UNITED STATES DISTRICT COURT DISTRICT OF RHODE ISLAND

Lifespan Corporation

v. Civil No. 06-CV-421-JNL Opinion No.

New England Medical Center, Inc., now known as Tufts Medical Center Parent, Inc., and New England Medical Center Hospitals, Inc., now known as Tufts Medical Center, Inc.

and

Martha Coakley, Attorney General for the Commonwealth of Massachusetts, Intervenor

OPINION & ORDER

This case, transferred to this court from the District of

Rhode Island, arises out of a dispute between a healthcare system

and one of its former hospitals over the terms of their

separation. Lifespan Corporation, which runs a network of

hospitals in Rhode Island, sued New England Medical Center

("NEMC"), a Massachusetts hospital that had briefly joined

Lifespan's system, alleging that NEMC failed to make various

payments reguired by their disaffiliation agreement. NEMC,

accusing Lifespan of gross misconduct during their affiliation,

brought counterclaims for contractual indemnification, breach of

fiduciary duty, unjust enrichment, and unfair business practices.

NEMC also challenged the enforceability of one of the payment

1 provisions. The Massachusetts Attorney General intervened on

NEMC's side of the case and joined most of the counterclaims

against Lifespan. This court has subject-matter jurisdiction

under

(a)(1) (diversity).

The parties have each moved for partial summary judgment.

See Fed. R. Civ. P. 56. Specifically, NEMC and the Attorney

General moved for summary judgment on the issue of whether

Lifespan owed a fiduciary duty to NEMC during their affiliation.

Lifespan, in turn, moved for summary judgment on nearly all of

the claims in the case. After hearing oral argument, this court

concludes that Lifespan had a fiduciary relationship with NEMC

and therefore grants summary judgment to NEMC and the Attorney

General on that issue. This court also grants Lifespan's motion

in part, concluding that NEMC released its tort counterclaims in

the disaffiliation agreement and that there is no merit to the

counterclaims challenging the enforceability of one of the

payment provisions. The rest of the parties' claims will need to

be resolved at trial.

I. Applicable legal standard

Summary judgment is appropriate where "the pleadings, the

discovery and disclosure materials on file, and any affidavits

show that there is no genuine issue as to any material fact and

that the movant is entitled to judgment as a matter of law."

2 Fed. R. Civ. P. 56(c)(2). An issue is "genuine" if it could

reasonably be resolved in either party's favor at trial, and

"material" if it could sway the outcome under applicable law.

Mulvihill v. Top-Flite Golf Co.,

(1st Cir. 2003) .

In making this determination, the "court must scrutinize the

record in the light most flattering to the party opposing the

motion, indulging all reasonable inferences in that party's

favor."

On cross-motions for summary judgment, this

standard is applied to each party's motion separately. See,

e.g.. Am. Home Assurance Co. v. ACM Marine Contractors, Inc., 467

F .3d 810, 812 (1st Cir. 2006).

II. Background1

In 1997, Lifespan and NEMC entered into an Affiliation

Agreement whereby NEMC, a non-profit hospital in Boston, agreed

to join Lifespan's existing healthcare system. The system

already included a network of hospitals in Rhode Island, where

Lifespan is located, but Lifespan wanted to make inroads into

Massachusetts as well. NEMC, whose financial position had

weakened in recent years, hoped that Lifespan would be able to

turn things around. As an added benefit, the transaction gave

1This summary is based on undisputed facts in the record. To the extent that the summary judgment motions implicate disputed facts, this court will discuss them in the appropriate part of the analysis, drawing the reguired inferences in favor of the non-moving party.

3 NEMC an opportunity to seek reimbursement from the Centers for

Medicare and Medicaid Services ("Medicare") for its loss on sale,

i.e., the realization of asset depreciation attributable to

services provided to Medicare patients. See

(f) (1997).

The parties structured their agreement so that a new holding

company. Lifespan of Massachusetts ("LOM"), became NEMC's sole

voting member, with the power to oversee NEMC's finances,

strategic planning, policymaking, and key contractual

negotiations, among other things. Lifespan had majority control

over LOM and, through it, significant control over NEMC. In

exchange for NEMC's agreement to join its healthcare system.

Lifespan agreed to pay $87 million to NEMC over the next ten

years and to use its best efforts to enhance NEMC's reputation.

NEMC, in turn, agreed to pay Lifespan an annual fee for its

corporate management services. The fee started at $10.3 million

for the first year, but then steadily increased to $43 million by

the fifth year.

After five years together, with NEMC still struggling

financially and with the Medicare reimbursement issue still

unresolved,2 the parties decided in 2002 to sever their

relationship through a Restructuring Agreement and to operate

2Medicare initially denied NEMC's claim for reimbursement. The claim was pending on appeal at the time of the Restructuring Agreement, and the parties agree that its success was then uncertain.

4 independently once again. The Restructuring Agreement reguired

NEMC to make a series of payments to Lifespan totaling $30

million, plus half of "any recovery received from Medicare by

NEMC ... for the loss on sale/depreciation recapture resulting

from the Affiliation."

NEMC paid most of the $30 million. In 2006, however, it

refused to pay the final two installments, totaling $3.66

million, claiming that it had sustained losses far in excess of

that amount due to Lifespan's alleged misconduct during their

affiliation, including (1) its gross mismanagement of NEMC's

contracts with health insurers and its accounts receivable; (2)

Lifespan's excessive corporate management fees; (3) its

deliberate depletion of NEMC's assets and reserves; and (4)

Lifespan's insistence that NEMC enter into an ill-fated interest

rate swap without disclosing that the swap was deemed too risky

for Lifespan's other hospitals and that Lifespan's chief

financial officer, who recommended the deal, had a conflict of

interest.

Lifespan brought suit against NEMC in the District of Rhode

Island in 2006, alleging breach of contract and seeking to

recover the $3.66 million. NEMC brought a counterclaim for

recovery under the Restructuring Agreement's indemnification

provision, which reguired Lifespan to indemnify NEMC for losses

caused by Lifespan's misrepresentations, willful misconduct, or

5 gross negligence during their affiliation. NEMC also brought

counterclaims for breach of fiduciary duty, unjust enrichment,

and unfair business practices. Although NEMC admitted that it

had not paid the $3.66 million as contractually reguired, the

district court refused to grant summary judgment to Lifespan on

its contract claim, deeming it so "closely related" to NEMC's

counterclaim for indemnification that they must be resolved

together. See Lifespan Corp. v. New Eng. Med. Ctr., Inc., No.

06-421,

, at *2-3 (D.R.I. Feb. 1, 2008) (Torres,

D.J.).

Shortly after that ruling, NEMC finally resolved its

Medicare reimbursement claim and recovered about $20.5 million

from Medicare for the asset depreciation that it had realized

when the parties affiliated in 1997. Upon learning of that

recovery. Lifespan amended its complaint to add a contract claim

for half of it. NEMC responded with more counterclaims,

asserting that the Medicare recovery provision in the

Restructuring Agreement was inapplicable, unconscionable,

contrary to public policy, lacking in consideration, a violation

of the parties' original Affiliation Agreement, a breach of

fiduciary duty, and an unjust enrichment.

This court was assigned to the case in 2009, after all of

the judges in the District of Rhode Island recused themselves.

Shortly thereafter, this court granted a motion for the

6 Massachusetts Attorney General to intervene in the case, see Fed.

R. Civ. P. 24, pursuant to her supervisory authority over public

charities in Massachusetts. See Mass. Gen. Law ch. 13, §§ 8 and

8G. The Attorney General had approved the parties' affiliation

in 1997 and had been notified of their disaffiliation in 2002,

but had never approved the Restructuring Agreement. After

intervening, the Attorney General joined in nearly all of NEMC's

counterclaims against Lifespan (except for the indemnification

claim and the unfair business practices claim). She did not

assert any new claims of her own.

The parties have now cross-moved for partial summary

judgment. See Fed. R. Civ. P. 56. Specifically, NEMC and the

Attorney General move for summary judgment on the issue of

whether Lifespan owed a fiduciary duty to NEMC during their

affiliation. Lifespan, in turn, moves for summary judgment on

its claim for half of the Medicare recovery and on nearly all of

the counterclaims (except for NEMC's indemnification claim, which

the parties agree presents trialworthy issues) . This court will

analyze each of the parties' arguments in turn.

Ill. Analysis

A. Choice of law

The threshold issue, raised by both sides, is which state's

law governs this case: Rhode Island or Massachusetts. As one

7 might expect. Lifespan favors the law of its home state (Rhode

Island), whereas NEMC and the Attorney General favor the law of

their home state (Massachusetts). In resolving choice-of-law

issues, a federal court sitting in diversity must apply the

choice-of-law rules of the forum state. See Klaxon Co. v.

Stentor Elec. Mfg. Co.,

(1941); Baker v. St.

Paul Travelers Ins. Co.,

(1st Cir. 2010).

Here, the forum state is Rhode Island. Like many states, Rhode

Island has separate choice-of-law rules for contract claims and

tort claims. This court will analyze each type of claim

separately.

i. Contract claims

The parties did not include a choice-of-law provision in

their Restructuring Agreement. "In the absence of a contractual

stipulation about which law controls, Rhode Island's conflict-of-

laws doctrine provides that the law of the state where the

contract was executed governs" any contract claims. DeCesare v.

Lincoln Benefit Life Ins. Co.,

(R.I. 2004);

see also Emhart Indus., Inc. v. Century Indem. Co.,

,

80 (1st Cir. 2009). For purposes of this rule, "the place of

contracting is the place in which the last act that forms the

contract is performed." Crellin Techs., Inc. v. Eguipmentlease

Corp.,

(1st Cir. 1994) (citing Tim Hennigan Co. v. Anthony A. Nunes, Inc.,

(R.I. 1981), and A. C .

Beals Co. v. R.I. Hosp.,

(R.I. 1972)).

In most cases, the "last act that forms the contract" is the

acceptance of an offer, which generally occurs in the place from

which the acceptance is sent. See, e.g., DeCesare,

; Crellin,

. In this case, however, the

Restructuring Agreement expressly provides that it "shall become

effective when each party hereto shall have received counterparts

hereof signed by the other parties hereto." (Emphasis added.)

The record indicates that NEMC signed the agreement first in

Massachusetts; Lifespan then counter-signed it in Rhode Island

and faxed its signed copy back to NEMC in Massachusetts. Thus,

the contract became effective when NEMC received the fax in

Massachusetts. That was the "last act that form[ed] the

contract." Accordingly, Massachusetts law governs the parties'

contract claims.

ii. Tort claims

For tort claims, Rhode Island courts use an "interest-

weighing" approach that reguires consideration of five factors:

"(1) predictability of result; (2) maintenance of interstate and

international order; (3) simplification of the judicial task; (4)

advancement of the forum's governmental interests; and (5)

application of the better rule of law." Najarian v. Nat'l Amusements, Inc.,

(R.I. 2001). In weighing

these factors, Rhode Island courts also consider the specific

facts of the case, including " (a) the place where the injury

occurred, (b) the place where the conduct causing the injury

occurred, (c) the domicil, residence, nationality, place of

incorporation and place of business of the parties, and (d) the

place where the relationship, if any, between the parties is

centered."

The overarching objective is to determine which

state "bears the most significant relationship to the event and

the parties."

In this case, many of the relevant factors point in both

directions. The relationship between Lifespan, a Rhode Island

entity, and NEMC, a Massachusetts entity, is centered in both

states. The injury to NEMC occurred primarily in Massachusetts,

but much of Lifespan's conduct causing it occurred in Rhode

Island. Both states have very similar laws regarding the issues

in this case, so it is hard to say that one state's laws are

better than the other's. And both states have significant

interests in the outcome.

Two factors, though, tip the balance in favor of

Massachusetts. The first is predictability. Although the

Restructuring Agreement does not contain a choice-of-law

provision, many related documents invoke Massachusetts law

(including, for example, the opinion letters that both parties'

10 counsel issued on the Restructuring Agreement; NEMC's written

guarantee of its payment obligation as reguired by the

Restructuring Agreement; and the parties' original Affiliation

Agreement). Moreover, the holding company through which Lifespan

oversaw NEMC was created as a Massachusetts entity. Under the

circumstances, application of Massachusetts law would be the most

predictable result. See Cribb v. Augustyn,

(R.I. 1997) (applying Rhode Island law where court "believe[d]

that the parties would have expected Rhode Island law to apply in

resolving their dispute").

The second factor that favors Massachusetts law is

simplification of the judicial task. As explained above,

Massachusetts law governs the contract claims in this case.

Additionally, both sides agree that the Massachusetts Attorney

General's powers are defined by Massachusetts law. Under the

circumstances, it would be much simpler to apply Massachusetts

law to all claims. After weighing all of the relevant factors,

this court concludes that is the best approach.3

B. Fiduciary duty (counterclaim #2)

The next issue, also raised by both sides, is whether

3For the most part, Massachusetts and Rhode Island have very similar laws with respect to the issues in this case. Most, if not all, of the parties' claims would be resolved the same way under either state's law.

11 Lifespan owed a fiduciary duty to NEMC during their affiliation.

Under Massachusetts law, a fiduciary relationship generally

"exists when one reposes faith, confidence, and trust in

another's judgment and advice." Doe v. Harbor Schs., Inc.,

, 1064 (Mass. 2006). "The circumstances which may

create a fiduciary relationship are so varied" that the

Massachusetts courts have declined "to attempt the formulation of

any comprehensive definition that could be uniformly applied in

every case."

Rather, the analysis depends on the particular

circumstances, making it a mixed guestion of law and fact.

But that "does not preclude determination on a motion for summary

judgment record that a fiduciary relationship does nor does not

exist" based on facts that neither party disputes. Id.4 The

party asserting the existence of such a relationship bears the

burden of proof.

In this case, the summary judgment record leaves no doubt

that NEMC reposed faith, confidence, and trust in Lifespan's

judgment and advice when it joined Lifespan's healthcare system.

Lifespan had majority control over NEMC's sole voting member (the

holding company LOM) and, through it, the power to oversee key

4Lifespan argues that the record contains too many factual disputes to resolve this issue in NEMC and the Attorney General's favor (though it apparently sees those disputes as no barrier to summary judgment in its own favor). With a few minor exceptions, however. Lifespan has not disputed any of the facts that NEMC and the Attorney General present in support of their claim. As explained infra, those undisputed facts conclusively establish the existence of a fiduciary relationship.

12 aspects of the hospital's operations, including its financial

decisions, its strategic planning, its policymaking, and its

contracts with health insurers, physicians, and academic

institutions. At the board level. Lifespan had the authority to

appoint and remove NEMC's directors. At the executive level.

Lifespan had the authority to hire, fire, and set compensation

for NEMC's chief executive and financial officers, both of whom

reported directly to their counterparts at Lifespan. In essence.

Lifespan became NEMC's corporate parent, and NEMC became a

controlled subsidiary. Lifespan, in turn, agreed to use its best

efforts to enhance NEMC's reputation.

In the for-profit context, "the weight of authority holds

that a parent corporation does not owe a fiduciary duty to a

wholly-owned subsidiary." Gen. Elec. Co. v. Lines,

,

, at *6 (Mass. Super C t . Aug. 3, 2009);

see also 3 William Meade Fletcher et al., Fletcher Cyclopedia of

Corporations § 844.30, at 209-10 (2002). But that is because

their interests are directly aligned. See Lines,

, at *6. Where the parent owns only part of the

subsidiary, the rule changes: "a parent corporation generally

owes a fiduciary duty to its majority-controlled subsidiary."

12B Fletcher, supra, § 5811.40, at 187. This duty prevents the

parent from using its majority control to advance its own

interests at the expense of the subsidiary's minority

13 shareholders. See Donahue v. Rodd Electrotype Co. of New Eng.,

Inc.,

(Mass. 1975).

In the non-profit context, the analysis changes somewhat.

The concern there is not with competing shareholder interests,

but with competing charitable objectives between parent and

subsidiary. Even where the parent is the subsidiary's sole

voting member, they may have different aims and different

beneficiaries. This is particularly true in the case of

healthcare systems, where the interests of the system as a whole

may diverge from those of a given hospital. "In significant

respects, the beneficiaries of the [hospital], namely its

patients and community, stand in a position similar to the

minority shareholders in a non-wholly-owned, for-profit

subsidiary," in that they "are vulnerable to the power of the

controlling entity." Dana Brakman Reiser, Decision-Makers

Without Duties: Defining the Duties of Parent Corporations Acting

as Sole Corporate Members in Nonprofit Health Care Systems,

, 1009 (2001).

In the most extensive scholarly analysis of this issue to

date. Professor Reiser concluded that "it is appropriate to apply

a fiduciary standard" to a healthcare system acting as the sole

member of a non-profit hospital in order "to constrain the

[system's] powers and protect the interests of subsidiaries'

beneficiaries," just as courts (including those in Massachusetts)

14 have done with respect to controlling shareholders in for-profit

corporations.

. As she noted, however, "current law

provides little guidance to courts, regulators, and [healthcare

systems] themselves" on this issue, despite the increasing

prevalence of such affiliations in the healthcare industry.

The only case on point that the parties have identified (or

this court has found) is Health Alliance of Greater Cincinnati v.

Christ Hosp., No. C-070426,

(Ohio Ap p . C t . Sept.

30, 2008). There, as here, "the participating hospitals allowed

[the healthcare system] to manage their affairs," including their

financial decisions and third-party contracts.

. On

those facts, the court concluded that the healthcare system's

"argument that it owed no fiduciary duty to its member hospitals

is untenable," because the "hospitals reposed special confidence

and trust in the [system], which resulted in a position of

superiority on the part of the [system], the very essence of a

fiduciary relationship."

Where, as here, a federal court is confronted with a novel

guestion of state law, it must make "an informed prophecy of what

the [state's highest court] would do in the same situation,

seeking guidance in analogous state court decisions, persuasive

adjudications by courts of sister states, learned treatises, and

public policy considerations." Walton v. Nalco Chem. Co.,

(1st Cir. 2001). Based on these considerations, as

15 just discussed, this court is confident that the Massachusetts

Supreme Judicial Court would agree with the reasoning set forth

by Professor Reiser and the Health Alliance decision, at least as

applied to the facts of this case, and conclude that Lifespan

owed a fiduciary duty to NEMC during their affiliation.

Lifespan argues that even if a fiduciary duty exists, its

scope should be limited to those obligations set forth in the

parties' Affiliation Agreement. But under Massachusetts law,

"the fact that [the parties] entered into an ... agreement ...

does not relieve [Lifespan] of the high fiduciary duty" imposed

by tort law. Blank v. Chelmsford Ob/Gyn, P.C.,

(Mass. 1995); cf. also Wartski v. Bedford,

(1st Cir. 1991) (explaining that a fiduciary duty "cannot be

negated by the words of the [parties'] agreement" under

Massachusetts law).

Lifespan also argues that this claim is barred by the

applicable statute of limitations. See Mass. Gen. L. ch. 260, §

2A ("actions of tort ... shall be commenced only within three

years next after the cause of action accrues"); id. § 18 (stating

that the limitations period "shall apply to actions brought by or

for the Commonwealth"). But a claim for breach of fiduciary duty

accrues only when the plaintiff has "actual knowledge of the

fiduciary's breach." O'Connor v. Redstone,

, 607

(Mass. 2008). On the current record, there is a material dispute

16 as to when that happened, which precludes summary judgment on

that issue. See Silvestris v. Tantasgua Reg'1 Sch. Dist.,

(Mass. 2006) ("In most instances, the guestion

when a plaintiff knew ... of the existence of a cause of action

is one of fact that will be decided by the trier of fact.").

In sum, this court concludes that Lifespan owed a fiduciary

duty to NEMC during their affiliation and therefore grants

summary judgment to NEMC and the Attorney General on that issue

(which is the only one raised by their summary judgment motions).

Lifespan's competing reguest for summary judgment on that issue

is denied. Whether Lifespan actually breached its fiduciary

duty, and whether this claim is barred by the statute of

limitations, will be resolved at trial.

C. Liability release

Turning now to the issues raised solely by Lifespan, the

first one is whether NEMC released its tort claims against

Lifespan when it entered into the Restructuring Agreement. "The

fact of a release is an affirmative defense, and the party

seeking to have a release enforced usually bears the initial

burden of pleading and proving [its] existence." In re Mi-Lor

Corp.,

, 305 (1st Cir. 2003) (citing Sharon v. City

of Newton,

(Mass. 2002)). The interpretation

of the release then becomes a guestion of law for the court to

17 decide, although it may depend to some extent on the factual

context. See Leblanc v. Friedman,

, 1287 (Mass.

2003). If the court determines that the release covers the

claims at issue, then "the burden of proving or disproving its

enforceability may lie with either party, depending on the

context." Mi-Lor, 348 F.3d at 305. In this context, because the

parties had a fiduciary relationship, that burden falls to

Lifespan. Id.

Lifespan has identified three releases in the Restructuring

Agreement that, in its view, should bar NEMC's tort claims. This

court will focus on the broadest of the three, which provides:

Effective as of the Closing, NEMC ... hereby releases, remises, and forever discharges any and all rights and claims that [it] has had, now has, might now have or might in the future have against Lifespan ... arising from or in connection with the MAA, except with regard to those provisions of the MAA that, by their terms, survive the termination of the MAA.

Lifespan executed an identical release of claims against NEMC.

Both releases were part of the same provision, entitled "Release

from MAA."5

5The other two releases provide (1) that upon terminating the Affiliation Agreement, "the parties shall be fully released from their respective obligations thereunder," and (2) that the Restructuring Agreement is "in complete and full satisfaction of all claims for amounts due or claimed to be due under the Affiliation Agreement or otherwise that [NEMC] has or may have against Lifespan ..., each of which is hereby ... forever irrevocably released." Both of those releases appear to be directed toward contractual claims, not tort claims.

18 NEMC argues that this release extends only to contractual

claims arising from the Affiliation Agreement. As Lifespan

notes, however, the phrase "arising from or in connection with"

is usually interpreted to mean that the parties intended for the

release to extend beyond mere contract claims, to cover other

types of claims closely connected to the contract. See, e.g..

Cooper v. Meridian Yachts, Ltd.,

(11th Cir.

2009) (stating that the phrase "arising out of or in connection

with" an agreement "is clearly meant to be read broadly" and

governs all disputes "having a connection to the agreement and

not just the agreement itself"). Here, NEMC's tort claims are

all very closely connected to the Affiliation Agreement. This

court therefore concludes that they are encompassed by the plain

meaning of the release.

The guestion, then, is whether such a release can be

enforced. As a general matter, "Massachusetts law favors the

enforcement of releases." Sharon,

. But "a

release executed in favor of one standing in a fiduciary relation

to the one executing the release will be subjected to the closest

scrutiny" and generally cannot "discharge a fiduciary's liability

for breach of the trust imposed in him unless the person

executing the release had knowledge of all relevant facts that

the fiduciary knew or ought to have known." Allen v. Moushegian,

(Mass. 1947); see also Mi-Lor Corp.,

at 306. Here, NEMC alleges that Lifespan failed to disclose all

relevant facts before they executed the release.

The Massachusetts Supreme Judicial Court has not required

full disclosure, though, in cases where the release is part of an

agreement terminating the parties' fiduciary relationship and

where each party is represented by its own outside counsel during

the negotiations. See Eck v. Godbout,

, 303 (Mass.

2005); Naukeag Inn, Inc. v. Rideout,

(Mass.

1966). In those circumstances, the parties are relying on their

counsel for judgment and advice on the terms of the release. "As

such, [they] cannot avoid the release by claiming that [they]

relied on [each other's] advice in connection with the release."

Eck, 831 N.E.2d at 303; see also Naukeag Inn,

(finding "no continuing confidence" between the parties at that

stage of negotiations).

This case falls squarely in the Eck/Naukeag category. Both

parties had sophisticated outside law firms representing them

during the contractual negotiations. NEMC, while agreeing to the

release, effectively hedged its risk by negotiating a broad

indemnification provision to protect itself against losses caused

by Lifespan's misrepresentations, willful misconduct, or gross

negligence during their affiliation. That provision belies any

claim of "continuing confidence" between NEMC and Lifespan with

respect to the release.

To the contrary, it indicates that

20 NEMC and its counsel specifically contemplated and accounted for

the possibility that Lifespan might not have disclosed all

relevant facts about its conduct during the affiliation. Thus,

Lifespan's alleged lack of full disclosure does not render the

release unenforceable.

NEMC also argues that a party, especially a fiduciary,

cannot be released from claims alleging intentional or reckless

misconduct. But the cases that NEMC cites for that proposition

involved releases of liability for future misconduct between

parties with an ongoing relationship, not releases of past

conduct between parties whose relationship was ending. See,

e.g., Sharon,

(waiver of liability before

participation in extra-curricular activity); Demoulas v. Demoulas

Super Markets, Inc.,

(Mass. 1997) (voting

trust agreement); Zavras v. Capeway Rovers Motorcycle Club, Inc.,

(Mass. App. C t . 1997) (waiver of liability

before dirt-bike race); Burten v. Milton Bradley Co.,

(1st Cir. 1985) (disclosure agreement). Massachusetts

"public policy does not bar a claimant from releasing another

from claims arising from past intentional misconduct."

Massmanian v. DuBose, No. 07-2511-BLS1,

, at *6

(Mass. Super. C t . Feb. 27, 2009). Otherwise, it would be

virtually impossible to settle disputes involving allegations of

intentional or reckless misconduct (or, indeed, even to settle

21 this case now)

This court therefore concludes that NEMC's liability release

is enforceable and that it bars NEMC's tort claims against

Lifespan for breach of fiduciary duty (counterclaim #2) and

unfair business practices (counterclaim #4).6 Summary judgment

is therefore granted to Lifespan on those claims. NEMC may,

however, seek indemnification for Lifespan's allegedly tortious

conduct under the Restructuring Agreement's indemnification

provision (counterclaim #1), because that provision of the

contract, by its terms, survives the Restructuring Agreement.

Moreover, since the Attorney General was not a party to the

Restructuring Agreement, the release does not bar her

corresponding claim against Lifespan for breach of fiduciary duty

(counterclaim #2).7

6In addition to these tort claims. Lifespan also argues that the release applies to NEMC's guasi-contractual claim of unjust enrichment (counterclaim #3) and its claims challenging the enforceability of the Medicare recovery provision in the Restructuring Agreement (counterclaims #5-11). This court need not consider those arguments, however, because all of those claims fail on the merits for reasons explained in Parts III.D and III.E, infra.

7Lifespan argues that the Attorney General lacks standing to assert such a claim independently of NEMC. Under Massachusetts law, however, "[t]he Attorney General has both a common-law duty and a specific statutory mandate to protect the public interest and enforce public rights" in the administration of non-profit organizations. Ciardi v. F. Hoffman-LaRoche, Ltd.,

, 314 n.21 (Mass. 2002); see also

. "This special status as the representative of the public constitutes a supplement to, rather than a replacement for, the trustees acting in the name of the nonprofit corporation to vindicate its rights." In re Boston Reg'1 Med. Ctr., Inc., 328

22 D. Unjust enrichment (counterclaim #3)

Next, Lifespan seeks summary judgment against NEMC and the

Attorney General on their claims of unjust enrichment. Under

Massachusetts law, "unjust enrichment provides an eguitable

stopgap for occasional inadeguacies in contractual remedies at

law by mandating that a person who has been unjustly enriched at

the expense of another is reguired to make restitution to the

other." Mass. Eye & Ear Infirmary v. QLT Phototherapeutics,

Inc.,

, 233-34 (1st Cir. 2005) (guoting Fox v. F&J

Gattozzi Corp.,

(Mass. App. C t . 1996)). Such

a claim "is appropriate where an agreement is too indefinite to

be enforced or where no contract is made."

(guotation

omitted).

This is not one of those cases. Lifespan and NEMC entered

into a detailed contract setting forth the terms of their

affiliation (which the Attorney General approved) and another

contract setting forth the terms of their separation. It is well

established under Massachusetts law that "the existence of a

valid express contract between the parties ... bars the

F. Supp. 2d 130, 147 (D. Mass. 2004). Thus, the Attorney General has standing to assert her breach of fiduciary duty claim, notwithstanding NEMC's release. She need not sue NEMC or allege a breach of fiduciary duty by NEMC's directors to proceed with such a claim.

23 application of the equitable doctrine[] " of unjust enrichment.8

Okmyansky v. Herbalife Int'l of Am., Inc.,

(1st

Cir. 2005) (citing Boswell v. Zephyr Lines, Inc.,

(Mass. 1993), and Zarum v. Brass Mill Materials Corp.,

(Mass. 1956)). Lifespan's request for

summary judgment on this claim is therefore granted.

E. Medicare reimbursement

The next issue is whether Lifespan is contractually entitled

to half of the $20.5 million that NEMC received from Medicare as

reimbursement for the loss on sale that NEMC realized when the

parties originally affiliated in 1997. Lifespan's claim is based

on section 2.10 of the parties' Restructuring Agreement, which

provides that "Lifespan and NEMC shall split on a 50/50 basis any

recovery received from Medicare by NEMC ... for the loss on

sale/depreciation recapture resulting from the Affiliation."

NEMC and the Attorney General argue, in response, that this

provision is inapplicable to the recent Medicare recovery,

8NEMC and the Attorney General argue that, notwithstanding any inconsistency between this claim and their contract claims (counterclaims #1 and #7), they should be allowed to maintain them both as alternative theories of liability. See Fed. R. Civ. P. 8(d) ("A party may state as many separate claims or defenses as it has, regardless of consistency."). But even if those contract claims were abandoned or unsuccessful, the contracts themselves would still bar this claim. See Part III.E, infra (rejecting the parties' only challenges to contractual enforceability).

24 lacking in consideration, unconscionable, contrary to public

policy, a breach of the parties' original Affiliation Agreement,

a breach of fiduciary duty, and an unjust enrichment. Lifespan

has moved for summary judgment on all of those claims. This

court will analyze each of them in turn.

i. Applicability (counterclaim #11)

First, NEMC and the Attorney General claim that section 2.10

of the Restructuring Agreement does not apply to NEMC's recent

Medicare recovery because the asset depreciation that gave rise

to that recovery occurred before the parties' affiliation and

thus did not "result[] from the Affiliation" within the meaning

of section 2.10. But that reading is inconsistent with the

provision's plain meaning, especially its reference to "the loss

on sale/depreciation recapture." The recent Medicare recovery

clearly "result[ed] from the Affiliation" because the affiliation

was the "sale" (of NEMC to Lifespan) that enabled NEMC to realize

a "loss on sale" and ultimately to "recapture" its earlier

depreciation under 42 C.F.R. 413.134(f) (1997). Where, as here,

"the words of a contract are clear, they must be construed in

their usual and ordinary sense," without resort to extrinsic

evidence. Gen. Convention of the New Jerusalem v. MacKenzie, 874

N .E .2d 1084, 1087 (Mass. 2007).

Even if the contract were ambiguous, however, the extrinsic

25 evidence in the summary judgment record compels the same

conclusion: that the parties intended for section 2.10 to cover

the very Medicare recovery at issue here. Indeed, the potential

for such a recovery was one of the key benefits of the parties'

affiliation, and NEMC pursued it throughout their time together.

Although Medicare initially denied NEMC's reguest for

reimbursement, the claim was still pending on administrative

appeal at the time of the Restructuring Agreement, with its

success uncertain. It is clear from this context that section

2.10 delineated the parties' respective rights to any future

recovery, in the event that Medicare changed its decision. See

Robert Indus., Inc. v. Spence,

(Mass. 1973)

(contract must "be read in the light of the circumstances of its

execution"). Nothing in the record supports any other reading.

Lifespan is therefore entitled to summary judgment on this claim

of inapplicability.

ii. Consideration (counterclaim #9)

Next, NEMC and the Attorney General claim that section 2.10

is unenforceable because it lacked consideration. They

emphasize, in particular, that section 2.10 was not expressly

mentioned in the Restructuring Agreement's recital of

consideration and did not play a significant role in the parties'

26 contractual negotiations.9 But neither of those facts is

dispositive. It is a "generally recognized rule that the

consideration ... may be something other than what the parties

have described as consideration" and "need not be the sole

inducement or motivating cause of the promise, or even the

prevailing or chief inducement." Joseph M. Perillo, Corbin on

Contracts § 5.7, at 32-33 (1995).

Under Massachusetts law, "[t]he reguirement of consideration

is satisfied if there is either a benefit to the promisor or a

detriment to the promisee," such that the contract constitutes a

bargained-for exchange. Miller v. Cotter,

, 547

n.16 (Mass. 2007) (guotation omitted). Here, section 2.10

clearly satisfied that reguirement. By giving each party half

(and only half) of any future Medicare recovery, the provision

offered both parties a benefit and a detriment. It was

essentially a compromise of a potential future dispute.

Moreover, it constituted part of the total payment that Lifespan

received in exchange for relinguishing control over NEMC's

operations. NEMC benefitted by being able to make that part of

the payment on a contingent (rather than guaranteed) basis,

thereby reducing its risk. Lifespan is thus entitled to summary

91he recital of consideration mentioned only the $30 million in payments from NEMC to Lifespan. Nevertheless, the last clause in the recitals section stated more broadly that the Restructuring Agreement was "in consideration of the premises and mutual promises herein made."

27 judgment on this claim as well.

iii. Unconscionability (counterclaim #5)

NEMC and the Attorney General also claim that section 2.10

is unconscionable. Under Massachusetts law, unconscionability

requires application of a "two-part test," which asks "whether

there was an absence of meaningful choice on the part of one of

the parties, together with contract terms which are unreasonably

favorable to the other party." Zapatha v. Dairy Mart, Inc.,

, 1377 n.13 (Mass. 1980) . The first part of the test

is procedural; the second is substantive.

The burden is on

the party asserting unconscionability to satisfy both parts.

See, e.g.. Leaf Fin. Corp. V. Carroll, No. 06-10616,

, at *4 (D. Mass. Jan. 16, 2009). Whether that burden has

been met is a question of law for the court and is to be

determined "as of the time the contract was made," without regard

to subsequent developments. Zapatha,

.

Even assuming arguendo that NEMC and the Attorney General

could show procedural unconscionability (which would be difficult

in light of the fact that NEMC was represented by sophisticated

counsel in the negotiations, as already discussed), they cannot

show substantive unconscionability on this record. Section 2.10

was not "unreasonably favorable" to Lifespan when the parties

entered into the Restructuring Agreement. At that point, neither

28 party knew whether NEMC would recover anything from Medicare, or

the amount of any such recovery. Medicare had initially denied

NEMC's claim for reimbursement, and it was still pending on

appeal. Depending on the appeal's outcome, section 2.10 could

have been worthless. Indeed, NEMC notes that the provision was

"largely ignored [during the negotiations] because it was

completely speculative." It is only in hindsight that the

provision seems so favorable to Lifespan. See In re Sullivan,

(Bankr. D. Mass. 2006) (refusing to deem loan

terms unconscionable based on "the benefit of hindsight").

Moreover, even with the benefit of hindsight, this court

cannot accept the notion that it is substantively unconscionable

for these parties, as a condition of their disaffiliation, to

split in half a Medicare reimbursement made possible by their

affiliation. If anything, that sort of 50/50 compromise has a

ring of fairness to it. While the amount of money at issue

($10.25 million) is certainly large, it is only a fraction of the

total amounts that NEMC agreed to pay Lifespan under the

Restructuring Agreement (about $40.25 million), that Lifespan

paid to NEMC over the course of their affiliation (about $42

million), or that NEMC would have paid to Lifespan in corporate

management fees if their affiliation had continued for even one

more year. And NEMC simultaneously negotiated a very favorable

indemnification provision, which gave it some protection against

29 overpayment.10

Since section 2.10, when viewed in context, is not

unreasonably favorable to Lifespan, this court grants summary

judgment against NEMC and the Attorney General on their claim of

unconscionability.

iv. Public policy (counterclaim #6)

Next, NEMC and the Attorney General claim that section 2.10

is unenforceable on public policy grounds. Whether a contract

violates public policy "is a guestion of law for determination by

the judge." Green v. Richmond,

(Mass. 1975),

abrogated on other grounds by Wilcox v. Trautz,

(Mass. 1998). The party seeking to invalidate the contract bears

the burden of proof. See Nussenbaum v. Chambers & Chambers,

(Mass. 1948); Hastings Assocs., Inc. v. Local 369

Bldg. Fund, Inc.,

(Mass. Ap p . 1997) . As a

general matter, Massachusetts "courts are hesitant to invalidate

contracts on ... public policy grounds." A. Z . v. B .Z .,

(Mass. 2 000); see also Crimmins & Peirce Co. v.

Kidder Peabody Acceptance Corp.,

(Mass. 1933)

("Agreements voluntarily made ... are not to be lightly set aside

10Indeed, NEMC is attempting to use that provision to offset any payment reguired by section 2.10. There is tension, to say the least, between NEMC's attempt to enforce one of the Restructuring Agreement's most favorable provisions while striking one that it now regrets.

30 on the ground of public policy or because as events have turned

it may be unfortunate for one party.").

In this case, NEMC and the Attorney General appear to be

invoking the public policy that prohibits a Massachusetts charity

from "attempt[ing] to divest itself of a large part of its

assets." See Mass. Charitable Mech. Ass'n v. Beede,

(Mass. 1947). But the purported "divestment" was

actually a contractual exchange, which offered benefits and

burdens to both parties. See Part III.E.ii, supra. What NEMC

and the Attorney General really seem to be saying is that NEMC

paid too much in the deal. That is simply a recasting of the

unconscionability argument, which fails for the reasons already

discussed above. See Part III.E.iii, supra. This court

therefore grants Lifespan's reguest for summary judgment on the

public policy claims as well.

v. Affiliation agreement (counterclaim #7)

NEMC and the Attorney General also claim that section 2.10

is unenforceable because the Attorney General never received

notice of it as reguired by two provisions in the parties'

original Affiliation Agreement. The first provision (section

3.2) stated that NEMC's "existing assets" or "pre-affiliation

assets" must be used only for certain specified purposes and that

the parties must notify the Attorney General at least 30 days

31 before any use inconsistent with those purposes. The second

provision (section 5) stated that the parties must notify the

Attorney General at least 30 days before any change in NEMC's

membership or control. Both provisions also stated that, where

required by law, such actions would be subject to judicial

review.

Lifespan argues that this claim is barred by the merger

clause in the Restructuring Agreement, which states that "[t]his

agreement ... constitutes the entire agreement among the parties

hereto with respect to the subject matter hereof ... and

supercedes any and all prior ... agreements, with respect

thereto." That is true with respect to NEMC, which agreed to the

merger clause. See, e.g., Sound Techniques, Inc. v. Hoffman,

(Mass. App. C t . 2000) ("there is no reasonable

basis for ignoring the plain language of the merger clause").

The Attorney General, however, was not a party to the

Restructuring Agreement and never agreed to the merger clause, so

her claim is not barred by it.

The question, then, is whether the Attorney General can

enforce the Affiliation Agreement's notice provisions as an

intended third-party beneficiary. "Under Massachusetts law, a

contract does not confer third-party beneficiary status unless

the language and circumstances of the contract show that the

parties to the contract clearly and definitely intended the

32 beneficiary to benefit from the promised performance." Cumis

Ins. Soc'Vf Inc. v. BJ's Wholesale Club, Inc.,

, 44

(Mass. 2009). While nothing in the Affiliation Agreement speaks

directly to that issue, the context strongly suggests that the

parties did intend for the Attorney General to benefit from the

notice provisions. Indeed, those provisions offered little

independent benefit to Lifespan and NEMC.

Even assuming, however, that the Attorney General has the

right to enforce the notice provisions, there is no merit to her

claim that section 2.10 violated them. As to the provision that

reguired notice of any change in NEMC's membership or control

(section 5), Lifespan did send the Attorney General a letter in

advance of the Restructuring Agreement expressly stating that

Lifespan "will relinguish corporate control" over NEMC. That

letter satisfied the notice reguirement, regardless of whether

the Attorney General received a copy of the actual agreement

(which the parties dispute). If the Attorney General believed

that the change of control reguired legal review, she could have

initiated such review in response to the notice.

As to the other provision (section 3.2), which reguired

notice in the event that NEMC's "existing assets" or "pre­

affiliation assets" were used for purposes inconsistent with

those specified in the Affiliation Agreement, nothing in section

2.10 triggered that reguirement. Section 2.10 concerned a

33 possible future monetary recovery that NEMC did not begin

pursuing until after the parties entered into the Affiliation

Agreement and did not actually secure until after their

affiliation ended. As a matter of plain meaning, that recovery

was not an "existing asset" of NEMC as of the effective date of

the Affiliation Agreement. It was, by definition, a contingent

asset instead.11

Moreover, even if the Medicare recovery gualified as an

"existing asset," section 2.10 did not use that recovery for

purposes inconsistent with those specified in the Affiliation

Agreement. Permissible uses included the "provision of health

care services and related support services," as well as "the

development of a hospital and physician network in

Massachusetts." Those are precisely the services that Lifespan

provided (competently or not). The Affiliation Agreement clearly

permitted NEMC to pay Lifespan for its corporate management

services, and the Attorney General has not articulated how the

payment in section 2.10 is not just such a payment.

In sum, NEMC cannot assert this claim because it is barred

by the merger clause in the Restructuring Agreement. The

11It is true, as NEMC and the Attorney General stress, that the Medicare recovery reimbursed NEMC for asset depreciation that occurred before the affiliation. But that does not make the future monetary recovery an "existing asset." To the contrary, it was the non-existence (i.e., loss) of asset value, coupled with the affiliation itself (i.e., the sale), that enabled NEMC to recapture its loss on sale.

34 Attorney General may assert it, since she was not a party to the

Restructuring Agreement, but her claim nevertheless fails on the

merits because she received the only notice that the Affiliation

Agreement reguired. Summary judgment is therefore granted to

Lifespan.

vi. Fiduciary duty (counterclaim #8)

NEMC and the Attorney General also claim section 2.10 is

unenforceable because Lifespan breached its fiduciary duty by

agreeing to it. But where "the contested action falls entirely

within the scope of a contract" between the parties, "it is not

subject to guestion under fiduciary duty principles." Chokel v.

Genzyme Corp.,

(Mass. 2007). That is

particularly true where, as here, the provision is part of an

agreement bringing an end to the parties' fiduciary relationship,

and the parties were each represented by sophisticated outside

law firms during the negotiations. See Part III.C, supra

(discussing similar considerations in connection with liability

release). Summary judgment is therefore granted to Lifespan on

this claim as well.

vii. Unjust enrichment (counterclaim #10)

NEMC and the Attorney General also claim that enforcing

section 2.10 would unjustly enrich Lifespan. As discussed above.

35 however, unjust enrichment "provides an equitable stopgap" only

in cases "where an agreement is too indefinite to be enforced or

where no contract is made." Mass. Eye & Ear, 412 F.3d at 233-34.

Unjust enrichment cannot be used to prevent enforcement of an

otherwise valid contract. Lifespan is therefore entitled to

summary judgment on this claim as well.

viii. Lifespan's right to recovery (count #1)

Since this court has granted summary judgment to Lifespan on

all of the counterclaims challenging the enforceability of

section 2.10, Lifespan claims it is also entitled to summary

judgment on its affirmative claim for half of the Medicare

recovery. But Judge Torres already ruled that Lifespan's other

affirmative claim for the $3.66 million payment that NEMC owes

under the Restructuring Agreement is so "closely related" to

NEMC's counterclaim for indemnification that they must be

resolved together. See Lifespan,

, at *2-3. The

same is true of Lifespan's claim for half of the Medicare

recovery. Summary judgment on that claim is therefore

inappropriate.

36 IV. Conclusion

For the reasons set forth above. Lifespan's motion for

partial summary judgment12 is GRANTED in part as to NEMC's

counterclaims 2, 3, 4, 5, 6, 7, 8, 9, 10, and 11 and as to the

Attorney General's counterclaims 3, 5, 6, 7, 8, 9, 10, and 11,

but is otherwise DENIED. NEMC and the Attorney General's motions

for partial summary judgment13 on the issue of whether Lifespan

owed a fiduciary duty to NEMC during their affiliation are

GRANTED. Their joint motion to strike14 is DENIED as moot, since

none of this court's rulings depend upon the challenged

documents.

Going forward, the following claims remain in dispute:

Lifespan's claim for payments due under the Restructuring

Agreement (count #1), NEMC's claim for indemnification under the

Restructuring Agreement (counterclaim #1), and the Attorney

General's claim for breach of fiduciary duty (counterclaim #2).

SO ORDERED.

United States District Judge District of New Hampshire

12Document no. 133.

13Documents no. 131 and 132.

14Document no. 152.

37 Dated: July 19, 2010

cc: Deming E. Sherman, Esq. Bruce A. Singal, Esq. David A. Willin, Esq. Jeffrey T. Rotella, Esq Michelle Peirce, Esq. Eric Carriker, Esq. Jonathan C. Green, Esq. Patrick J. Tarmey, Esq.

38