familiarity with the background facts set out in those decisions is presumed. The follow-on action involves a dispute between plaintiff Douglas Bailey ("Plaintiff" or "Mr. Bailey") and certain former Atlantic shareholders (the "CID Parties") over the proper apportionment of the significant attorneys fees and other expenses that Mr. Bailey, in his capacity as the agent for the former Atlantis shareholders, incurred in the Astra Tech Litigation. Mr. Bailey seeks over $1.7 million in legal fees and expenses from the CID Parties, claiming that he is entitled to that amount under the terms of the Merger Agreement between Astra Tech and Atlantis. The CID Parties, in turn, have counterclaimed against Mr. Bailey for the losses that they allegedly incurred as a result of Mr. Bailey’s aggressive and purportedly unreasonable actions in pursuing the Astra Tech Litigation. A jury trial of the parties’ respective claims and counterclaims is scheduled to begin on November 9, 2018.

         In ruling on the parties’ prior cross motions for summary judgment, this Court whittled down the factual issues to be resolved at the upcoming trial to the following:

1. Whether Mr. Bailey committed "gross negligence or willful misconduct" in pursuing legal claims against Astra Tech on behalf of Atlantis’ shareholders;
2. Whether any of the CID Parties ratified Mr. Bailey’s litigation activities for which he now seeks to recover attorneys fees and expenses;
3. If the CID Parties did not ratify Mr. Bailey’s litigation activities, what portion, if any, of the attorneys fees and expenses sought by Mr. Bailey were incurred with respect to services falling outside the scope of Mr. Bailey’s authority;[1] and
4. Whether Mr. Bailey acted "in the exercise of reasonable business judgment" in pursuing the course of action he took in the Astra Tech litigation.

         Summary Judgment Decision at 9, 10, and 12. The Court simultaneously ruled that the summary record established that Mr. Bailey "generally acted consistently with the advice he received" from his attorneys in the Astra Tech Litigation, who included his lead counsel in this case, Attorney Steven M. Cowley ("Attorney Cowley"), and that there was "no evidence" in the record "that Bailey was acting out of some economic self-interest in deciding to pursue aggressive litigation tactics rather than settling" the Astra Tech Litigation. Id. at 12.

          Attorney Cowley’s ongoing role as counsel for Mr. Bailey in both the Astra Tech Litigation and in this action has caused the CID Parties considerable upset. After making noises about taking action against Attorney Cowley in 2017, the CID Parties eventually moved to disqualify him and his law firm in May 2018 on the grounds that Attorney Cowley is a "material witness" and that his participation as counsel at the trial of this case would "taint[ ] the legal system." See Motion and Memorandum In Support of Motion for Disqualification of Steven M. Cowley as Counsel for Plaintiff, Douglas G. Bailey (Docket Entry No. 58.0). The Court denied the CID Parties’ motion for disqualification, after a hearing, on July 10, 2018, as both unmeritorious and untimely. See Order dated July 10, 2018. See also Superior Court Rule 3 ("The right of an attorney to appear for any party shall not be questioned by the opposite party, unless the objection be taken in writing within ten days after the appearance of such attorney" unless the court "permit[s] the objection to be taken later"). At the motion hearing, the Court further notified counsel for the CID Parties that, if they wish to call Attorney Cowley to testify at the upcoming trial, they first would have to "file an affirmative motion in limine" that contains a "thorough explanation as to what it is [the CID Parties] think [they] need from Mr. Cowley and why [they] think [they] can only get it from Mr. Cowley ..." Transcript of July 10, 2018, Superior Court Hearing at 30-32.

         Now before the Court is the CID Parties’ "Request for Determination that Defendants May Call Steven Cowley, Esq. as a Witness" at trial (the "Request," Docket Entry No. 61.0). As grounds for their Request, the CID Parties assert that "Mr. Cowley has relevant information," and that "no further justification is required" in order to call him as a witness at trial. Id. at 2. Significantly, the CID Parties do not claim that Attorney Cowley possesses unique information that the CID Parties cannot obtain from some other source. To the contrary, the CID Parties describe Attorney Cowley and Mr. Bailey as "two sides of the same coin," and they make it plain that they seek to examine Attorney Cowley at trial for the specific purpose of "[t]esting the credibility of Mr. Bailey’s defense." Id. at 8.

         Mr. Bailey, not surprisingly, opposes the CID Parties’ request to call his lead legal counsel, Attorney Cowley, as a witness at trial. He argues, among other things, that Attorney Cowley’s testimony is not relevant to any issue left to be decided at trial, and that the CID Parties "do not contend, let alone establish, that Attorney Cowley is a necessary witness." Plaintiff’s Opposition to the CID Defendants’ Request for Determination that Defendants May Call Steven Cowley, Esq. as a Witness (Docket Entry No. 62.0) at 4-8.

         The Court has reviewed the parties’ written submissions regarding the CID Parties’ Request to call Attorney Cowley as a witness at the upcoming trial of this action.[2] Upon consideration, the Court DENIES the Request for the reasons summarized briefly below.

         The Massachusetts Supreme Judicial Court ("SJC") has expressly warned that "[t]he practice of attempting to call opposing counsel as a witness during the course of trial to establish some fact that can be readily proved in a different manner should be discouraged." Kendall v. Atkins, 374 Mass. 320, 324 (1978) (internal quotation marks and citation omitted). To this end, the SJC has instructed that,

judges must carefully examine the evidence before them and should consider whether the information sought from the attorney-witness can be presented in a different manner, [or] whether the attorney-witness’s ...

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