Amer. Lung NH v . Amer. Lung Assoc CV-07-129-PB 12/04/07

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

American Lung Association of New Hampshire

v. Civil N o . 1:07-cv-129-PB Opinion N o .

American Lung Association, and Director of Charitable Trusts of the New Hampshire Department of Justice

MEMORANDUM AND ORDER

The American Lung Association of New Hampshire (referred to

herein as “ALANH” and now known as “Breathe New Hampshire”)

disaffiliated from the American Lung Association (“ALA”) on June

3 0 , 2007. ALANH brought the present action to resolve several

issues surrounding the disaffiliation, and ALA responded with two

counterclaims.

ALANH now brings this motion to dismiss ALA’s first

counterclaim, which seeks declaratory relief with respect to a

unitized fund known as the Mary Fuller Russell Research Fund

(hereinafter “MFR Fund”). ALANH argues that the first

counterclaim should be dismissed because ALA released any and all claims to the MFR Fund in a 2003 settlement agreement between the

parties. Because I find that ALA did not clearly release ALANH

from this type of claim, ALANH’s motion to dismiss is denied.

I. BACKGROUND

In the 1980s, ALA and ALANH began an affiliation governed by

a series of constituent agreements, the last of which expired on

June 3 0 , 2007. 1 In 2002, a dispute arose between ALA and ALANH

regarding a charitable bequest of $13 million from the Margaret

L . Fuller Memorial Trust (hereinafter “MLF Trust”) made to ALANH

in 1994. The parties differed as to how the bequest should be

shared between the organizations based on the constituent

agreement and the language of the MLF Trust.

ALA argued that it was entitled to a portion of the bequest

based on language in the parties’ constituent agreement that, at

the time, required ALANH to share 10% of all income and receipts

with ALA. ALANH disagreed and sought a declaratory judgment in

1 Among other things, the constituent agreements required ALANH to submit annual financial reports to ALA, including proof of an annual independent audit. The constituent agreements also required ALANH to abide by policies in the ALA Polices Manual, which includes policies regarding approved investment practices and accounting methods.

-2- January 2002 in Hillsborough County Probate Court to establish

that ALANH was entitled to keep the full amount of the bequest.

ALA removed the case to this court and it was assigned to me on

March 5 , 2002. I denied ALANH’s motion to remand to state court

on July 2 5 , 2002.

The parties resolved their dispute over the bequest via

settlement in 2003 before any motions for dismissal or summary

judgment were filed. Based on the parties’ settlement agreement,

I approved a consent decree to govern the parties’ rights and

responsibilities with respect to the MFR Fund. The consent

decree was entered on July 9, 2003.

The consent decree ordered ALANH to divide the $13 million

bequest from the MLF Trust such that a separate unitized fund,

the MFR Fund, would be created containing $1,297,643.20 for the

benefit of both parties. The decree ordered that ALANH was to

have ownership and investment responsibility for the MFR Fund,

but that ALANH was to pay all income from the fund to ALA. In

the settlement agreement that served as the basis for the consent

decree, ALA agreed to the following release of claims:

In consideration of the agreement herein set forth and except for the Parties’ continuing obligations hereunder, ALA and ALANH hereby release and forever discharge each

-3- other, its successor and assigns, from any and all actions, causes of action, debts, claims, suits, and demands of every name and nature, both at law and in equity, which each party now has, or may have, from the beginning of the world to the date hereof, relating to the subject matter of this action, the Margaret L . Fuller Memorial Trust, or The Mary Fuller Russell Research Fund. More specifically, but without in any manner limiting the foregoing, ALA releases and forever discharges ALANH from any claim that ALA is entitled to a portion of the funds received by ALANH from the Margaret L . Fuller Memorial Trust (other than as described in the agreement herein).

Settlement Agreement at ¶ 8 .

The present case arose because, in early 2007, ALANH’s board

of directors voted to disaffiliate with ALA. In March 2007,

ALANH filed a Petition for Instructions and Preservation of

Charitable Assets in state court. The action was removed to this

court in April 2007 and the case was assigned to m e . Thereafter,

ALA filed an answer and two counterclaims.

ALANH now moves to dismiss ALA’s first counterclaim, which

seeks either: (1) a declaratory judgment modifying the consent

decree to protect ALA’s interest in the MFR Fund post-

disaffiliation, or (2) a declaratory judgment that ALA has the

right to title and control of the MFR Fund. ALANH argues that

this claim must be dismissed because it is barred by the above-

-4- quoted release language in the 2003 settlement agreement. ALA

disagrees.

II. STANDARD OF REVIEW

On a Rule 12(b)(6) motion to dismiss a counterclaim, I must

accept a counterclaimant’s well-pleaded factual allegations as

true, and the counterclaimant is entitled to all reasonable

inferences from the facts alleged in the counterclaim. Fed. R.

Civ. P. 12(b)(6); Phoung Luc v . Wyndham Mgmt. Corp.,

5 ,

88 (1st Cir. 2007).

I may consider the counterclaim, documents annexed to the

counterclaim, and other materials fairly incorporated within it

when ruling on the motion. See Rodi v . S . New Eng. Sch. of Law,

, 12 (1st Cir. 2004). I may also consider matters that

are susceptible to judicial notice,

including matters of

public record such as records from prior court proceedings.

Boateng v . InterAmerican Univ., Inc.,

6 , 60 (1st Cir.

2000). I may consider “the relevant entirety of a document

integral to or explicitly relied upon in the complaint, even

though not attached to the complaint, without converting the

-5- motion into one for summary judgment.” Clorox C o . P.R. v .

Proctor & Gamble Commercial Co.,

4 , 32 (1st Cir. 2000).

In this case, therefore, I consider the counterclaim along

with the parties’ settlement agreement and consent decree from

2003; both documents are matters of public record and are

attached to ALA’s answer and counterclaim.

III. ANALYSIS

In essence, ALA’s counterclaim seeks to either modify or

vacate the 2003 consent decree.2 ALANH has moved for dismissal

of this claim, arguing that it is barred by release language in

the 2003 settlement agreement.

By making this argument, ALANH is actually raising an

affirmative defense as a ground for dismissal. This is

permissible provided that “(1) the facts establishing the defense

2 Ordinarily, a request to modify a consent decree is presented in a Rule 60(b) motion in the case where the consent decree was originally issued. However, it is possible to seek modification of a consent decree in a new, independent action. 12 James W . Moore, Moore’s Federal Practice § 60.80 (3d ed. 2007). Although this could prove problematic in many cases, it is not a problem in this case because I approved the original consent decree and I am now assigned to the present case.

-6- are definitively ascertainable from the complaint and the other

allowable sources of information, and (2) those facts suffice to

establish the affirmative defense with certitude.” Rodi,

2 . In this case, the facts establishing the defense are

ascertainable from the settlement agreement, which is properly

before me as a public record and is also incorporated into the

pleadings.

The settlement agreement establishes that New Hampshire law

governs enforcement of the agreement. Settlement Agreement at ¶

11. In New Hampshire, settlement agreements are contractual in

nature and are generally governed by contract law principles.

Poland v . Twomey, --- N.H. ---,

(N.H. 2007);

Czumak v . N.H. Div. of Developmental Servs.,

6 8 , 373

(2007). When interpreting a settlement agreement, “we give the

language used by the parties its reasonable meaning, considering

the circumstances and the context in which the agreement was

negotiated, and reading the document as a whole.” Czumak,

.

In this case, the settlement agreement’s plain language does

not clearly foreclose ALA’s right to seek modification of the

consent decree based on a change in circumstance. The first part

-7- of the release states that ALA and ALANH release and forever

discharge each other from claims to the MLF Trust or the MFR Fund

“from the beginning of the world to the date hereof.” Settlement

Agreement at ¶ 8 . The date of the agreement was in early 2003;

therefore, this release does not encompass ALA’s counterclaim,

which is based on changes in the relationship between the parties

that occurred only recently.

In the second part of the release, ALA releases and forever

discharges ALANH from any claim that ALA is entitled to a portion

of the MLF Trust. ALANH argues that this release precludes ALA’s

counterclaim because the MFR Fund is a portion of the funds

received from the MLF Trust. The language is ambiguous, however,

because it states that ALA releases claims to the trust “other

than as described in the agreement herein.” Because the MFR Fund

was created by the settlement agreement, the release can be read

to mean that ALA releases all claims to funds received from the

MLF Trust except those that involve the MFR Fund. Accepting

ALA’s well-pleaded factual allegations as true and granting ALA

all reasonable inferences from the facts, I cannot say that ALANH

has established its affirmative defense with the certitude

required to effect dismissal of ALA’s counterclaim.

-8- IV. CONCLUSION

For the reasons stated above, plaintiff’s partial motion to

dismiss defendant’s first counterclaim (Doc. N o . 11) is denied.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

December 4 , 2007

cc: Daniel E . Will, Esq. James Q . Shirley, Esq. Michael S . DeLucia, Esq. Richard W . Head, Esq.

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