O  T  H  E  R      D  E  C  I  S  I  O  N  S  :

Eight Arlington Street, LLC v. Arlington Land Acquisition-99, LLC, 2007 WL 2367753
(Mass. Super.) (Aug. 3, 2007) (van Gestel, J.).

In Eight Arlington Street, the court held that summary judgment on a party’s direct claims was not res judicata barring a subsequent action asserting derivative claims against the same defendants based on the same facts.

Noting that the doctrine of res judicata and the rule against claim splitting are closely linked, the court explained that both theories “presuppose[] that a claimant has had an opportunity to assert his claims against a given defendant, and either has failed to assert those claims or has asserted the claims and had them adjudicated adversely.” Id. at *3. As for the specific requirements of res judicata, the doctrine requires the party asserting the defense to establish: “(1) identity or privity of the parties to the present and prior actions; (2) identity of the cause of action; and (3) a prior final judgment on the merits.” Id. at *2.

With respect to identity of parties, “Massachusetts courts require very close relationship to establish privity for purposes of claim preclusion in the multiparty context because its implications are drastic.” Id. at *3. A party that litigates in one legal capacity is generally not impeded from litigating in other capacities. A “shareholder ordinarily should be able to sue a third party in an individual capacity, and then later stand in the shoes of a corporation

and assert derivative claims on its behalf.” Id. at *4.

Judge van Gestel declined to follow courts from other jurisdictions that recognize an exception to this rule in the case of closely-held corporations, and held that a party’s “previous individual action does not preclude it from filing a subsequent, derivative suit against the defendants on Eight Arlington’s behalf.” Id. at *5. Analyzing the other factors, the court held that the claims asserted in the derivative suit were derived from the same transactions as those asserted in the prior direct suit. Id. at *6. However, the court also held that there had been no final judgment on plaintiff’s derivative claims. Plaintiff previously moved to amend its direct complaint to include derivative claims and had this motion denied, but the denial was not based on the merits of the proposed claims and was not a final judgment. Id. at *8.

Finally, with further respect to claim splitting in particular, the court held that the doctrine did not preclude the derivative claims because the original plaintiff and Eight Arlington were not the same parties. Thus, Eight Arlington had not yet had an opportunity to assert its claims in court. Id. at *9. Plaintiff’s derivative suit was therefore not barred, and the court denied defendant’s motion for summary judgment.

Watts Water Technologies, Inc. v. Fireman’s Fund Ins. Co., 2007 WL 2083769
(Mass. Super.) (July 11, 2007) (Gants, J.).

When an insurance company reserves its rights, it loses control over the defense and must pay all reasonable fees related to the defense.

This dispute arose out a series of policies purchased by plaintiff Watts Regulator from defendants Travelers and Hartford. These policies were in effect during a time period when some 21,000 individuals claim to had been exposed to asbestos. Roughly 300 lawsuits in a dozen states had been brought as a result of these alleged exposures. In some of these suits, Watts Regulator was directly or indirectly named as a defendant. In others, only Watts Water (which owns Watts Regulator) was named. Watts Water asserted that Travelers and Hartford had a duty to defend it in these suits.

“In Massachusetts, an insurer has a duty to defend an insured when the allegations in a complaint are reasonably susceptible of an interpretation that they state or adumbrate a claim covered by the policy terms.” Id. at *3. This duty, however, only extends to the named insured. Travelers and Hartford thus have a duty to defend Watts Regulator in connection with the asbestos claims, but no duty to defend Watts Water – notwithstanding plaintiff’s “intriguing, but ultimately futile, theories why this Court should extend the duty to defend in this case.” Id. at *4. These theories included the argument that Watts Water was entitled to be defended in its capacity as a stockholder of Watts Regulator (even though Watts Water did not

exist and was thus not a shareholder during the policy period), and the suggestion that many plaintiffs may have mistakenly named Watts Water as a defendant when they actually meant to sue Watts Regulator.

The defendants’ duty to pay the reasonable legal fees incurred by Watts Regulator extends to legal work shared with other members of a joint defense team and benefiting uninsured parties such as Watts Water. This result follows from the defendants’ decision to defend under a reservation of rights. “Having chosen to reserve their rights, the insurers lost the right to retain counsel for the insured, which now ha[s] the right to defend and control the defense of the lawsuit.” Id. at *6. The insurers must therefore pay all reasonable fees that are reasonably related to the defense of Watts Regulator, including those charged by national counsel. Id. at *8. Nevertheless, the reasonableness of these fees is to be assessed with reference to the apportionment of costs among the parties to the joint defense: “[t]he guidepost is the allocation that reasonably would have been negotiated had each party in the joint defense paid its own legal fees.” Id. at *7. Finally, when evaluating the reasonableness of hourly fees charged by counsel, the standard “is not what an insurance company would pay to the attorneys it would retain, but what a reasonable person in the insured’s position would pay for capable attorneys it chose to retain.” Id. at *10.