Brandon Associates, LLC v. FailSafe Air Safety Systems Corp.

Citations: 384 F. Supp. 2d 442; 2005 U.S. Dist. LEXIS 14599; 2005 WL 1693841Docket: CIV.A.04-12013-NMG

Court: District Court, D. Massachusetts; July 11, 2005; Federal District Court

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In a contractual dispute between Brandon Associates, LLC (Brandon) and FailSafe Air Safety Systems Corp. (FailSafe), both parties present conflicting claims regarding their business relationship. Brandon provided lobbying services to FailSafe under two agreements, the first commencing on May 1, 2003, with a monthly fee of $18,500, and a second agreement starting November 1, 2003, with a reduced fee of $18,000 per month, plus $10,000 toward an existing balance. Brandon claims to have fully fulfilled its obligations, alleging it is owed $147,941 due to its lobbying efforts leading to a contract with the Massachusetts Department of Health. Conversely, FailSafe argues it was misled about Brandon's capabilities and received inadequate services, having paid $95,000 for these alleged failures. FailSafe accuses Brandon’s CEO, Donald Flanagan, of intentionally undermining their relationship to gain an equity stake in FailSafe by diverting lobbying efforts towards fundraising activities through his consulting firm, Boston Strategies, Inc. FailSafe contends that Flanagan attempted to persuade them to allow his investment and, upon their refusal, threatened to damage their relationship with the Massachusetts Department of Public Health, claiming they were "not sufficiently solvent" to meet contractual obligations. The case includes motions from FailSafe to amend counterclaims and from Blue Sage Consulting, Inc. for attorney fees.

The Commonwealth initially threatened to terminate its agreement but ultimately decided against it. On September 8, 2004, Brandon filed a lawsuit against FailSafe in the Massachusetts Superior Court, alleging breach of contract, libel due to misrepresentations about Flanagan's role, and violations of M.G.L. c. 93A. FailSafe removed the case to federal court based on diversity jurisdiction. An amended complaint filed on September 24, 2004, included additional claims of fraud, misrepresentation, and violations of M.G.L. c. 214, 3A. Brandon added Blue Sage and individuals as defendants due to their ownership interests in FailSafe and their role in introducing Brandon to the company. 

FailSafe responded with counterclaims for breach of contract, intentional interference with a business relationship, and other claims. Blue Sage subsequently moved to dismiss, arguing that its involvement destroyed diversity jurisdiction since both it and Brandon are Massachusetts corporations. In response, Brandon filed a second amended complaint, narrowing its claims to breach of contract and M.G.L. c. 93A against FailSafe only. 

Blue Sage sought attorneys' fees, claiming Brandon's inclusion of it as a defendant was improper and intended to defeat diversity jurisdiction, but did not provide details on incurred costs. Brandon opposed this motion, asserting legitimate grounds for adding Blue Sage. FailSafe later requested to amend its counterclaims to include Flanagan as a third-party defendant for intentional interference with contractual relations and to assert claims against both Brandon and Flanagan under M.G.L. c. 93A. 

Blue Sage's motion for fees was denied, as M.G.L. 231, 6F is not applicable in federal court, and the motion lacked sufficient factual detail regarding the claimed costs. Additionally, the simplicity of the jurisdictional issue indicated that little legal work was required to determine the absence of diversity jurisdiction.

Brandon contends that the proposed claims should be dismissed for failing to state a claim and suggests that FailSafe's motion is merely a strategy to gain negotiating leverage. Under Fed. R. Civ. P. 15, leave to amend a complaint should be granted unless it would be futile or cause undue delay. Courts have discretion to deny amendments if they are deemed futile. The elements necessary for a claim of intentional interference with contractual relations include: (1) existence of a contract or business relationship expected to yield economic benefit; (2) defendant's knowledge of this relationship; (3) intentional interference by the defendant for improper purposes or means; and (4) resultant damages. FailSafe alleges that it had contracts with both Brandon and the DOH, which satisfies the first two elements. FailSafe claims that Flanagan intentionally caused inadequate lobbying services to be rendered and led the DOH to question FailSafe's financial status to gain an equity position in the company, addressing the third element. Lastly, FailSafe identifies two forms of damages: a harmed relationship with the DOH and payments for insufficient lobbying services.

Additionally, under Chapter 93A, unfair competition and deceptive practices in trade are prohibited. A claimant must demonstrate that an unfair or deceptive act in business resulted in a loss. FailSafe asserts that Brandon and Flanagan engaged in unfair practices by intentionally limiting lobbying services in anticipation of Flanagan's bid for equity and undermining FailSafe's reputation with the DOH afterward. The court acknowledges that reasonable interpretations of the actions could vary, allowing FailSafe to pursue its Chapter 93A claims.

Brandon's argument that FailSafe's motion lacks merit and is merely a tactic for leverage is deemed unconvincing, as FailSafe's ability to amend its counterclaim based on factual allegations makes Brandon's motivations irrelevant. Therefore, FailSafe is permitted to amend its counterclaim. Additionally, Blue Sage's motion for costs and attorneys' fees is denied, while FailSafe's motion for leave to amend is granted.