MEMORANDUM AND ORDER
This is one of several cases resulting from the bankruptcy ofBoston Regional Medical Center, Inc. ("BRMC"). In thisproceeding, the Official Committee of Unsecured Creditors for theBankruptcy Estate of BRMC (the "Committee" or "CredComm") allegescorporate mismanagement and malfeasance by former members ofBRMC's Board of Trustees (the "Board Members" or "TrusteeDefendants") as well BRMC's former president and Chief ExecutiveOfficer, Charles Ricks, and former vice-president and ChiefFinancial Officer, Frances Crunk. The Committee seeks damages forbreach of the duties of loyalty, candor, good faith, and duecare. It also seeks damages for breach of contract against Ricksand Crunk. In addition, the Committee alleges that the Atlantic Adventist HealthcareCorporation ("AAHC") aided and abetted the other defendants intheir various breaches of fiduciary duty to BRMC and receivedseveral million dollars in assets in a manner that was fraudulentas to BRMC's creditors. AAHC, which is a non-profit corporationorganized under the laws of Massachusetts, counterclaimed for adeclaratory judgment establishing that any tort liability it hasto the Committee is capped at $20,000 under M.G.L. ch.231, § 85K.
Now before the court are three motions for judgment on thepleadings filed by AAHC, Ricks and Crunk, respectively, and threemotions for summary judgment filed by the Trustee defendants. Forthe reasons described below, the court is allowing AAHC's motionin part and denying it in part, allowing the motions of theTrustee defendants, and denying the motions of Ricks and Crunk.
The court concludes that it has subject matter jurisdictionover this case and that the Attorney General of Massachusettsdoes not have exclusive standing to sue for an alleged breach offiduciary duty to BRMC. Rather, BRMC could have brought a suitfor breach of fiduciary duty before it declared bankruptcy andthat cause of action passed to BRMC's bankruptcy estate as aresult of the bankruptcy filing. However, as described below,there is a serious question as to whether the Committee, asopposed to BRMC's bankruptcy estate itself, is properly theplaintiff in this case. The court is ordering the Committee toaddress this question further. II. FACTUAL BACKGROUND
For purposes of the motions for judgment on the pleadings, allmaterial allegations in the complaint must be credited in thelight most favorable to the Committee. See United States v.United States Currency, $81,000, 189 F.3d 28, 33 (1st Cir.1999). In analyzing the motions for summary judgment, "the courtmust look at the record in the light most favorable to the partyopposing the motion and must indulge all inferences favorable tothat party." Stepanischen v. Merchants Despatch Transp. Corp.,722 F.2d 922, 928 (1st Cir. 1983); Attallah v. United States,955 F.2d 776, 779 (1st Cir. 1992); Medina-Munoz v. R.J. ReynoldsTobacco Co., 896 F.2d 5, 8 (1st Cir. 1990). With one exception,however, the arguments pressed by the defendants at this stage ofthe litigation do not depend on the strength of the plaintiff'sevidence. Rather, they present pure questions of law.1Consequently, the following statement of facts is applicable toboth sets of motions.
A. THE PARTIES
BRMC is a non-profit corporation organized under the laws ofMassachusetts. It was originally incorporated in 1899. It wasfounded by and has continuously had close ties to members of theSeventh Day Adventist Church ("the Church"). BRMC had, for some time, been operating an acute-care hospital in Stoneham,Massachusetts. Ricks was BRMC's president and Chief ExecutiveOfficer. Crunk was its vice-president and Chief FinancialOfficer. Both Ricks and Crunk received compensation for theirservices. In addition to his position as an officer, Ricks wasalso a member of BRMC's Board of Trustees. Crunk was not a memberof the Board. Ricks and Crunk are represented by separatecounsel.
The Trustee defendants have formed three groups to defendagainst the Committee's suit. Trustees Charles Case, HaroldGrayson, Theodore Jones, Leon Thomassian and Halvard Thomsen arereferred to as "the Case Defendants". Trustees Jon Asgeirsson,Mark Hughes, Randy Lapides, Robert Leone, Jose Marcal, KimO'Neil, and Paul Raslavicus are referred to as "the HughesDefendants". Trustee Laura Hogan has chosen separaterepresentation. The Case Defendants, the Hughes Defendants andHogan never received compensation for their services as membersof BRMC's Board of Trustees.
The final defendant is AAHC. AAHC is a Massachusettscorporation organized to coordinate activities among charitableinstitutions affiliated with the Church. "The specific purpose of[AAHC] is to accomplish the goals and objectives of the Church inproviding the optimum level of health and medical care to thegeneral public." AAHC's Appx. at 87. Members of AAHC's Board ofDirectors were the sole members of BRMC. Unlike a for-profitcorporation, which has shareholders, a not-for-profit corporation in Massachusetts may, but is not required to, have members. TheAAHC board members also sat on BRMC's Board of Trustees. They areRicks and the Case Defendants.
According to its Articles of Organization, BRMC has severalpurposes. They include: (1) "founding a hospital or charitableasylum within the State of Massachusetts"; (2) "the care andrelief of indigent or other sick or infirm persons. . . ."; (3)"to aid and assist [AAHC] in furtherance of its charitable andcorporate purposes, including operation and harmony with thestandards, goals and methods established by the Seventh-dayAdventist Church"; (4) distributing assets to Church affiliatesonce creditors are paid in the event of dissolution orliquidation; and (5) "to engage in educational activities for thebenefit of the community served by the Corporation." Bennett Aff.Ex. 3.
B. THE EVENTS LEADING UP TO BRMC'S BANKRUPTCY
At least as of 1994, BRMC had been experiencing significantoperating losses and cash flow problems. The Committee allegesthat BRMC has been insolvent since at least 1996. In 1997, Ricksbegan to search for a financial partner to save BRMC from whatseemed to be certain demise as a standalone entity. After anaborted attempt to sell a substantial portion of its assets toDoctors Community Healthcare Corporation ("DCHC"), BRMC declaredbankruptcy. The DCHC asset purchase agreement was to be financedby National Century Financial Enterprises ("NCFE"). NCFE and itspresident, Lance Poulsen, owned a substantial stake in DCHC. The plaintiff alleges that Ricks rejected the advice of hisoutside advisers and pursued the DCHC offer rather than analternate offer from Tenet Healthcare ("Tenet") in order toprotect the interests of the Church at the expense of BRMC andits unsecured creditors. Among other things, the Committeealleges that one of Ricks' motives for choosing DCHC over Tenetwas that Ricks wanted an Adventist church and school operating onBRMC's property in Stoneham to be able to continue to exist.
According to the plaintiff, DCHC failed to make good on itspromise to purchase BRMC's assets because NCFE never provided thenecessary financing — an outcome that the Board should haveforeseen. The plaintiff further alleges that DCHC was mismanagingBRMC's affairs under an intertwined management agreement.According to the Committee, the other Board members were eithercomplicit in Ricks' breach of loyalty and good faith or abdicatedtheir responsibilities as Board members. Indeed, the Committeealleges that the failure of the Board members to prevent BRMC'sdemise constitutes gross negligence or, with regard to Ricks andthe Case Defendants, involved an intent to harm BRMC and itscreditors in order to benefit the Church.
The plaintiff also alleges that AAHC and members of its Boardof Directors controlled Boston Regional Medical Associates, Inc.("BRMA"), a not-for-profit corporation that owned and managedvarious medical practices associated with BRMC. According to theplaintiff, BRMC, despite its operating losses, continued toadvance funds to AAHC and BRMA. This further weakened BRMC and itsability to satisfy the significant debts it had incurred.
Pursuant to M.G.L. ch. 180, § 8A(d), BRMC was required tosubmit the DCHC transaction for review by the Attorney Generaland, ultimately, for approval by the Supreme Judicial Court. BRMCnotified the Attorney General of the proposed transaction, andhis office began to investigate it. However, the DCHC transactionfell through before the Attorney General completed hisinvestigation.
On February 4, 1999, after the proposed DCHC sale failed to beconsummated, BRMC commenced a voluntary case under Chapter 11 ofthe Bankruptcy Code by filing a petition with the United StatesBankruptcy Court for the District of Massachusetts.
C. THE BANKRUPTCY PLAN
BRMC successfully proposed and had confirmed a Plan ofReorganization (the "Plan"). The Plan created a new entity,Reorganized BRMC, in which all of the assets of BRMC's bankruptcyestate were vested. Plan §§ 1.32, 5.1. As part of the Plan, allof BRMC's assets would be liquidated. Id. § 5.6. ReorganizedBRMC has "the right to settle, compromise, sell, assign,terminate, release, discontinue or abandon any [of BRMC's]Cause[s] of Action from time to time in its discretion." Id. §13.2
A Liquidating Agent was appointed to liquidate BRMC's assets.Id. § 5.4 The Liquidating Agent was appointed by the new Boardof Trustees of Reorganized BRMC. Id. This three member Board iselected by the Committee. Id. § 5.3. The Liquidating Agent does not have the authority to liquidate assets valued in excess of$25,000 without the approval of the new Board of Trustees. Id.§ 5.6. The new Board of Trustees does not have the authority toapprove liquidation of assets valued in excess of $250,000without the approval of the Committee. Id.
As of March 19, 2003, all of BRMC's tangible assets had beenliquidated. Bennett Aff. Ex. 1. The only assets remaining in thebankruptcy estate as of that date were cash reserves ofapproximately $7,300,000 and various causes of action. Id. TheEstate owed more than $35,000,000 on undisputed, liquidatedunsecured claims. Id. There are also additional disputed claimsamounting to more than $15,000,000, of which approximately$12,000,000 represents unsecured claims. Id.
If any assets remain after all of the Estate's administrativecosts have been paid and all allowed creditors' claims have beenpaid in full, the assets are to be transferred to the SouthernNew England Conference of Seventh Day Adventists. Plan § 5.8.
III. PROCEDURAL HISTORY
On October 31, 2000, the Committee brought this case as anadversary proceeding in the Bankruptcy Court. The Committeeasserts several causes of action. Counts I-III allege claims forvarious breaches of fiduciary duty against Ricks, Crunk and theTrustee Defendants. Count I alleges a violation of the duties ofloyalty and candor. Count II alleges a violation of the duty ofgood faith. Count III alleges a violation of the duty of care. In Count IV, the plaintiff seeks damages from AAHC and its directorsfor aiding and abetting those alleged breaches of fiduciary duty.AAHC filed a counterclaim seeking a declaratory judgment that itsdamages on Count IV are limited to $20,000 under the charitableimmunity cap of M.G.L. ch. 231, § 85K.
The remaining counts of the Complaint involve: the Committee'sattempt to recover advances that BRMC made to AAHC and BRMA undertheories of breach of contract and fraudulent transfer (CountsV-VIII); an alleged preferential transfer to Crunk for relocationexpenses (Count IX); and two unpaid loans to Ricks and Crunk(Counts X and XI). Only Counts I-IV are at issue in the motionsnow before the court.
After service was effected on all defendants, the parties filedvarious counterclaims, cross-claims and third party claims. Thedefendants, other than AAHC, counterclaimed against BRMC forindemnification under an officer-indemnification bylaw. Severaldefendants also filed third party claims against NCFE, DCHC andtheir respective presidents Poulsen and Paul Tuft. Crunk filed across-claim against AAHC. Several other defendant trustees, ledby Hughes, filed cross-claims against Ricks, Crunk, several othercotrustees, and AAHC.
The Attorney General is aware that this litigation is ongoing.Two Assistant Attorneys General were deposed in this case.However, the Attorney General has not sought to intervene and noparty has attempted to join him. Discovery proceeded in the Bankruptcy Court until this courtallowed defendant Laura Hogan's motion to withdraw the referenceso the parties could complete discovery and prepare for a trialin the District Court.
Meanwhile, in a separate adversary proceeding brought byReorganized BRMC against NCFE, Poulsen, Tuft and others (the"NCFE Action"), Reorganized BRMC, NCFE and Poulsen had reached asettlement agreement. However, the agreement was contingent onReorganized BRMC obtaining dismissals of all claims against NCFEbrought in this case by the Trustee Defendants and an injunctionagainst any new claims for indemnification or contribution byBRMC's former Board members. Some of the Trustee Defendantsobjected to the settlement, disputing the impact of thesettlement on their liability for breach of fiduciary duty underM.G.L. Chapter 231B. Although the Bankruptcy Judge found thesettlement to be fair and reasonable, she did not enter an orderapproving the settlement as she believed she lacked thejurisdiction to do so. Consequently, the parties seekingsettlement filed a motion in this court requesting approval.
At a hearing on April 12, 2002, the court ordered that theBankruptcy Judge conduct a further hearing, and issue factualfindings and legal conclusions concerning whether the proposedsettlement between BRMC and NCFE, its subsidiaries, and itsPresident Lance Poulsen should be approved and whether the orderbarring third-party claims against NCFE in this case should be entered. See April 12, 2002 Mem. & Order. The court alsodirected the Bankruptcy Judge to address the following questions:"(1) whether Massachusetts law permits, or requires, that theamount of a pretrial settlement by some defendants be apportionedbetween different claims (i.e., contract and tort claims) arisingout of common facts; (2) in any event, whether, if permissible,such an apportionment is appropriate in the instant dispute; and(3) whether the amount the plaintiffs have allocated to the tortclaims common to the two proceedings is reasonable." Id. at 5.The court noted that those findings and conclusions would besubject to de novo review by the District Court. Id. at 4.
In addition, the court ordered that, by May 30, 2002, thedefendants make the disclosures required by Federal Rule of CivilProcedure 26(a)(2) with respect to expert testimony, includingdisclosure of their experts' written reports, and stayed allother discovery until further order of the Court. Id. at 6.
Unfortunately, before the bankruptcy court issued its findingsof fact and conclusions of law, NCFE declared bankruptcy onNovember 18, 2002. DCHC followed suit two days later. Thesebankruptcy cases are pending in the Southern District of Ohio andthe District of Columbia respectively. Pursuant to the automaticstay, 11 U.S.C. § 362, this case was stayed as to these twothirdparty defendants.
In light of the NCFE bankruptcy, the Bankruptcy Judge issued anorder stating that she would "take no further action on the remanded matter unless and until the parties so request and filenotice in this proceeding that the automatic stay in the NCFEbankruptcy case . . . has been lifted with respect to the mattersat issue here . . . or that the stay has otherwise beenterminated." Dec. 2, 2002 Procedural Order.
On the day that NCFE declared bankruptcy, the Hughes Defendantsfiled a motion requesting that this court lift its April 12, 2002stay to permit the parties to proceed with expert discovery andto file motions for partial summary judgment and to permit thecourt to rule on various pending substantive motions.
After a hearing on February 4, 2003, the court issued an Orderlifting the stay for the limited purpose of briefing and decidingmotions for judgment on the pleadings and summary judgment to befiled by the defendants ("the Motions"). The defendants wereordered to limit the scope of the Motions to "the following fourissues: (a) whether the plaintiff has standing to pursue aprivate cause of action for breaches of fiduciary duty or if theAttorney General of Massachusetts is the only person who hasstanding to pursue the claims in this case; (b) whether anydefendant who was an uncompensated board member of BRMC isentitled to immunity under M.G.L. ch. 231, § 85W; (c) whether anydefendant who was a compensated board member or officer of BRMCis entitled to summary judgment because there is no genuinedispute of material fact as to whether he or she committed anintentional or grossly negligent violation of his or herfiduciary duties; and (d) whether Atlantic Adventist Healthcare Corporation ("AAHC") is entitled to judgmenton the pleadings on its declaratory judgment counterclaim." Feb.4, 2003 Order at 1-2.
AAHC renewed its motion for judgment on the pleadings as toCount IV and its declaratory judgment counterclaim. AAHC hadoriginally filed this motion in May 2002. Ricks and Crunk eachfiled a motion for judgment on the pleadings on Counts I-III. TheCase Defendants, Hughes Defendants and Hogan each filed a motionfor summary judgment on Counts I-III. The Committee filed aconsolidated opposition and the defendants filed reply briefs.
On April 23, 2003 the court held a hearing on the Motions. Atthe hearing, the court determined that additional briefing wouldbe helpful on several issues. First, Crunk raised a question asto whether the court has subject matter jurisdiction over thiscase in her Reply filed on April 7, 2003. The Committee and otherparties had not had an opportunity to address this issue. Second,the court had found some authority for the plaintiff's positionthat it has standing that the plaintiff did not cite in itssubmissions. The parties had not had an opportunity to addressthis authority. Finally, the court raised an issue regarding thepropriety of the Committee, rather than the BRMC bankruptcyestate itself, bringing this case. Thus, the court ordered theparties to file supplemental briefs addressing these issues byMay 7, 2003 and responses, if necessary, by May 12, 2003. Theparties submitted supplemental briefs and responses and theMotions are now ripe for decision.
On March 24, 2004, the Committee notified the court that BRMCand NCFE had reached an agreement resolving all of theirdisputes, including the subject matter of the NCFE Action. TheCommittee further explained that the objections of the TrusteeDefendants had been resolved, and filed a motion, to which noparty objected, to dismiss NCFE and Poulson as third-partydefendants in this case and approve the settlement of the NCFEAction. On March 29, 2004, the court allowed this motion.
A. THIS COURT HAS SUBJECT MATTER JURISDICTION OVER THIS CASE
In her Reply submitted on April 7, 2003, Crunk suggested thatthis court lacks subject matter jurisdiction over this case.Generally, when a party raises a challenge to the court's subjectmatter jurisdiction, the court should address that challengebefore turning to any other issues. Steel Co. v. Citizens for aBetter Environment, 523 U.S. 83, 94-95 (1998).
Crunk argues that it is the sole prerogative of theCommonwealth, acting as parens patriae, to approve ordisapprove of a sale of substantially all of an acute carehospital's assets. In Crunk's April 7, 2003 Reply, she arguedthat in approving such a sale, the Supreme Judicial Court"exercise[s] the sovereign's power, under the doctrine of cypres, to declare that the sale transaction is in the publicinterest." Crunk's Reply at 12. Since this is not a judicialfunction, but rather an exercise of the sovereign power to control charities that inheres in theCommonwealth, Crunk argues that this court lacks subject matterjurisdiction over the Committee's suit. Id. Crunk citesFontain v. Ravenel, 58 U.S. 369 (1854) for the propositionthat: The courts of the United States cannot exercise any equity powers, except those conferred by acts of congress, and those judicial powers which the high court of chancery in England, acting under its judicial capacity as a court of equity, possessed and exercised, at the time of the formation of the constitution of the United States. Powers not judicial, exercised by the chancellor merely as the representative of the sovereign, and by virtue of the king's prerogative as parens patriae, are not possessed by the circuit courts.
Chief Justice Roger Taney, concurring in the judgment inFontain, but disagreeing with the majority's reasoning,explained that Article III confers only judicial power on thefederal courts and "prerogative powers, which belong to thesovereign as parens patriae, remain with the States" and "statelaws will not authorize the courts of the United States toexercise any power that is not in its nature judicial; nor canthey confer on them the prerogative powers over minors, idiots,and lunatics, or charities, which the English chancellorpossesses." Id. at 393 (Taney, C.J., concurring in thejudgment). The First Circuit in King v. Lean Asylum of theMassachusetts General Hospital, 64 F. 331 (1st Cir. 1894)confirmed that circuit courts do not possess the powers of thechancellor as representative of the sovereign.
Thus, under old but still valid precedent, if the task that theCommittee asks this court to undertake is not judicial in nature, this court lacks subject matter jurisdiction underArticle III. However, as the Committee argues in its SupplementalMemorandum, the task at hand is judicial in nature. First, theissues before this court do not include the approval of a sale ofa hospital's assets. Rather, the issues are whether, in pursuingthat sale and taking other actions, BRMC's Trustees breachedtheir fiduciary duties to the corporation. In many respects, thiscase is a traditional corporate mismanagement suit, although onewith non-traditional parties. Second, the Supreme Judicial Courthas held that when it exercises cy pres power, a court ofchancery "regulates the disposition of [trust] property under itsgeneral jurisdiction on the subject of trusts, and not asadministering a branch of the prerogative of the king as parenspatriae." Am. Academy of Arts & Sciences v. President, etc. ofHarvard College, 78 Mass. 582, 593 (1832). This exercise ofjudicial power to resolve disputes over the terms of a charitabletrust or the propriety of a sale of trust assets is materiallydifferent than the "prerogative power of ordaining what thetestator [of a charitable trust] has failed to express," a powerthat, as Crunk argues, cannot be exercised by the Massachusettsstate courts under the separation of powers provided for byMassachusetts law. See Jackson v. Phillips, 96 Mass. 539, 576(1867).
In her reply to the Committee's Supplemental Memorandum, Crunkacknowledged "that the Massachusetts Supreme Judicial Courtperforms a judicial function, rather than a prerogative function, in its exercise of cy pres according to well-establishedtrust law." Crunk's Reply to Comm.'s Supp. Mem. at 14. Despitethis admission, Crunk still maintains that the exercise ofjurisdiction by this court would amount to "an unconstitutionalinvasion of the separation of powers guaranteed to the defendantsby Article 30 of the Massachusetts Declaration of Rights; and, itwould, thereby contravene the Tenth Amendment to the U.S.Constitution." Id. at 16. Article 30 provides that "[i]n thegovernment of this commonwealth, the legislative department shallnever exercise the executive and judicial powers, or either ofthem: the executive shall never exercise the legislative andjudicial powers, or either of them: the judicial shall neverexercise the legislative and executive powers, or either of them:to the end it may be a government of laws and not of men." Crunkargues that since it is exclusively the province of the AttorneyGeneral "to determine whether the application of charitable fundsand/or the sale of charitable assets is in the public interest,the federal court cannot usurp his function" without violatingArticle 30 and the Tenth Amendment. Crunk's Reply to Comm.'sSupp. Mem. at 15.
Even if the court were to assume that the Tenth Amendment makesthe Massachusetts Declaration of Rights binding on this court — aproposition that Crunk does not fully explain — Crunk's argumentis unpersuasive. To be sure, as explained in Part IV.B.1,infra, the Attorney General has a role in protecting thebeneficiaries of charitable trusts. He can exercise this role in several ways, one of which is by bringing suits in the state andfederal courts. When a state or federal court hears one of thesecases, it is not exercising an executive or legislative functionor acting as the representative of the sovereign and performingthe present-day equivalent of setting forth the king's signatureto exercise his prerogative powers. It is exercising the judicialfunction of resolving a controversy between parties when oneparty claims that the other has violated, is violating, orimminently will violate the laws governing nonprofit corporationsand their trustees. That is exactly the sort of controversypresented by this case, although the party bringing the action isthe Committee rather than the Attorney General.
Thus, the court finds that it is performing a judicial functionand the requirements of Article III are satisfied. Since thisproceeding relates to a bankruptcy case, this court has astatutory grant of subject matter jurisdiction under28 U.S.C. § 1334(b). Accordingly, the court will not dismiss this case forwant of subject matter jurisdiction.
B. AAHC IS NOT ENTITLED TO JUDGMENT ON THE PLEADINGS AS TOCOUNT IV
AAHC argues that it is entitled to judgment on the pleadings asto Count IV because: (1) as only the Attorney General may sue forbreach of duty to a public charity, the Committee lacks standingto bring this case; (2) even if the Committee has standing to suefor breaches of duty in general, it may not sue for breaches of duty arising out of a transaction that must be approved by theAttorney General under M.G.L. ch. 180, § 8A(d); and (3) even ifthe Committee could bring this suit, the Attorney General is anindispensable party within the meaning of Federal Rule of CivilProcedure 19 and the case should be dismissed as he has not beenjoined. These arguments are also made by the other defendants intheir motions for judgment on the pleadings and summary judgment.Accordingly, the court has considered the arguments made by allparties in deciding AAHC's Motion for Judgment on the Pleadingsand will apply the conclusions that it draws with regard to thismotion when deciding the other five substantive motions currentlypending.
"Under Rule 12(c), all material allegations in the complaintmust be credited in the light most favorable to the plaintiff."United States v. United States Currency, $81,000, 189 F.3d 28,33 (1st Cir. 1999). Judgment on the pleadings should not begranted "unless it appears beyond doubt that [the Committee] canprove no set of facts in support of [its] claims which wouldentitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46(1957). Even applying this rigorous standard, if any of the threearguments presented by AAHC were correct, the court would becompelled to enter judgment for the defendants on Counts I-IV ordismiss the case. However, the defendants' position is notpersuasive.
Before reaching the merits of these three arguments, the courtmust briefly address two additional arguments that AAHC firstpresented in its supplemental memorandum submitted after theApril 23, 2003 hearing. AAHC argues that claims for aiding and abettingbreach of fiduciary duty inhere in a corporation's creditorsrather than the corporation itself and that the Committee'sclaims are barred by the doctrine of in pari delicto. AAHCstates that "[w]hile the Court did not expressly request briefingon these . . . two issues, they arise now based on the Court'stentative conclusion that the Committee does not have standing tosue on behalf of BRMC's creditors, but perhaps standing to sueonly on behalf of BRMC." AAHC's Supp. Mem. at 3 n. 2. TheCommittee filed a motion to strike these two arguments as"outside the scope of the Court's order to address certainissues." Comm.'s Mot. to Strike at 1. AAHC did not respond to theCommittee's Motion to Strike.
For the following reasons, the court is allowing theCommittee's Motion to Strike. The additional issues AAHCpresented are outside the scope of the court's briefing orders.The court notes that the other defendants recognized that "theCourt called for briefing only on certain discrete issues" andlimited their submissions accordingly. Hughes Defs.' Supp. Mem.at 1; accord Case Defs.' Supp. Me. at 1 ("particular legalquestions"); Crunk's Supp. Mem. at 9 ("specific questions").Accordingly, AAHC's new arguments have been presented in anuntimely manner.2 In its April 23, 2003 Order, the court identified four specific issues onwhich the parties were to submit supplemental briefs by May 7,2003. Any responses were to be filed by May 12, 2003. As theCommittee correctly notes, "the time period pr[e]scribed by theCourt for replies contemplates that no new issues would bepresented at this stage." Id. at 3 n. 1. The court finds thatalthough the importance of the issues raised by AAHC for thefirst time in its Supplemental Memorandum was certainly moreclear after the April 23, 2003 hearing, there was no reason thatAAHC could not have raised these issues in May 2002 when it filedits motion for judgment on the pleadings, in June 2002 when itfiled its reply in support of that motion, in March 2003 when ithad another opportunity to file a memorandum in support of thatmotion, in April 2003 when it filed a memorandum in response tothe Committee's March 2003 filing or in April 2003 at thehearing. See Local Rule 7.1(b)(3) (requiring leave of court forfiling additional papers in support of or in opposition tomotions); CMM Cable Rep., Inc. v. Ocean Coast Props., Inc.,97 F.3d 1504, 1526 (1st Cir. 1996) ("[N]ot only can parties notclaim error based on arguments which the district court never hada chance to timely consider, but courts are also entitled toexpect represented parties to incorporate all relevant argumentsin the papers that directly address a pending motion."); McCoyv. MIT, 950 F.2d 13, 23 (1st Cir. 1991) ("[T]he plaintiff has anaffirmative responsibility to put his best foot forward in aneffort to present some legal theory that will support his claim."); cf. Rivera-Muriente v.Agosto-Alicea, 959 F.2d 349, 354 (1st Cir. 1992) ("It is wellsettled in this court, for good reason which need not berehearsed here, that a legal argument made for the first time inan appellant's reply brief comes too late and need not beaddressed.").
1. Generally, the Bankruptcy Estate of a MassachusettsNon-Profit Corporation May Maintain an Action Against its FormerTrustees for Breach of Fiduciary Duty
In each of the first three counts of the complaint, theCommittee alleges violations of the Trustees's fiduciary duty toBRMC and its creditors. To the extent that the Committee seeksto assert claims on behalf of individual creditors or thecreditors as a class, it does not have standing. See, e.g., Inre Rare Coin Galleries of Am., Inc., 862 F.2d 896, 900 (1st Cir.1988) ("The [bankruptcy] trustee, however, has no power to assertany claim on behalf of the creditors when the cause of actionbelongs solely to them."); Miller v. Harding, 248 F.3d 1127,2000 WL 1792990, at *2 (1st Cir. Dec. 5, 2000) (unpublished)("[A] bankruptcy trustee has . . . no standing to represent thecreditors and investors in their individual claims."); cf.Fleming v. Bank of Boston Corp., 127 F.R.D. 30 (D. Mass. 1989)(holding that receiver of investment company lacked standing toprosecute claims on behalf of investors), aff'd sub nom.,Fleming v. Lind-Waldock & Co., 922 F.2d 20, 24-25 (1st Cir.1990) (same). The Committee has not been assigned the individual claims of creditors against thedefendants in this case.3 The mere fact that it is the"creditors" committee does not confer standing. If the TrusteeDefendants owed a duty to creditors, it owed that duty to thecreditors as individuals and they would need to bring an actionfor breach of that duty as individuals or as a class. Althoughthe Committee serves to represent the creditors in the context ofthe bankruptcy proceedings, any claims that the creditors haveagainst the defendants are the property of the creditorsindividually and must be asserted by them rather than theCommittee.
Some of the cases cited by the Committee refer to a bankruptcytrustee asserting "general" claims on behalf of a community ofcreditors. However, there is nothing to distinguish these"general" claims from the claims of the corporation. A "general"creditor's claim is a claim that all creditors have beendisadvantaged because the corporation lost assets with which itcould pay creditors. See, e.g., Koch Refining v. Farmers UnionCentral Exchange, Inc., 831 F.2d 1339, 1348 (7th Cir. 1987) ("Ifthe liability is to all creditors of the corporation withoutregard to the personal dealings between such officers and suchcreditors, it is a general claim."). The distinction is similarto that between shareholder class actions seeking to vindicateshareholders' rights and shareholder derivative suits seeking to assert the corporation's rights, ultimately benefitting theshareholders. It is questionable whether this court would havefederal question jurisdiction over an action brought by creditorsbecause it would no longer be brought on behalf of the bankruptcyestate, but would rather be brought by BRMC's creditors againstBRMC's former officers and directors without any involvement ofthe debtor itself.
Thus, insofar as the Committee seeks to vindicate the rights ofthe creditors, it lacks standing.4 However, to the extentthat it seeks to benefit the creditors by vindicating the rightsof the bankruptcy estate and thereby obtaining assets with whichthe estate can pay creditors, both the Committee and the estateitself have standing to sue.
The defendants argue that the Attorney General has theexclusive authority to enforce charitable trusts and sue forbreaches of fiduciary duty or mismanagement of trust assets.Consequently, they contend that the Committee "does not havestanding, under Massachusetts law, to pursue these claims onbehalf of itself, Reorganized BRMC, or the creditors of BRMC."AAHC's 2002 Mem. at 13; accord AAHC's 2002 Reply at 1-3; AAHC's2003 Reply at 7-9; Case Defs.' Mem. at 3-6; Case Defs.' 2003 Reply at 1-3;Hughes Defs.' Mem. at 11-13; see also M.G.L. ch. 12, § 8. Thedefendants cite several cases in support of their argument.Typical of these cases is the Supreme Judicial Court's decisionin Weaver v. Wood, 425 Mass. 270, 275-76 (1997): We consistently have held that only the Attorney General can bring an action alleging the misuse of charitable assets. A century ago we noted: "The law has provided a suitable officer to represent those entitled to the beneficial interests in a public charity. It has not left it to individuals to assume this duty, or even to the court to select a person for its performance. Nor can it be doubted that such a duty can be more satisfactorily performed by one acting under official responsibility than by individuals, however honorable their character and motives may be." Burbank v. Burbank, 152 Mass. 254, 256, 25 N.E. 427 (1890). In Dillaway v. Burton, 256 Mass. 568, 573, 153 N.E. 13 (1926), we held that it is "the exclusive function of the Attorney General to correct abuses in the administration of a public charity by the institution of proper proceedings. It is his duty to see that the public interests are protected and to proceed in the prosecution or to decline so to proceed as those interests may require."
The caselaw is replete with similar pronouncements. See,e.g., Ames v. Atty. Gen., 332 Mass. 246, 250 (1955) ("It iswell settled that it is the exclusive function of the AttorneyGeneral to correct abuses in the administration of a publiccharity by the institution of proper proceedings."); Lopez v.Medford Community Ctr., Inc., 384 Mass. 163, 167 (1981) (same);Garland v. Beverly Hosp. Corp., 48 Mass. App. Ct. 913, 914(1999) ("The Legislature has determined that only the AttorneyGeneral, on behalf of the general public, has the requisitestanding to bring an action alleging the misuse of charitable assets.").
However, in his well-known and often cited treatise on trustlaw, Professor Scott explains: It is frequently said in the cases that the Attorney General alone has power to maintain suits for the enforcement of charitable trusts. This, however, is not strictly true. It is clear, for example, that where there are several trustees, one of them may maintain an action against the others to enforce the trust or to compel the redress of a breach of trust.IVA William Franklin Fratcher, Scott on Trusts § 391 at 364-65(4th ed. 1989). The defendants have attempted to distinguish thefour Massachusetts cases that Professor Scott cites as supportfor this proposition: Morville v. Fowle, 144 Mass. 1109 (1887);Eastman v. Allard, 149 Mass. 154 (1889); Crawford v. Nies,220 Mass. 61 (1914); Crawford v. Nies, 224 Mass. 474 (1916).Given the fact that these four cases were decided beforesignificant changes to the statutes governing charitablecorporations and that they deal with one trustee suing anotherrather than a nonprofit corporation suing one of its formertrustees, the court finds the defendants' arguments persuasiveand agrees that these cases are not controlling. However, for thereasons described below, Professor Scott's observation that theAttorney General's "exclusive" standing to sue is not trulyexclusive is still accurate.
The Committee's position that a charitable trust may sue itsformer officers and directors for breach of fiduciary duty isbolstered by Boston Children's Heart Foundation v.Nadal-Ginard, 73 F.3d 429 (1st Cir. 1996) [hereinafter"BCHF"]. In 1995, Boston Children's Heart Foundation, a Massachusetts nonprofitcorporation, sued Nadal-Ginard, its former president and memberof its board of directors, for breach of fiduciary duty. TheAttorney General was not a party. Following an eighteen-day benchtrial, Judge Robert Keeton found that Nadal-Ginard violated hisfiduciary duties to the plaintiff and entered judgment in theamount of $6,562,283.02. Id. at 432. The First Circuitaffirmed. Id.
Some of the defendants attempt to distinguish BCHF. The CaseDefendants suggest that BCHF is distinguishable becauseNadal-Ginard was compensated, was an employee as well as adirector, engaged in self-dealing and committed acts "soegregious that criminal charges were also brought." Case Defs.'Supp. Mem. at 4. Crunk argues that BCHF is a case dealing withmisappropriation of charitable assets rather than misapplicationof charitable assets. Crunk's Supp. Mem. at 12-14. However, noneof these distinctions make any difference. If the defendants arecorrect that only the Attorney General may bring an action formisapplication of charitable assets and that a charitablecorporation lacks standing to do so, then BCHF was wronglydecided.
Standing is a threshold question of who has the authority torepresent the interests of a charity and, therefore, the publicinterests which the charity is bound to serve. If the charityitself lacks standing, it does not matter if the defendant is anuncompensated trustee or a compensated employee. The seriousnessof the allegations is also not material. The distinction between misappropriation of charitable assets through self-dealing andmisapplication of charitable assets through mismanagement is alsonot decisive. In cases of both misappropriation andmisapplication of funds, the injury to the charity is the same.It is unable to use the funds for their intended purpose.
In BCHF, Nadal-Ginard was found liable for breaches offiduciary duty that related to his failure to comply with hisduties of loyalty, good faith and candor. The plaintiffs allegeviolations of the same three duties in this case, as well as theduty of care. The defendants present no good reason why a charityshould have standing to pursue claims for breaches of the dutiesof loyalty, good faith and candor but not for breaches of theduty of care.
However, as the defendants point out, neither the districtcourt nor the First Circuit in BCHF directly addressed thequestion of the plaintiff's standing or, for that matter, thecourt's subject matter jurisdiction. "Questions which merely lurkin the record, neither brought to the attention of the court norruled upon, are not to be considered as having been so decided asto constitute precedents." Webster v. Fall, 266 U.S. 507, 511(1925).
Thus, the court finds, as some of the parties have come toaccept, that the standing of a charity or that charity'sbankruptcy estate to sue its former directors remains an openquestion under Massachusetts law. See Apr. 23, 2003 Tr. at20-21 (AAHC); Comm.'s Reply to Defs.' Supp. Mems. at 3 (theCommittee); Crunk's Reply to Comm's Supp. Mem. at 3-4 (Crunk). None of the cases cited by theparties directly holds that the Attorney General, rather than acharitable trust, its trustees, or its bankruptcy estate mustfile any suit on behalf of the trust that seeks damages forbreaches of fiduciary duty by former officers or trustees.Instead, each case involves a potential beneficiary of thecharity, such as a member of a church, or some other non-trustee,such as a donor, seeking to enforce the trust's charitablepurposes or bylaws.5 The court finds that in this case the bankruptcy estate hasstanding to assert the claims presented, unless they have beenassigned to the Committee. The Attorney General is therepresentative of the charity's beneficiaries rather than itstrustees. This is clear from the common law principles on whichthe legislature based M.G.L. ch. 12, § 8. See generally Amesv. Atty. Gen., 332 Mass. 246, 250 (1955) (noting identity ofcommon law rule and rule codified at M.G.L. ch. 12, § 8). In thevery excerpt from Burbank quoted in Weaver, supra, to whichdefendant AAHC draws the court's attention, the Supreme JudicialCourt stated that "the law has provided a suitable officer torepresent those entitled to the beneficial interests in apublic charity." Burbank v. Burbank, 152 Mass. 254, 256 (1890)(emphasis added).6 Thus, as with a private trust in whichthe beneficiaries may sue to enforce the trust, the beneficiariesof a public charitable trust, represented by the AttorneyGeneral, have a similar cause of action. The beneficiary's causeof action does not in any way conflict with or abrogate the right of the trustees of either aprivate or public trust to cause the trust to sue third parties,including former trustees, who have committed torts against thetrust, including the tort of breach of fiduciary duty.
The Attorney General's standing to enforce the rights of thebeneficiaries of charitable trusts is, as the Supreme JudicialCourt has often said, exclusive. However, it is exclusive only ofother individuals who claim to represent the trust'sbeneficiaries. It is not exclusive of the standing of the trustitself to seek redress for injuries to the trust. By preventingmembers of the public who may benefit from a charity from suingbased on their asserted beneficial interest in the charitabletrust, recognizing the Attorney General as the solerepresentative of the beneficiaries of a charity shieldscharities and their directors from multifarious litigation.Preventing the charitable trust itself from suing those who haveharmed it serves no similar purpose.
Thus, the Attorney General serves as a potential surrogate whois able to represent the public interest when the trustees failto do so. This special status as the representative of the publicconstitutes a supplement to, rather than a replacement for, thetrustees acting in the name of a nonprofit corporation tovindicate its rights. A contrary rule would strain the resourcesof the Attorney General by requiring his participation in alllitigation involving the alleged misapplication ormisappropriation of charitable assets, even in cases where a charity is fully capableof protecting itself. It would also leave charities without alegal remedy when, for whatever reason, the Attorney Generalchooses not to use his limited resources to pursue directors ortrustees who have harmed a charitable corporation.
Thus, this court holds that a Massachusetts nonprofitcorporation has standing to sue any individual, including atrustee or former trustee, who has allegedly committed a tortagainst the corporation, including the tort of breach offiduciary duty.
In this case, it is not the charitable corporation itself,BRMC, that is the plaintiff. Rather, it is the Committee, whichclaims to be acting on behalf of the bankruptcy estate. Thebankruptcy estate stands in the shoes of BRMC and can pursue anycause of action that was the property of BRMC at the time itfiled its bankruptcy petition. As the Supreme Court wrote inPepper v. Litton, 308 U.S. 295, 306-07 (1939) (footnotesomitted) "[w]hile normally [a director's] fiduciary obligation isenforceable directly by the corporation, or through astockholder's derivative action, it is, in the event ofbankruptcy of the corporation, enforceable by the [bankruptcy]trustee. For that standard of fiduciary obligation is designedfor the protection of the entire community of interests in thecorporation — creditors as well as stockholders." See alsoLouisiana World Exposition v. Federal Insurance Co.,858 F.2d 233, 246 (5th Cir. 1988).
AAHC argues in footnote 47 of its Memorandum that "[r]egardless of whether the Committee has commenced this actionin its own name, the name of Reorganized BRMC, or in the name ofthe creditors of BRMC, it would be acting on behalf of an entitydifferent from the debtor, BRMC. . . . [t]hus, this is not anaction commenced by a charity against its own Directors andOfficers." Although it is true that Reorganized BRMC and theCommittee are not the same entities as the debtor, BRMC, thismakes no difference for purposes of deciding the standingquestion. All of BRMC's assets, including any causes of actionagainst the defendants in this case, became part of thebankruptcy estate. See 11 U.S.C. § 541(a)(1);7 Plan §5.1. Therefore, if BRMC could have sued the defendants in thiscase before it declared bankruptcy, the estate can sue thedefendants after BRMC entered bankruptcy.
However, the estate is not the plaintiff in this case. TheCommittee is the plaintiff. This presents questions which cannotbe properly resolved on the present record.
2. The Committee Shall Present Additional Evidence to theCourt Supporting Its Authority to Bring This Case or Move toAmend the Complaint So That An Appropriate Plaintiff Is Named
Under the Plan confirmed in BRMC's bankruptcy, any causes ofaction belonging to BRMC vested in Reorganized BRMC. At the April 23, 2003 Hearing, the court raised the following question: THE COURT: . . . Is there something that makes the Official Committee a proper entity to sue if Reorganized BRMC is the proper entity to sue? I can ask the plaintiffs that. MR. BENNETT [counsel for the Committee]: Your Honor, the Committee is ultimately bringing this cause of action to recover on behalf of the estate and to have those proceeds available for distribution to the estate. So it is act[ing] on behalf of the estate of BRMC. THE COURT: Who authorized — what authorizes you to do that? MR. BENNETT: Your Honor, the plan authorized the liquidation of the assets. The liquidating supervisor was in place at the time of the lawsuit, and the Committee — decision was made to have the Committee bring the lawsuit. This is not something that's in the papers. . . . . THE COURT: But are there documents that show that essentially whatever Reorganized BRMC would be authorized to do, the Official Committee is authorized to do? MR. BENNETT: I believe there's a sufficient trail to establish that the Committee was authorized to take the actions that it took, and there w[ere] reasons for it, yes. * * * * MR. BEAN [counsel for AAHC]: . . . I would suggest that what's happening here is — in some way, there's a misnomer by having the Committee as the plaintiff. Frankly, I think . . . the liquidating agent should be the plaintiff. THE COURT: In fact, if that's where this comes out, that could be taken care of with an amendment. MR. BEAN: I'm not worried about that. You're right.Apr. 23, 2003 Tr. at 10-12.
The court ordered the parties to address this issue in theirsupplemental briefs. The Case Defendants stated that if BRMCcould maintain a suit against the defendants so could theCommittee. Case Defs.' Supp. Mem. at 6. Contrary to its statementat the hearing, AAHC stated that "only the `Liquidating Agent'has standing to pursue causes of action" and "[b]ecause the timefor amending the Complaint lapsed more than two years ago, theCommittee should not be permitted to amend its complaint and thecase should be dismissed." AAHC's Supp. Mem. at 2 n. 1. Crunkstates that she "does not . . . concede the Committee's authorityto act on behalf of BRMC for purposes of instituting the claimsset forth in Counts I, II and III of the Complaint," but is notpressing the issue as part of her motion for judgment on thepleadings. Crunk's Reply to Comm.'s Supp. Mem. at 6. The HughesDefendants state that "[i]n light of the Court's indication atthe hearing that it might be disposed to grant an amendment tothe pleadings to substitute the Liquidating Agent as plaintiff,the Defendants do not press this point." Hughes Defs.' Supp. Mem.at 4. Thus, this issue remains disputed by the parties and ofconcern to the court.
The Hughes Defendants also present a plausible explanation ofwhy the Committee might have brought this suit in its own namerather than rely upon Reorganized BRMC to sue on its own behalfand in its own name.8 The directors and officersinsurance policy (the "Policy") covering the actions of Ricks,Crunk and the Trustee Defendants has a so-called "insured versusinsured" exclusion. This clause purports to exclude from coverageany suits between parties covered by the Policy. BRMC is alsoinsured under the Policy. The insurer has raised this clause as areason to deny coverage and has filed an action seeking a declaratory judgmentthat it may properly deny coverage. That case is currentlypending in the Bankruptcy Court, as this court denied theinsurer's motion to withdraw the reference to the District Courtwithout prejudice. The Hughes Defendants suggest that: Because both BRMC and its officers and directors were insureds under the policy, neither BRMC nor its Liquidating Agent could be named as plaintiffs without risking coverage. Thus, it appears that the Creditors' Committee made the strategic decision to bring the case in its own name, and knowingly allowed the deadline imposed by the Bankruptcy Court for amendments to the pleadings to pass without adding either BRMC or its liquidating agent as a party plaintiff, choosing to maintain in its own name a complaint that straddles the line between the rights of BRMC and the rights of BRMC's creditors.Hughes Defs.' Supp. Mem. at 7. If the insurer successfully deniescoverage, the amount of money available for the Committee or theEstate to collect is likely to be significantly reduced.
In response to the court's April 24, 2003 Order the Committeedirected the court to the First Amended Disclosure Statement assupport for its authority to bring this case. See Comm.'s Supp.Mem. at 8-9. The Disclosure Statement provides, in pertinentpart, that "[i]t is the Committee's intention to furtherinvestigate and pursue" causes of action against BRMC's officersand directors for breach of fiduciary duty. Id. The Committeealso points to the provisions of the Plan that provide for thecontinued existence of the Committee and its oversight over theliquidation of assets. Id. Finally, the Committee states thatif the court determines that it is not a proper plaintiff, it "is prepared to submit anamended complaint naming the Liquidating Agent as the Plaintiff."Id. at 10.
The court is not persuaded that the Plan provision andDisclosure Statement identified by the Committee overcome theclear language of the Plan vesting all assets, including causesof action, in Reorganized BRMC and empowering Reorganized BRMC topursue those causes of action. See Plan §§ 5.1, 13.2.Accordingly, the court is ordering the Committee to either submitdocuments or affidavits establishing that it has been assignedBRMC's causes of action against the defendants in this case orfile a motion to substitute the appropriate plaintiff. The courtwill not now attempt to predict how such a substitution mightimpact the insurer's declaratory judgment action. However, asthis issue and the successful outcome of the Trustee Defendants'motions for summary judgment bear on the dispute over theinsurance policy, the court is ordering that a copy of thisMemorandum and Order be sent to counsel for the insurer.
For now, the court assumes, without deciding, that either theCommittee has been assigned the authority to sue the defendantsthat Reorganized BRMC was given or that a substitution of partieswould cure any defect. 3. The General Rule Applies in this Case Even Though Some ofthe Plaintiff's Allegations Relate to a Transaction Subject tothe Requirements of M.G.L. ch. 180, § 8A(d)
The defendants argue that even if the court determines that,generally, a charitable corporation as well as the AttorneyGeneral may sue its former directors for breach of fiduciaryduty, it should not permit such suits when the transaction atissue must be reviewed by the Attorney General under M.G.L.ch. 180, § 8A(d). The defendants do not appear to contend that such atransaction is unreviewable by a court. Rather, they argue thatthe degree of oversight that the Attorney General has over allaspects of such a transaction makes him the only proper plaintiffto challenge the defendants' activities related to thetransaction.
This argument is unpersuasive for three reasons. First, even ifthe defendants were correct, the allegations in this case gobeyond the approval of the DCHC transaction and includeallegations of more general mismanagement of BRMC. Consequently,even if the Committee lacked standing to assert a breach offiduciary duty relating to the DCHC transaction, it would stillhave standing to assert its other claims of corporate misconduct.Second, the fact that the Attorney General has approved atransaction does not strip a charity of standing. The fact thatthe Attorney General assented to a transaction does not mean thathe has given his stamp of approval to the manner in which thetransaction is executed after his approval. Both the nature ofthe DCHC transaction and the conduct of the Trustee Defendants while the transaction wasclosing are at issue in this case. Third, in this case theAttorney General ultimately neither approved nor rejected theDCHC transaction as the proposal was terminated before theAttorney General's investigation was completed. Thus, contrary tothe defendants' contentions, the Committee is not asking thiscourt to "second-guess" the Attorney General's conclusionsregarding the transaction and the outcome of this case will notcreate a conflict between this court and the Attorney General.
The court is not suggesting that the Attorney General's viewsregarding a transaction he has completely investigated underM.G.L. ch. 231, § 8A(d) are irrelevant. They may providemeaningful evidence that the trustees of a charity were notnegligent in approving a particular transaction. It might bedifficult to prove that trustees acted unreasonably if theAttorney General approved of their actions after a fully informedand thorough investigation. In some cases, the Attorney General'sapproval might provide the basis for a meritorious motion forsummary judgment in favor of defendant directors. This, however,is not one of those cases.
4. The Attorney General Is Neither a Necessary NorIndispensable Party
The defendants also argue that the court should dismiss thiscase under Federal Rule of Civil Procedure 19 because theplaintiff has failed to join an indispensable party, the AttorneyGeneral. Although AAHC has conceded that if the Committee hasstanding that the Attorney General is not a necessary or indispensable party,see Apr. 23, 2003 Tr. at 13, it is unclear if the otherdefendants make this concession.
As a threshold matter, federal law governs this questionnotwithstanding the Massachusetts statute which provides that"[t]he attorney general shall be made a party to all judicialproceedings in which he may be interested in the performance ofhis duties [overseeing charities]." M.G.L. ch 12, § 8G. If aFederal Rule of Civil Procedure governs a question, the courtmust apply it unless the rule violates the Rules Enabling Act orthe Constitution. See Hanna v. Plumer, 380 U.S. 460, 471(1965) (stating general rule); Provident Tradesmens Bank & TrustCo. v. Patterson, 390 U.S. 102, 125 n. 22 (1968) (stating thatRule 19 governs joinder even in diversity cases). Rule 19provides, in pertinent part: (a) A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest. . . . . (b) If a person as described in subdivision (a)(1)-(2) hereof cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable. . . . .
Professors Wright, Miller and Kane describe the process fordeciding a party-joinder question:
The structure of Rule 19 reflects the analytical sequence that a court should follow in deciding a party-joinder question. Once an issue of compulsory joinder is raised, the court initially must determine whether the absent person's interest in the litigation is sufficient to satisfy one or more of the tests set out in the first sentence of Rule 19(a). . . . . When joinder of someone described in Rule 19(a) is not feasible, the court must examine the four considerations described in Rule 19(b) to determine whether the action may go forward in the nonparty's absence or must be dismissed, "the absent person being thus regarded as indispensable." By proceeding in this orderly fashion the court will be able to avoid grappling with the difficult question of indispensability whenever it initially decides that the absentee's interest is not sufficient to warrant compelling joinder.7 Charles Alan Wright et al., Federal Practice and Procedure §1604, at 39-40; accord Temple v. Synthes Corp., 498 U.S. 5, 8(1990) ("Here, no inquiry under Rule 19(b) is necessary, becausethe threshold requirements of Rule 19(a) have not beensatisfied.").
In their filings, the defendants improperly conflate"necessary" parties with "indispensable" parties. In order toobtain a dismissal, the defendants must demonstrate not only thatthe Attorney General is a necessary party under Rule 19(a) butalso that he is indispensable within the meaning of Rule 19(b).See, e.g., Crunk's Mem. at 9 (arguing that a Rule 19dismissal "should be granted where the moving party is able tosatisfy the requirements of Rule 19(a)").
The Committee argues that since this is not the type of action that must be brought by the Attorney General, he need not bejoined as a party either. It is true that this is not the typicalproceeding against a group of trustees of a charitableorganization. Typically, the trustees are still in office and ifthe Attorney General did not sue them, there would be noone withstanding who could sue. In this case there is a group, theCommittee, that seems to be highly motivated to enforce BRMC'srights against its former trustees because, ultimately, thecreditors will be entitled to the proceeds. However, at least intheory, the Attorney General still has some interest in ensuringthat the interests of the beneficiaries are served by this case.Arguably, the Committee, being a committee of creditors, is notlikely to strive to ensure that there is money left in thebankruptcy estate for BRMC's "equity holders" — the intendedbeneficiaries of the charitable trust.
The practical implications of the BRMC bankruptcy appear to besuch, however, that even if the Committee is very successful inpursuing BRMC's claims, the unsecured creditors will still not bepaid in full.9 Thus, in the end, it is likely that therewill be nothing left for the beneficiaries of BRMC for the AttorneyGeneral to protect. This would not be an unusual situation in thebankruptcy context. See Louisiana World Exposition,858 F.2d at 250-51 (citing CFTC v. Weintraub, 471 U.S. 343, 355 (1985)).
It is undisputed that the Attorney General knows about thiscase. He could have intervened, but chose not to. There areseveral possible reasons for this decision. Perhaps the AttorneyGeneral has concluded that the Committee's claims are withoutmerit. Perhaps he has determined that even if the Committee issuccessful, there will be no assets left for him to protect.Perhaps he is satisfied with the Plan's provision that anyremaining assets will be transferred to the Southern New EnglandConference of Seventh Day Adventists. Perhaps he has decided thathis limited resources are better spent overseeing charities thatare still operating rather than attempting to resurrect one thatis in the process of winding up. The Attorney General's motivesfor not intervening are a matter of speculation. Based on suchspeculation, the defendants ask this court to second-guess theAttorney General's decision not to intervene and to force him tobecome a party to this action, or, in the alternative, determinethat he cannot be joined and dismiss the case because he isindispensable. A Rule 19 analysis reveals that the Attorney General is not anecessary party, so the court need not reach the question ofwhether he is indispensable. The Attorney General does not fallinto either category of necessary parties described in Rule19(a). The defendants argue that without the Attorney General,complete relief cannot be granted. AAHC's Mem. at 11; AAHC's 2002Reply at 5; Case Defs.' Mem. at 6-7; Crunk's Mem. at 9-10. Thisargument relies on the premise that the Attorney General is theonly party who can assert claims for breach of fiduciary duty toa charitable trust. Since this premise is incorrect, the argumentis without merit.
The defendants do not contend that they meet the secondcriterion dealing with impairment of the Attorney General'sinterest or the possibility of multiple or otherwise inconsistentobligations. Indeed, it is difficult to identify how thedefendants are harmed or even placed at risk as a result of theAttorney General's absence from this case. Given the fact thatany recovery from the Trustee Defendants or their insurancecarrier must be distributed through the bankruptcy estate inaccordance with the Plan and that any recovery would likely goentirely to BRMC's creditors, it appears that the AttorneyGeneral has no practical interest in this litigation.
As the Attorney General is not a necessary party, he cannot bean indispensable party, and the defendants are not entitled tothe dismissal of this case under Rule 19. C. AAHC IS ENTITLED TO JUDGMENT ON THE PLEADINGS ON ITSDECLARATORY JUDGMENT COUNTERCLAIM
The Committee alleges in Count IV of its complaint that AAHCaided and abetted the BRMC Trustees' breach of fiduciary duty.AAHC filed a counterclaim seeking a declaratory judgment that anyliability it has on count IV is limited to $20,000 exclusive ofinterest and costs under M.G.L. ch. 231, § 85K. The Committeeargues that AAHC is not entitled to the liability cap of § 85Kbecause its actions were primarily commercial in character. Thisclaim is not persuasive. Therefore, the court finds that AAHC isentitled to the protection of § 85K.
M.G.L. ch. 231, § 85K provides, in pertinent part, that: [I]f [a] tort was committed in the course of any activity carried on to accomplish directly the charitable purposes of such [charitable] corporation, trust, or association, liability in any such cause of action shall not exceed the sum of twenty thousand dollars exclusive of interest and costs. Notwithstanding any other provision of this section, the liability of charitable corporations . . . shall not be subject to the limitations set forth in this section if the tort was committed in the course of activities primarily commercial in character even though carried on to obtain revenue to be used for charitable purposes.The Supreme Judicial Court recently reviewed the test fordetermining whether a charity is entitled to the liability cap of§ 85K. In Conners v. Northeast Hospital Corp., 439 Mass. 469,477-80 (2003), the court held that the inquiry into whether anactivity is primarily commercial in nature cannot be separatedfrom the inquiry into whether that activity accomplishes directlythe goals of the charity. The court explained: To determine whether the statutory limitation on liability applies in a given case, Conners elevates the "primarily commercial" analysis of § 85K's second sentence to a separate test, independent of the "accomplished directly" analysis set forth in the first sentence. The two considerations denoted in the statute are not independent. Having determined, correctly, that the hospital's activity challenged by Conners "accomplished directly" the charitable purposes of Northeast, it was not necessary for the judge to consider whether those activities were "primarily commercial in character."
Id. at 478.
"The specific purpose of [AAHC] is to accomplish the goals andobjectives of the Church in providing the optimum level of healthand medical care to the general public." AAHC's Appx. at 87.Thus, if the activities of AAHC that form the basis of theCommittee's Complaint directly accomplish the Church's goal ofproviding the optimum level of health and medical care to thegeneral public, AAHC is entitled to the liability cap of § 85K.
AAHC argues persuasively that: The sale of BRMC to an entity such as DCHC that would permit BRMC to maintain its church affiliation, is not "entirely disconnected" from AAHC's purpose even if DCHC is a for-profit corporation. To the contrary, it is at the epicenter of this purpose according to the Committee's complaint. Similarly, BRMC's "fund balances transfers" to BRMA were made, according to the Committee, "to preserve AAHC's interest in BRMA and to avoid AAHC's funding of BRMA's continuing losses." Complaint, ¶ 42. Preservation of BRMA, a not-for-profit corporation which, according to the Committee, owned and managed various medical practices associated with BRMC, was thus connected with AAHC's mission of "providing the optimum level of health and medical care to the general public."AAHC's 2002 Reply at 7 (emphasis in original).
The Committee responds that "[t]he devastating effects of the former officers and directors' conduct [leading] to BRMC'sbankruptcy filing can hardly be in furtherance of the promotionof `the wholeness of man physically, mentally, and spiritually.'"Comm.'s 2002 Opp. at 21 (quoting Church goals). The Committeealso argues that it would be "patently absurd and unreasonable"to allow a charity to commit any intentional tort, short ofcommitting a crime, and capping the charity's liability at$20,000. However, the Committee does not directly address AAHC'sargument that whenever it was interacting with BRMC and itsdirectors, it was acting to directly accomplish its charitablepurpose.
The charitable immunity cap may arguably be a poor policy whenviewed solely in the context of a particular case. The Committeealleges that AAHC and the Church essentially operated a looseaffiliation of corporations and placed the future of one at greatand unreasonable risk in order to protect and benefit the others.Arguably, such conduct, if proven, should be fully remediable injudicial proceedings. However, the Legislature has in § 85Kweighed the competing considerations and chosen to limit strictlythe remedy for any such misconduct. That is a judgment concerningpolicy properly made by elected and democratically accountableofficials which the courts must respect and enforce.
D. THE UNCOMPENSATED TRUSTEE DEFENDANTS ARE ENTITLED TO SUMMARYJUDGMENT
All of the defendants in this case other than Ricks, Crunk andAAHC served as uncompensated trustees of BRMC. They have movedfor summary judgment arguing, among other things, that they areentitled to immunity under M.G.L. ch. 231, § 85W. The statuteprovides that: [N]o person who serves without compensation . . . as a . . . trustee of any nonprofit charitable organization . . . shall be liable for any civil damages as a result of any acts or omissions relating solely to the performance of his duties as a . . . trustee; provided, however, that the immunity conferred by this section shall not apply to any acts or omissions intentionally designed to harm or to any grossly negligent acts or omissions which result in harm to the person. Nothing in this section shall be construed as affecting or modifying the liability of any person subject to this section for acts or omissions which are committed in the course of activities primarily commercial in nature even though carried on to obtain revenue to be used for charitable purposes, nor for any cause of action arising out of such person's operation of an automobile.
As explained earlier, the court has subject matter jurisdictionand the Committee has standing to sue. Therefore, the claim ofimmunity is the sole remaining reason that these defendants mightbe entitled to summary judgment.
The court's discretion to grant summary judgment is governed byFederal Rule of Civil Procedure 56. Rule 56 provides, inpertinent part, that the court may grant summary judgment only if"the pleadings, depositions, answers to interrogatories, andadmissions on file, together with the affidavits, if any, showthere is no genuine issue as to any material fact and that themoving party is entitled to judgment as a matter of law."Fed.R.Civ. P. 56(c). In making this assessment, "the court must look at the record in the light most favorable to the party opposing themotion and must indulge all inferences favorable to that party."Stepanischen v. Merchants Despatch Transp. Corp., 722 F.2d 922,928 (1st Cir. 1983); Attallah v. United States, 955 F.2d 776,779 (1st Cir. 1992); Medina-Munoz v. R.J. Reynolds Tobacco Co.,896 F.2d 5, 8 (1st Cir. 1990).
In determining the merits of a motion for summary judgment, thecourt is compelled to undertake two inquiries: (1) whether thefactual disputes are genuine, and (2) whether any fact genuinelyin dispute is material. Anderson v. Liberty Lobby,477 U.S. 242, 247-48 (1986). "As to materiality, the substantive law willidentify which facts are material. Only disputes over facts thatmight affect the outcome of the suit under the governing lawproperly preclude the entry of summary judgment." Id. Todetermine if the dispute about a material fact is "genuine," thecourt must decide whether "the evidence is such that a reasonable[factfinder] could return a verdict for the non-moving party."Id.; see also Medina-Munoz, 896 F.2d at 8; Oliver v.Digital Equipment Corp., 846 F.2d 103, 105 (1st Cir. 1988).
The immunity afforded by § 85W is very similar to anaffirmative defense in many respects and it is, therefore,appropriate to employ a burden-shifting paradigm. Cf. Heinrichex rel. Heinrich v. Sweet, 118 F. Supp. 2d 73, 86 (D. Mass.2000) (explaining burden shifting paradigm in context of thedamages cap of M.G.L. ch. 231, § 85K), vacated in part on othergrounds, 308 F.3d 48 (1st Cir. 2002), cert. denied, 123 S. Ct. 2273(2003).10 A defendant bears the initial burden ofproduction of establishing that he or she was an uncompensatedtrustee of BRMC sued for acts or omissions related to his or herduties as a trustee. If this burden is met, the plaintiff mayeither rebut that evidence or present evidence that an exceptionto the immunity applies. The burden of persuasion remains on thedefendant to prove he or she is entitled to immunity.
There is no dispute that the Trustee Defendants have met theirburdens of production and persuasion with regard to their statusas uncompensated trustees and the general applicability of thestatute. There is also no dispute that the acts and omissions ofthese defendants at issue do not arise out of the operation of anautomobile. For the reasons described below, the Committee hasnot demonstrated a genuine issue of material fact as to any ofthe other three exceptions to the statute. Consequently, theTrustee Defendants are immune from damages and their motions forsummary judgment are being allowed.
1. The Uncompensated Trustee Defendants Did Not Commit Any Grossly Negligent Acts or Omissions That Resulted in Harm tothe Person
The Committee has demonstrated that there is a genuine issue ofmaterial fact as to whether the Trustee defendants were grosslynegligent. See Comm.'s 2003 Opp. at 33-36 (citing, among otherthings, expert report concluding that Trustee Defendants weregrossly negligent). However, the statutory exception is limitedto "grossly negligent acts or omissions which result in harm tothe person". The parties disagree as to the meaning of thisphrase.
The defendants argue that this exception to the immunityprovided for in § 85W is limited to gross negligence that resultsin physical or emotional injury to a natural person. Morespecifically, they argue that any other interpretation would readthe phrase "resulting in harm to the person" out of the statuteand, "[u]nder the settled rules of statutory construction, eachword in a statute must be given meaning." Case Defs.' Mem. at 12(citing Int'l Org. of Masters v. Woods Hole, Martha's Vineyard &Nantucket S.S. Auth., 392 Mass. 811, 814 (1984)).
The Case Defendants argue that "all [of] the reported casesinterpreting G.L. c. 231, Section 85W involve injury to a naturalperson, and not economic damage to creditors." Case Defs.' Mem.at 14-15 (citing six cases). The Case Defendants are correct thatthe plaintiffs in the six cited cases were all natural persons,but economic damages were alleged in two of them, Nadal-Ginardv. Children's Hospital Corp., No. 94-3782-E, 1995 WL 1146118(Mass Super. Ct. Dec. 1, 1995) and Patriarca v. Center for Living &Working, Inc., No. 99-689-B, 1999 WL 791888 (Mass.Super.Ct.Sept. 8, 1999). In no case did a court hold that the grossnegligence exception to § 85W's liability shield permittedrecovery of economic damages. The Committee has not identifiedany case applying the exception to purely economic damages. TheCase Defendants also cite cases interpreting the immunityconferred by M.G.L. ch. 231, § 85V, which also contains anexception for gross negligence to acts and omissions "whichresult in harm to the person" and note that none of these casesapplies the exception to purely economic damages. Case Defs.'Mem. at 15.
Finally, the Case Defendants draw the court's attention to thefederal loan-sharking statute, 18 U.S.C. § 891(7). Case Defs.'Mem. at 15. The statute defines "extortionate means" as "anymeans which involves the use, or an express or implicit threat ofuse, of violence or other criminal means to cause harm to theperson, reputation, or property of any person." (emphasisadded). Thus, the Case Defendants argue that had the legislaturedesired a broader scope for the exception, it could havespecified more types of harm in the statute.
The Committee does not dispute the fact that the damages thatit alleges "were not in the nature of personal injuries to anatural person." Comm.'s Resp. to Def. Hogan's Stmt. of MaterialFacts ¶ 9; accord Comm.'s Resp. to Hughes Defs.' Stmt. ofMaterial Facts ¶ 13. Rather, the Committee argues that thedefendants are reading the exception too narrowly. Since this issue is one ofstatutory interpretation, it is a question of law for the court.See Comm.'s 2003 Opp. at 31 (citing Annesse Elec. Svcs., Inc.v. Newton, 431 Mass. 463, 764 n. 2 (2000)); accord Hogan'sReply at 1.
Citing eleven Massachusetts statutes and one Supreme JudicialCourt case from 1938, the Committee argues that "the ordinary andapproved definition of `person' includes entities." Id. At31-32. The Committee also directs the court to Black's LawDictionary, which defines "person" as "1. A human being. 2. Anentity (such as a corporation) that is recognized by law ashaving the rights and duties of a human being." Black's LawDictionary 1162 (7th ed. 1999) (quoted in Comm.'s 2003 Opp. at32). Finally the Committee argues that interpreting the statuteas the defendants do leads to "absurd and unreasonable results"because no one, including the Attorney General, could ever suethe director or trustee of a charitable organization for breachof fiduciary duty unless there was physical bodily harm. Comm.'s2003 Opp. at 33.
In her reply Hogan notes the "curious" fact that the Committeeomitted the third part of the Black's Law Dictionary definitionof "person" from its Opposition. The third part of the definitionreads: "3. The living body of a human being
In their reply, the Hughes Defendants dispute the Committee'scontention that limiting the gross negligence exception to harmto natural persons leads to absurd results. Hughes Defs.' Replyat 10-11. The Hughes Defendants argue that the result is quiterational because (1) the legislature wanted broad immunity foruncompensated directors of charities in order to encouragevolunteerism; and (2) since compensated "directors are protectedfrom liability to the corporation for mere negligence [and] grossnegligence is required" to establish liability, the immunitystatute would have added nothing to the protection affordeduncompensated directors if only a showing of gross negligencewere required to defeat immunity. Id. at 11 (citing Speigel v.Beacon Participations, Inv., 297 Mass. 398, 410-11 (1937) forthe proposition that the liability of ordinary directors must bepremised on gross negligence). The court also notes that even ifdamages are not available, an appropriate plaintiff could obtaininjunctive relief against an uncompensated director.
Ultimately, the court finds the defendants' argumentspersuasive. If the legislature did not intend to limit immunityfor damages arising out of gross negligence to those acts and omissions that cause harm to a natural person, then there wouldbe no reason to include the phrase "which result in harm to theperson" in the statute. The legislature could have said "anygrossly negligent acts or omissions" or "any grossly negligentacts or omissions which result in harm". The phrase "to theperson" must be attributed some significance. As the FirstCircuit wrote in United States v. Cortes-Claudio, 312 F.3d 17,21-22 (2002) (quoting Duncan v. Walker, 533 U.S. 167, 174(2001) (internal quotation marks omitted)), "[i]t is `a cardinalprinciple of statutory construction' that `a statute ought, uponthe whole, to be so construed that, if it can be prevented, noclause, sentence, or word shall be superfluous, void, orinsignificant.'" The plaintiff's proffered interpretation of thestatute strips part of the statute of any significance and thecourt must, therefore, reject it.
2. The Activities of the Uncompensated Trustee Defendants Thatthe Committee Alleges Constitute Breaches of Fiduciary Duty WereNot Primarily Commercial in Nature
In arguing over the scope of the primarily commercial in natureexception, both the Committee and the defendants urge the courtto look at interpretations of similar language in M.G.L. § 85K,which establishes the charitable immunity cap, and adopt a testthat requires an activity to be "entirely disconnected" from thecharity's purpose for it to fall within the exception. Comm.'sMem. at 38; Hogan Mem. at 12-13; Case Defs.' Mem. at 16-17;Hughes Defs.' Mem. at 6-7. The court agrees that this analogy isappropriate. Cf. Crocker v. Wakefield Little League Ass'n,Inc., No. 97-4725, 1999 WL 1318990, at *2 (Mass.Super.Ct. Apr.27, 1999) (looking to cases construing § 85K in determining scopeof exception in § 85V providing immunity for sports organizationsbecause no cases construing § 85V were available).
However, it is now unclear whether the "entirely disconnected"test remains the relevant inquiry for determining theapplicability of § 85K's liability cap. In Conners v. NortheastHospital Corp., 439 Mass. 469, 478-80 (2003) (footnote omitted),a case decided after the briefing and oral argument in this case,Chief Justice Margaret Marshall wrote: Relying on Missett v. Cardinal Cushing High Sch., 43 Mass.App.Ct. 5, 680 N.E.2d 563 (1997), the judge concluded that Northeast's snow removal activities were not "primarily commercial" in nature because Northeast did not derive any revenue from the snow removal operations, was not operating a "full-fledged" snow removal business, and was not engaged in an activity that was "entirely disconnected" from the charity's purpose. Id. at 11, 680 N.E.2d 563. We agree with the judge's conclusion, but for somewhat different reasons. To determine whether the statutory limitation on liability applies in a given case, Conners elevates the "primarily commercial" analysis of § 85K's second sentence to a separate test, independent of the "accomplished directly" analysis set forth in the first sentence. The two considerations denoted in the statute are not independent. Having determined, correctly, that the hospital's activity challenged by Conners "accomplished directly" the charitable purposes of Northeast, it was not necessary for the judge to consider whether those activities were "primarily commercial in character." We reach this conclusion by parsing and construing each phrase of § 85K so that each word is "given its ordinary meaning without overemphasizing its effect upon the other terms appearing in the statute, so that the enactment considered as a whole shall constitute a consistent and harmonious statutory provision capable of effectuating the presumed intention of the Legislature." Globe Newspaper Co. v. Commissioner of Educ., 439 Mass. 124, 129, 786 N.E.2d 328 (2003), quoting Bolster v. Commissioner of Corps. & Taxation, 319 Mass. 81, 84-85, 64 N.E.2d 645 (1946). The first clause of the first sentence of § 85K abolishes charitable immunity, and is not at issue here. The second clause of the first sentence then qualifies the abrogation of charitable immunity by limiting the liability for tort damages to only those activities that "accomplish directly the charitable purposes." G.L. c. 231, § 85K. If a charity's activity does so, which is a question of fact, the activity, ipso facto, is subject to the limitation on liability. No further inquiry is necessary. The second sentence of § 85K ("primarily commercial") clarifies the Legislature's intent in circumstances where the questioned activity of a charity is one that generates revenue: that sentence directs the fact finder to consider, among other things, whether the activity is a money-making enterprise merely designed to keep the charity afloat, in which case the limitation does not apply, or whether the revenue is generated by an activity accomplishing the purpose of the charity. See, e.g., Phipps v. Aptucxet Post # 5988 V.F.W. Bldg. Ass'n, 7 Mass.App.Ct. 928, 930, 389 N.E.2d 1042 (1979) (no limitation on damages where tort committed in course of regular weekend dance opened to general public that generated bulk of charity's general operating revenue). Thus, a charitable organization may not avail itself of the limitation by claiming that its revenue-generating activity has a general salutary effect. See McKay v. Morgan Memorial Coop. Indus. & Stores, Inc., 272 Mass. 121, 123, 125-126, 172 N.E. 68 (1930) (not enough that revenue generating activity provided "general uplift" to people in difficult circumstances where activity itself did not carry out "charitable objects" of extending relief to poor and giving religious instruction). If the revenue-generating activity is indeed "primarily commercial," it cannot "accomplish directly" the charitable work of the organization. Conversely, a revenue-generating activity may, and in many circumstances does, "accomplish directly" the organization's purpose. See Grueninger v. President & Fellows of Harvard College, 343 Mass. 338, 340, 178 N.E.2d 917 (1961) (charitable corporation not liable for activities that "incidentally yield revenue"); Missett v. Cardinal Cushing High Sch., supra at 11, 680 N.E.2d 563 ("Generating revenue does not alone mean that an activity is `primarily commercial'"). The "critical question" is whether the revenue-generating activity is "in conformity with the [corporation's] . . . charitable corporate purposes." Mason v. Southern New England Conference Ass'n of Seventh-Day Adventists, 696 F.2d 135, 140 (1st Cir. 1982).
Thus, the "entirely disconnected" test set forth by the AppealsCourt in Missett and approved by the Supreme Judicial Court inLinkage Corp. v. Trustees of Boston University, 425 Mass. 1, 28n. 37 (1997) may have been supplanted, or at least beensupplemented, by the "accomplish directly" standard articulatedin Conners. Regardless of the appropriate formulation of thegoverning standard, the court concludes that, consonant with thepurposes of providing a broad shield from liability foruncompensated trustees of charitable institutions in order toencourage volunteerism, the "primarily commercial activity"exception to § 85W should be construed narrowly.
The Trustee Defendants persuasively argue that they were nottrying to run a business separate and apart from the hospitaland, therefore, their activities were not entirely disconnectedfrom the charitable purpose of BRMC. As Hogan puts it "[t]heCommittee cannot explain how or why the ordinary actions of thetrustees of a non-profit corporation could be `entirelydisconnected' from the purposes of the corporation. To thecontrary, the alleged acts and omissions of the Defendants inconnection with BRMC's finances are entirely connected to the charitable purpose of BRMC, since ahospital can only fulfill its purpose if its board of trusteesperforms its function." Hogan Mem. at 14 (emphasis in original).Put another way, by serving as trustees, the defendants helpedBRMC accomplish directly its charitable purpose rather than someother goal that was commercial in nature. Thus, under eitherformulation of the standard, the defendants are entitled toimmunity from damages. A review of the cases interpreting § 85Ksupports to this conclusion.
In Missett, the Massachusetts Appeals Court held that ateenager stabbed at a school dance open to non-students for whichadmission was charged could not recover damages beyond the cap of§ 85K because "whether the educational benefits of the dance are`indirect' rather than 'direct' is not determinative; that someeducational benefits resulted from the students' organizing,advertising, running, and participating in the dance is enoughunder § 85K to conclude that the dance accomplished directly thecharitable purposes of the school." Id. at 10. The court citedwith approval the First Circuit's decision in Mason v. SouthernNew England Conference Assn. of Seventh-Day Adventists,696 F.2d 135, 139 (1st Cir. 1982) for the proposition that "cases in whichcourts have concluded that an activity was `primarily commercial'have involved the operation of full-fledged businesses." Id. at11. The court distinguished Phipps v. Aptucxet Post # 5988V.F.W. Bldg. Ass'n, Inc., 7 Mass. App. Ct. 928, 930 (1979),another case involving dances, because in Phipps, the dances were regularlyscheduled affairs that generated over 85% of the defendant'sincome, which was used to pay mortgage and overhead expenses.Id. at 11 n. 11.
In Jiminez v. Caribbean Cultural Center, Inc., No. 95-03269,1999 WL 1411349, at *1-*2 (Mass.Super.Ct. Dec. 18, 1999), thecourt held that a charitable organization whose purpose included"fostering awareness of the Caribbean cultural heritage in theGreater Boston Community" was not engaged in primarily commercialactivity when it held a series of reggae events that generatedsubstantial revenues that amounted to 70% to 80% of theorganization's revenues. Distinguishing Phipps, the courtreasoned that promoting appreciation of reggae music was part ofthe charitable purpose of promoting the Caribbean culturalheritage and, therefore, the damages cap applied.
In Weintraub v. Metropolitan Center, Inc., No. 85-0210-Y,1987 WL 7746, at *1-*2 (D. Mass. Feb. 23, 1987), the court,following the reasoning of an earlier district court case, heldthat the Boston Opera Association was entitled to the liabilitycap when a violinist intending to perform at one of theAssociation's concerts injured his hand "while . . . ascendinginto the orchestra pit" despite the fact that the Associationcharged for admission to the concert.
In Harlow v. Chin, 405 Mass. 697, 715-16 (1989), the SupremeJudicial Court held that a nonprofit hospital is entitled to the damages cap of § 85K so long as the actions complained of are tofurther its charitable purpose rather than "merely to generaterevenue." Id. at 715.
Although BRMC was a business, it was not a business existingseparately from the charity's purpose. According to its Articlesof Organization, BRMC has several purposes. They include: (1)"founding a hospital or charitable asylum within the State ofMassachusetts"; (2) "the care and relief of indigent or othersick or infirm persons. . . ."; (3) "to aid and assist [AAHC] infurtherance of its charitable and corporate purposes, includingoperation and harmony with the standards, goals and methodsestablished by the Seventh-day Adventist Church"; (4)distributing assets to Church affiliates once creditors are paidin the event of dissolution or liquidation; and (5) "to engage ineducational activities for the benefit of the community served bythe Corporation." Bennett Aff. Ex. 3. BRMC's articles oforganization are prima facie evidence of its charitable purposes.See Boxer v. Boston Symphony Orchestra, Inc., 342 Mass. 537,538 (1961). To the extent that the Trustees were overseeingBRMC's operations, they were acting to further the corecharitable purposes of the organization rather than for someother commercial purpose. The cases, particularly Jiminez andWeintraub, illustrate that even revenue-generating enterprisesare not "primarily commercial in character" so long as they arerelated to the charitable purpose of the organization. The Committee argues that: In their arguments, the Defendants confuse the entity that the BRMC Board was bound to serve. The Defendants argue that because the DCHC offer would preserve the unrelated Adventist church and school located on BRMC's property, the Board was acting within BRMC's charitable purpose. However, if consummated, the DCHC transaction would have resulted in the conversion of BRMC to a for-profit institution. The crux of the proposed DCHC transaction was the cessation of BRMC's charitable purpose. Hence, any acts or omissions of BRMC's Board relating to the sale of BRMC fall squarely within the commercial transaction exception in the immunity statute.Comm.'s Mem. at 39.
This argument is not persuasive for the reasons described bythe Hughes Defendants in their Reply. As they state: To be sure, the primary purpose of BRMC at its founding was the operation of a hospital. But the articles and amended articles make it clear that the charitable purpose encompassed (i) providing healthcare to the community, (ii) forwarding the education of the community, (iii) assisting AAHC in accomplishing its charitable purpose. CredComm Exh. 3. Contrary to the CredComm's assertion, the transaction at issue would not turn BRMC into a forprofit organization. The hospital would have been converted into a for-profit operation; but that is not the same as turning BRMC into one. Further, the DCHC transaction, had it succeeded, would have had the following effects that were within its charitable purposes: * The hospital would have been preserved, and the entity that owned it would itself have been owned 80% by DCHC and 20% by AAHC. CredComm Exh.s 9, 12. As a result, by preserving the hospital in operation, BRMC would have (i) fulfilled the charitable purpose of keeping health care available through the hospital, and (ii) fulfilled the charitable purpose of assisting AAHC in its charitable purposes by allowing AAHC to retain some interest in the hospital; * BRMC itself would have been able to remain in existence as a charitable corporation rather than facing compelled liquidation; * The charitable purpose of ensuring that on liquidation and payment of debts assets could be distributed to organizations with affiliations with the Seventh-Day Adventist church would be preserved; and * The school and the church properties would be preserved for uses within the scope of BRMC's charitable purposes. The DCHC transaction, therefore, was not "entirely disconnected" from the charitable purposes of BRMC, and the immunity statute applies to the Moving Defendants.Hughes Defs.' Reply at 12-13 (emphasis in original).
Furthermore, the Committee's allegations are not limited to theDCHC transaction. Rather, the Committee alleges a broader patternof mismanagement that includes within its scope acts of theTrustee Defendants other than approving the asset purchaseagreement with DCHC. See, e.g., Apr. 23, 2003 Tr. at 38-40.These are all actions that directly accomplished BRMC'scharitable goals.
3. The Committee Has Failed to Establish a Genuine Issue ofMaterial Fact as to Whether the Uncompensated Trustee DefendantsCommitted Acts Intentionally Designed to Harm BRMC or itsCreditors
The Committee concedes that neither Hogan nor the HughesDefendants committed any acts intentionally designed to harmBRMC. See Comm.'s Resp. to Hughes Defs.' Stmt. of MaterialFacts ¶ 12; Comm.'s Resp. to Hogan's Stmt. of Material Facts ¶ 8.Accordingly, this final exception does not apply to them and theyare entitled to immunity and, therefore, summary judgment. With regard to the Case Defendants, however, the Committeeargues that they are not entitled to immunity because theiractions were intentionally designed to harm BRMC and itscreditors. See Comm.'s 2003 Opp. at 36-38. Generally, theCommittee alleges that the Case Defendants, who were also membersof AAHC's Board, made decisions to harm BRMC in order to benefitAAHC and other Adventist entities.
The Case Defendants claim that "[t]he only intentional actsascribed to [them] by the Plaintiff was their neglect of theirfiduciary duty with respect to the overall governance of BRMC bypermitting the officers of BRMC to make general decisions withrespect to the general management of BRMC particularly withrespect to BRMC's efforts to obtain a financially viablepartner." Case Defs.' Stmt. of Facts ¶ 16. The Committee deniedthis statement of fact, claiming that the Case Defendants"intentionally neglected their fiduciary duties as trustees withrespect to the overall governance of BRMC." Comm.'s Resp. to CaseDefs.' Stmt. of Facts ¶ 16. At various points in its filings, theCommittee expands on this allegation by identifying particularevents that it asserts were intentionally designed to harm BRMC.See Comm.'s 2003 Opp. at 36 (deciding to accept the DCHCoffer); id. at 38 ("disavowing their clear conflicts ofinterest and [failing to] tak[e] appropriate remedial measures").However, ultimately the Committee's allegations of intentionalconduct on the part of the Case Defendants "is premised uponomission, as opposed to commission." Comm.'s Answer to Case Defs.' Int. No. 3 (NicklessAff. Ex. A at 4).
The evidence supporting the allegations of intentional harm issparse. The Committee "admits that its expert, Anthony Kovner,did not conclude in his report that the Defendants conducted anyintentional acts designed to harm." Comm.'s Resp. to Case Defs.'Stmt. of Facts ¶ 20.11 "However, by way of furtherresponse, [the Committee claims that] minutes from the Boardmeetings and deposition testimony support that Defendantsintentionally sacrificed BRMC for the benefit of unrelatedAdventist entities. See Committee Ex. 7." Id. The Committeedoes not cite any particular depositions in its Response to theCase Defendants' Statement of Facts. See Local Rule 56.1(requiring "page references to affidavits, depositions and otherdocumentation" in an opposition to a motion for summaryjudgment). The exhibit to which the Committee refers is theminutes of an AAHC Board Meeting in which the AAHC board membersdiscussed the DCHC transaction. Acknowledging the delays andother issues that plagued the DCHC transaction, the minutesreflect that "it should be noted that the transaction will haveallowed us to subdivide the properties and protect the otherassets of AAHC." The Committee treats this document as the smoking gun in which AAHC and its directorsacknowledge that any problems with the DCHC transaction with BRMCwere viewed as minor in light of the benefits that AAHC, asopposed to BRMC, would receive as a result of the transaction.See Apr. 23, 2003 Tr. at 83.
The Case Defendants note that "[s]ummary judgment isappropriate, even where `elusive concepts such as motive orintent are at issue . . . if the nonmoving party rests merelyupon conclusory allegations, improbable inferences, andunsupported speculation.'" Case Defs.' Reply at 8 (quotingLehman v. Prudential Ins. Co. of Am., 74 F.3d 323, 327 (1stCir. 1996)) (ellipses in original). They then correctly identifythe definition of acts "intentionally designed to harm" underMassachusetts law and argue persuasively that the Committeecannot prove that they acted with the requisite level of intent.
Revealed through the lens of liberal construction would be Massachusetts law's recognition of the difference between the intention to commit an act which involves a high degree of likelihood that substantial harm may result to another (reckless misconduct) and the intention to cause that harm (intentional misconduct). The Restatement of Torts has usefully delineated that distinction: "Intentional misconduct and recklessness contrasted. Reckless misconduct differs from intentional wrongdoing in a very important particular. While an act to be reckless must be intended by the actor, the actor does not intend to cause the harm which results from it. It is enough that he realizes or, from facts which he knows, should realize that there is a strong probability that harm may result, even though he hopes or even expects that his conduct will prove harmless. However, a strong probability is a different thing from the substantial certainty without which he cannot be said to intend the harm in which his act results." Restatement (Second) of Torts § 500 comment f (1964). See Commonwealth v. Welansky, 316 Mass. at 399, 55 N.E.2d 902; Sheehan v. Goriansky, 321 Mass. 200, 204, 72 N.E.2d 538 (1947). See also Restatement (Second) of Torts § 8A comment b; Prosser & Keeton, Torts § 8, at 36, & § 34, at 212 (5th ed. 1984). Most pertinently, the distinction between an "intentional tort" and "willful" wrongdoing is reflected in the Massachusetts Tort Claims Act itself. See G.L. c. 258, § 9. It is a discrimination that is consistent with legislative practice. In creating and modifying liabilities and immunities, the Legislature has been differentially precise in specifying when it wanted standards of liability to be based on "intentional" conduct, see G.L. c. 231, §§ 85S(c), 85V, & 85W, rather than on "wilful, wanton or reckless" conduct, as in §§ 85K, 85R, & 85T; or on "gross negligence" (§§ 85V & 85W); or on "ordinary negligence" (§ 85L).Forbush v. City of Lynn, 35 Mass. App. Ct. 696, 700-01 (1994).
After examining the record in the light most favorable to theCommittee and indulging all inferences favorable to theCommittee, the court concludes that no reasonable jury could findthat the Case Defendants committed acts intentionally designed toharm BRMC or its creditors. Gross negligence differs "in kindfrom wilful and intentional conduct." Altman v. Aronson,231 Mass. 588, 592 (1919) (quoted in Christopher v. Father's HuddleCafé, Inc., 57 Mass. App. Ct. 217, 230-31 (2003)). The evidenceis insufficient to support a jury finding that the CaseDefendants intentionally sought to harm BRMC. The Committeepoints to no evidence at all that indicates that the CaseDefendants wanted the DCHC transaction to fail or BRMC to become insolvent. At most, the Committee wouldbe able to prove that the Case Defendants were grossly negligentand their conflicts of interest served to encourage them to allowBRMC to engage in unreasonably risky behavior.
The minutes of the AAHC Board Meeting cannot support aninference to the contrary. The minutes contain statementsrelating to the potential risks and rewards presented by the DCHCtransaction. The minutes do not contain any statements indicatingthat the Case defendants intended that the risks wouldmaterialize and the transaction fail. Thus, the minutes wouldsupport a jury conclusion that the Case Defendants pursued theDCHC transaction despite "the high degree of likelihood thatsubstantial harm may result to [BRMC] (reckless misconduct)," butnot the conclusion that the Case Defendants had "the intention tocause that harm (intentional misconduct)." Forbush, supra.
As the final exception does not apply to the Case Defendants,they too are entitled to immunity and, therefore, summaryjudgment.
E. NEITHER RICKS NOR CRUNK IS ENTITLED TO JUDGMENT ON THEPLEADINGS
For the reasons described in Parts IV.A and IV.B, supra,Ricks and Crunks' arguments that this court lacks subject matterjurisdiction, that only the Attorney General has standing tobring this action and that the Committee has failed to join anindispensable party, the Attorney General, in violation of Rule19 are without merit. Accordingly, Ricks and Crunks' motions for judgment on the pleadings are being denied.
Crunk also argued that she is entitled to judgment on thepleadings because an officer of a nonprofit corporation cannot beheld liable for acts and omissions relating to the sale ofsubstantially all of the corporation's assets if the sale hasbeen approved by the Board of Trustees. See Crunk's Mem. at17-19; Crunk's Reply at 15-16. However, this issue was notidentified in the court's February 4, 2003 Order as one of thearguments on which a party may base a motion for summary judgmentor judgment on the pleadings at this stage in the proceedings.Accordingly, the court is not now addressing this contention.Crunk may raise this argument again at an appropriate time, andthe plaintiff will have an opportunity to respond. See Quaakv. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren,361 F.3d 11, 21 (1st Cir. 2004) ("District courts have broad discretion indetermining the sequence of their rulings.").
Ricks and Crunk both received compensation as officers of BRMC.Accordingly, as compensated officers, they are not protected bythe immunity conferred by M.G.L. ch. 231, § 85W. During the April23, 2003 hearing, counsel for Ricks made an oral motion seekingsummary judgment in Ricks' capacity as an unpaid trustee, asopposed to his capacity as a paid officer. Apr. 23, 2003 Tr. at54-55. The parties have not had an opportunity to brief thisissue and, as the motion was made orally, Ricks did not complywith Local Rule 56.1. The court questions whether resolving thisissue will make any real difference for the parties and will not now rule onRicks' motion. However, the court notes that the immunityconferred by M.G.L. ch. 231, § 85W extends only to "acts oromissions relating solely to the performance of his duties as a. . . trustee." In this case, it may be difficult to separateRicks' actions as president from his actions as trustee. If thatis the case, then the acts and omissions alleged by the Committeedo not relate solely to Ricks' service as an uncompensatedtrustee, and it would appear that he is not entitled to immunityunder § 85W.
Accordingly, it is hereby ORDERED that:
1. Plaintiff Official Committee of Unsecured Creditors ofBoston Regional Medical Center's Bankruptcy Estate's Motion toStrike (Docket No. 157) is ALLOWED.
2. Defendant Atlantic Adventist Healthcare Corporation's Motionfor Judgment on the Pleadings (Docket No. 73) is ALLOWED in partand DENIED in part. The Clerk shall enter judgment for AtlanticAdventist Healthcare Corporation on its Counterclaim. The courtDECLARES that any liability of Atlantic Adventist HealthcareCorporation on Count IV of the Complaint to the Boston RegionalMedical Center Bankruptcy Estate or the Estate's OfficialCommittee of Unsecured Creditors is limited to the sum of $20,000exclusive of interest and costs. See M.G.L. ch. 231, § 85K.Atlantic Adventist Healthcare Corporation's Motion for Judgmenton the Pleadings is DENIED as it relates to Count IV of theComplaint. 3. Defendant Laura Hogan's Motion for Summary Judgment (DocketNo. 103) is ALLOWED.
4. Defendants Jon Asgeirsson, Mark Hughes, Randy Lapides,Robert Leone, Jose Marcal, Kim O'Neil, and Paul Raslavicus'Motion for Summary Judgment (Docket No. 106) is ALLOWED.
5. Defendants Charles Case, Harold Grayson, Theodore Jones,Leon Thomassian and Halvard Thomsen's Motion for Summary Judgment(Docket No. 116) is ALLOWED.
6. Defendant Charles Ricks' Motion for Judgment on thePleadings (Docket No. 113) is DENIED.
7. Defendant Frances Crunk's Motion for Judgment on thePleadings (Docket No. 114) is DENIED.
8. Plaintiff Official Committee of Unsecured Creditors ofBoston Regional Medical Center's Bankruptcy Estate shall, bySeptember 17, 2004, submit an affidavit, documents and any otherevidence that it asserts establishes that plaintiff has beenassigned BRMC's claims against the defendants in this case orfile a motion seeking to substitute as plaintiff ReorganizedBRMC. In either event, plaintiff shall file a supportingmemorandum. The remaining defendants shall, by October 1, 2004,respond to plaintiff's submission.
9. The parties shall confer to discuss settlement andscheduling. They shall, by October 1, 2004, report on settlement,and, if they have not agreed on a settlement, identify alloutstanding issues to be litigated and propose a schedule for the remainder of this case, jointly if possible.
10. A hearing and/or scheduling conference will be held onOctober 15, 2004 at 11:00 a.m.
11. The Clerk shall send a copy of this Memorandum and Order tocounsel for the plaintiff in Executive Risk Indemnity, Inc. v.Asgeirsson et al., C.A. No. 01-12167-MLW.
1. The one exception is whether the plaintiff has establisheda genuine issue of material fact as to whether certain defendantscommitted acts intentionally designed to harm BRMC and itscreditors. The allegations and evidence relating to this issueare discussed in Part IV.D.3, infra.
2. Although the same might be said about Crunk's argumentregarding subject matter jurisdiction, the suggestion that afederal district court lacks subject matter jurisdiction over acase is accorded special status and may be raised at any time.See Fed.R. Civ. P. 12(h)(3).
3. Such an assignment might not be valid. See Williams v.California 1st Bank, 859 F.2d 664, 666-67 (9th Cir. 1988).
4. This conclusion means that the court need not address theextensive and interesting arguments on the question of whether adirector's fiduciary duties "flip" from shareholders to creditorswhen a corporation enters the zone of insolvency and whether thisrule should apply in the context of charitable corporations. Itis undisputed that directors owe a fiduciary duty to thecorporation regardless of the corporation's financial condition.
5. See Ames v. Atty. Gen., 332 Mass. 246 (1955)(petitioners who, for many years, were interested in andcontributed to the Arnold Arboretum, but did not purport to bringsuit on behalf of a visiting committee or other official bodycharged with overseeing the Arboretum, lacked standing to sueHarvard College and decision of Attorney General not to sueHarvard was within his discretion); Bello v. S. Shore Hosp.,384 Mass. 770, 779 (1981) (holding that physicians could not suehospital for violating by-laws in refusing to grant staffprivileges; "[T]he proper party to enforce the by-laws, asidefrom a member of the corporation, is the Attorney General in theexercise of his supervisory power over public charities."); BoyScouts of Am. v. Monadnock Trust, Inc., No. 93-2780, 1998 WL1181763 (Mass.Super. Aug. 13, 1998) (holding that Boy Scouts ofAmerica had standing to sue successor to local council thatfailed to obtain renewal of charter in order to seek transfer oftwo funds held by the successor); Dillaway v. Burton,256 Mass. 568, 572-73 (1926) (holding that plaintiff lacked standingbecause as a member of the corporate defendant he was "withoutany visitorial powers as trustee" and his interests wererepresented by the trustees of the corporate defendant or, in thealternative, the Attorney General); Elias v. Steffo,310 Mass. 280 (1941) (holding that plaintiffs, who were an Albanian townand several individuals who were members of a fundraisingcommittee, lacked standing to sue defendants including officersand former officers of charity founded to benefit town); Garlandv. Beverly Hosp. Corp., 48 Mass. App. Ct. 913 (1999) (holdingthat neither status as resident of community where hospital waslocated nor status as donor conferred standing to sue hospitalfor improperly diverting charitable assets); Lopez v. MedfordCommunity Ctr., Inc., 384 Mass. 163 (1981) (holding thatplaintiffs who alleged that they were members of a charitableorganization lacked standing to sue officers for corporatemismanagement); Loring v. Marshall, 396 Mass. 166 (1985)(discussing earlier case brought by charities in which theAttorney General was not a party); Mahoney v. Atty. Gen.,346 Mass. 709, 715 (1964) (declining to declare power of trustees toconvey land in part because Attorney General rather than town andits committee had sole standing to challenge trustees' allegedbreach of trust); Weaver v. Wood, 425 Mass. 270 (1997) (holdingthat members of church did not have standing to sue church'sdirectors for breach of fiduciary duty by investing in televisionventure in violation of church's governing documents).
6. The Hughes Defendants also identify Burbank as "theleading Massachusetts case concerning the Attorney General'sexclusive standing." Hughes Defs.' Supp. Mem. at 3.
7. AAHC's suggestion that the Committee is arguing thatfederal law preempts the provisions of state law that vest theexclusive right to sue in the Attorney General is misplaced.AAHC's 2002 Mem. at 17-19. The corporation could have sued understate law. Federal law serves the limited purpose of transferringthe corporation's claim to the bankruptcy estate. SeeLouisiana World Exposition, supra.
8. The court notes that in the adversary proceeding againstNCFE, BRMC sued in its own name.
9. According to the Murphy Affidavit, Exhibit 1 to the BennettAffidavit, as of March 19, 2003, the BRMC estate owed just over$35,000,000 on undisputed, liquidated unsecured claims and anadditional $12,000,000 on disputed, unliquidated unsecuredclaims. The estate also has other smaller debts. The estate'scash reserves total $7,300,000. The settlement of the NCFE Actionhas closed this gap somewhat. However, the estate's debts stillgreatly exceed its assets. In order for there to be residualassets for the beneficiaries of the charitable trust after thecreditors are paid in full, the estate would need to recover wellover $20,000,000. The court is not persuaded that even if theplaintiff prevails, it will be able to obtain a judgment for thismuch money and collect on it.
10. Keene v. Brigham & Women's Hospital, Inc.,439 Mass. 223, 238-39 (2003), decided after Heinrich, indicates that thelimitation on liability and immunity provided by §§ 85K and 85Wmay not be true affirmative defenses despite the fact that theyare treated as such for certain procedural purposes. InHeinrich, the court based its reasoning, in part, on thepremise that "charitable immunity is an affirmative defense."Heinrich, 118 F. Supp. 2d at 86. However, the court finds thatHeinrich still describes the appropriate framework even if theimmunity claimed by the defendants is not actually an affirmativedefense.
11. Moreover, it is not clear that Kovner is qualified to giveadmissible testimony about the mental state of the defendants.See Fed.R. Evid. 701, 702. In deciding the motions for summaryjudgment, the court must limit its consideration to admissibleevidence. See Fed.R. Civ. P. 56(e).