Chapter 93A’s unique features appeal to business litigants looking for a free lunch — that is, all the benefits of litigation with an attorneys’ fee award at the end — and business litigators trying to boost clients’ return on their investment in a case through an award, or even through the threat, of multiple damages. But defendants have numerous tools in their belt to remove a 93A claim from the litigation equation, and to rebalance the scales. Among these is the “intra-enterprise” exclusion.
At its inception, Chapter 93A was designed to permit the attorney general to address and punish unfair and deceptive acts and practices committed by businesses at the expense of consumers. This remit was soon expanded to provide for private rights of action for consumers in such cases, and then again to allow such actions to be brought by businesses against one another under the statute. The latter, also known as “Section 11” claims, have since become staple fare in Massachusetts business litigation, for at least two reasons. The first is its sui generis character, as “the statutory words ‘[u]nfair and deceptive practices’ [in G.L. c. 93A, § 2,] are not limited by traditional tort and contract law requirements.” Nei v. Burley, 388 Mass. 307, 312–13 (1983). “A plaintiff in a c. 93A case . . . need not prove the existence of a contract, the defendant’s intent to misrepresent, or his own reliance on the misrepresentation . . .” Id. at 313.1 The second is that Chapter 93A confers game-changing leverage to a business litigant through two other features: a potent exception to the American Rule in the form of a mandatory award of reasonable attorney’s fees; and potential double to treble damages for “willful and knowing” violations of the statute.
To establish a claim under Chapter 93A, plaintiffs must demonstrate an unfair or deceptive practice that falls “within at least the penumbra of some common-law, statutory, or other established concept of unfairness.” Lambert v. Fleet Nat’l Bank, 449 Mass. 119, 127 (2007), quoting Wasserman v. Agnastopoulos, 22 Mass.App.Ct. 672, 679 (1986). Such “unfairness” must have taken place in the course of “trade or commerce,” which the courts have defined to include a “commercial relationship” or “business transaction,” that occurs within a “business context.” See Szalla v. Locke, 421 Mass. 448, 452 (1995). Thus, conduct is not actionable under Chapter 93A where it takes place within a “strictly private transaction, where the undertaking is not ‘in the ordinary course of a trade or business’” and the transaction is motivated by personal, rather than business, purposes. See Milliken & Co. v. Duro Textiles, LLC, 451 Mass. 547, 563 (2008).
The “intra-enterprise” exclusion developed via the tension between the “business context” and “private transaction” context. A series of decisions has thus established that “disputes between parties in the same venture do not fall within the scope of G.L. c. 93A, § 11.” See e.g., Szalla v. Locke, 421 Mass. 448, 452 (1995); infra (collecting cases illustrating this principle). The SJC has applied this rule to claims between employers and employees, to shareholders and others within business corporations concerning internal business disputes, and even to claims by an employee and shareholder of one closely held business against a separate corporation that had the same majority shareholder. See Manning v. Zuckerman, 388 Mass. 8, 13–14 (1983) (employee-employer relationship); Riseman v. Orion Research Inc., 394 Mass. 311, 313–314 (1985) (c. 93A inapplicable to claims by corporate stockholder against corporation stemming from dispute as to internal governance of corporation); Szalla, 421 Mass. at 452 (finding no commercial transaction as required by c. 93A where “defendant and the plaintiff made a private arrangement to form a business together”); Newton v. Moffie, 13 Mass.App.Ct. 462, 469–470 (1982) (c. 93A inapplicable to claims between individual members of same partnership that arise from partnership business); Selmark Assocs., Inc. v. Ehrlich, 467 Mass. 525, 550 (2014) (finding that Chapter 93A did not apply to claims by an employee and shareholder of one closely held business against a separate corporation that had the same majority shareholder).
In Governo Law Firm LLC v. Bergeron, the SJC held that the intra-enterprise exclusion has limits. See 487 Mass. 188, 190–196 (2021). The SJC reiterated that “intracompany disputes are not ‘marketplace transactions,’ and instead concern ‘the ordinarily cooperative circumstances of the employment relationship between an employee and the organization of which he [or she] is a member.’” Id., quoting Manning, 388 Mass. at 13. However, in Governo, six attorneys of the plaintiff law firm were simultaneously negotiating to purchase the practice from its owner, while allegedly converting firm trade secrets in the form of a “research library, databases, and administrative files,” which they then used to compete with the firm following their departure. See id. In instructing the jury on Governo’s Chapter 93A claim, the trial court had drawn a bright-line distinction between the defendants’ conversion of firm property while still employed, which was “irrelevant to the jury’s determination of G.L. c. 93A liability,” and their use of such materials to compete with the firm following their departure. Id. The SJC found error in this instruction, ruling instead that conduct of this sort during employment transcends the parties’ relationship through its impact on or expression in the broader “marketplace”:
Where an employee misappropriates his or her employer’s proprietary materials during the course of employment and then uses the purloined materials in the marketplace, that conduct is not purely an internal matter; rather, it comprises a marketplace transaction that may give rise to a claim under G. L. c. 93A, § 11.
Id. In light of Governo, a case comment published in the Massachusetts Law Review in 20222 posed the question of what the SJC’s decision means for future cases. Would practitioners begin including Chapter 93A claims in all intra-company disputes, pleading “marketplace” effects? Would the courts carefully examine apparently internal disputes to determine whether parties’ conduct had extra-enterprise impacts? The answer is beginning to emerge, as evidenced in several subsequent decisions from the Appeals Court, Superior Court and U.S. District Court for the District of Massachusetts.
In Tedeschi-Freij v. Percy L. Grp., P.C., 99 Mass. App. Ct. 772, 773, 779 (2021), decided soon after Governo in June 2021, the Appeals Court overruled the trial court’s entry of summary judgment for the defendant law firm and principal on a Chapter 93A claim brought by a former attorney of the firm, based on the alleged “continued use of [the attorney’s] name and [the principal’s] misrepresentation that [they] were affiliated after [the attorney’s] departure from the firm . . .” Id. at 778. The trial court had dismissed the claim as a “dispute between an employer and an employee arising out of the employment relationship,” but the Appeals Court reversed, finding that “the claim is that once they were not in the same venture, [the principal] wrongly continued to use [the attorney’s] name.” Id. at 779. Notwithstanding that the claim arguably had its origins in the parties’ employer-employee relationship, post-Governo, the decisive element for 93A purposes was that much or all of the offending conduct took place after the parties’ affiliation had ceased, rendering it within a “business context.” See id.
A few months later, the Appeals Court (in an unpublished M.A.C. Rule 23.0 decision) “acknowledge[d] the limitations of the intra-venture exception discussed in” Governo, but deemed it inapplicable to a claim brought by one shareholder in a dissolved business venture against the three other shareholders and the competing business they left to establish, where there was no “evidence that the individual defendants unlawfully misappropriated or used any ‘ill-gotten materials,’ or otherwise engaged in other misconduct before they dissolved the venture.” See Petrucci v. Esdaile, 100 Mass. App. Ct. 1109 (2021). While, as in Governo, much of the alleged conduct took place after the shareholders ceased to be affiliated, the court relied heavily on the fact that the plaintiff failed to allege “any facts plausibly suggesting that [the subsequent venture] … engaged in any conduct after the dissolution of [the dissolved venture] that was unlawful or otherwise constituted a c. 93A violation.” See id.
In a Superior Court decision issued later in 2021 concerning claims by one shareholder in a dental practice against the other and/or the legal entities in which they were the sole shareholders, the court preserved 93A claims despite the fact that all of the defendant’s conduct occurred while the parties continued to be affiliated as partners, shareholders, and employees of the practice. See Russo v. Manzoli, 2021 WL 6210647, at *4 (Mass. Super. Dec. 14, 2021). The court ruled that the defendant’s conduct was not indicative of merely a private dispute, because it affected the practice’s “ability to compete in the marketplace” and “step[ped] in the commercial marketplace and out of the intra-corporate context.” See id. “[Plaintiff’s] allegations that [the defendant] used a third-party investment bank in Illinois to improperly force a buyout of [plaintiff’s] stock at a price greater than permitted in the stock agreements,” his threats “to destroy the practice,” and his “raiding [of] the Dental Practice’s assets . . . impacted the Dental Practice’s patients and ability to compete in the marketplace,” thus falling within the purview of Chapter 93A. Id. at *4. While this ruling could be viewed as a broadening of Governo’s reach to claims that involve no conduct occurring after the parties ceased to be entwined in a business relationship, the Rule 12(b)(6) motion context meant that the “Court [did] not resolve the fine parsing of facts to determine whether some of the conduct constitute[d] an intra-corporate dispute or a commercial transaction in the marketplace,” prior to discovery taking place. Id. at *5.
In a case subsequently decided in the U.S. District Court for the District of Massachusetts, both the facts and the court’s ruling closely tracked those in Governo. See Marion Fam. Chiropractic, Inc. v. Seaside Fam. Chiropractic, LLC, 2022 WL 1003963, at *11 (D. Mass. Apr. 4, 2022). In that case, the defendant — a departing employee of the plaintiff Marion Family Chiropractic, Inc. — was “alleged to have taken Marion Family’s confidential information for use after she left the business to begin practicing at her new venture, Seaside Family.” See id. The court thus denied the defendant’s motion to dismiss the plaintiff’s Chapter 93A claim.
Likewise, in Koch Acton, Inc. v. Koller, 2024 WL 1093001, at *13–*14 (D. Mass. Mar. 13, 2024), departing employees of an auto dealership group were alleged to have misappropriated customer lists and other protected company information, and used it to establish a separate digital marketing business under the umbrella of a competing auto dealership group. The court found that both the conversion of the information by the former employees and the use of it “in the marketplace” by the new entity they established after departure constituted conduct subject to Chapter 93A liability. See id.
In another recent District of Massachusetts decision, the court declined to extend the Governo ruling to a dental practice employee who allegedly aided and abetted unfair and deceptive conduct of a departing dentist, who, like the defendants in Governo, was alleged to have converted assets of the practice to compete directly with her former employer. Barnia v. Kaur, 2024 WL 914780, at *8 (D. Mass. Feb. 1, 2024). The court found it a bridge too far to “expand liability from the managers and executives who are in a position to misappropriate corporate assets and breach their fiduciary duties in the marketplace to at-will employees who observe that misappropriation via their employment.” Id. The “aiding and abetting” 93A claim was thus dismissed.
In a Superior Court decision not reported in either the Northeast Reporter or in Westlaw, the court drew a distinction between claims the plaintiffs asserted qua employees against their employer, and those they might bring as contingent shareholders in the employer, or as principals of a separate entity that provided services to the employer. See Seaside Psych Health & Wellness LLC, et al. v. Blue Hills Therapeutics Inc., et al., C.A. No. 1984CV1632, Suffolk Superior Court (BLS2), Memorandum of Decision and Order on Cross-Motions for Summary Judgment (Ricciuti, J.), Feb. 23, 2023. In Seaside, the two individual plaintiffs, Jerald Davis and Christopher Landers, contracted with the defendant licensed home care agency, Blue Hills, to work as executives for Blue Hills and to cover payroll and other costs for Blue Hills through Davis’ and Landers’ existing home care staffing agency, plaintiff Seaside. In exchange, Seaside would be reimbursed all costs it covered once Blue Hills had integrated Seaside’s nurses and began receiving payments for their services from health insurers with which Blue Hills had contracts. Davis and Landers were to receive 50% of the shares of Blue Hills in accordance with a schedule and performance benchmarks to which the parties had agreed. When Blue Hills refused to reimburse Seaside and terminated Davis and Landers without transferring the shares as agreed, the plaintiffs asserted, inter alia, Chapter 93A claims against defendant Blue Hills and its existing shareholders, which were challenged on summary judgment. Citing Governo, the court ruled that “where a dispute is only partially based in employment, and involves marketplace relations between the parties, Governo found that Chapter 93A applied.” Id. at 11. The court thus dismissed Davis’s and Landers’ claims only to the extent they were based upon their employment with Blue Hills or on the agreement that described such employment. The court preserved all claims grounded on agreements other than Davis’ and Landers’ employment agreement — all those based upon Blue Hills’ agreement with Seaside or its employees — and stated, “to the extent Plaintiffs contend that Defendants never intended to make them shareholders at all, this theory is an alternative, and viable, claim under Chapter 93A.” See id., at 10–11.
In yet another recent District of Massachusetts decision, the court denied the defendants’ motion to dismiss based on the intra-enterprise exclusion. See Garage Sweat LLC v. Factory 14 UK Acquisition IV Ltd., 2024 WL 914399, at *6 (D. Mass. Feb. 12, 2024). This case concerned claims by individual members of an LLC and the LLC itself that sold its assets to the defendants. The defendants allegedly breached earn-out provisions in the sale agreement. The individual plaintiffs were contracted as consultants of the defendants following the sale, but were never employees, per se; the transaction was an asset sale and not a stock sale in which the selling individuals might have been deemed continuing employees. Despite the plaintiffs’ post-transaction consulting arrangement, the court implicitly rejected, see id., the conflation of “consultant” with “employee”:
Here, neither the Founders nor [the selling entity] are or ever were employees of the Defendants. Rather, Plaintiffs are separate entities to Defendants. Plaintiffs sold their business … to [Defendants], and Plaintiffs allege fraud and breach prior to and after the sale. Plaintiffs’ Chapter 93A claim therefore occurred in a business context, such that it is not barred by the intra-enterprise doctrine.
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It may be too early to know the full implications of Governo either on practitioners’ eagerness to test the bounds of the intra-entity doctrine, or the courts’ tendency to interpret disputes as extra- rather than intra-enterprise in nature. Early returns generally suggest a fairly narrow interpretation of Governo’s nuanced exception for intra-entity conduct that has “marketplace” effects, with just a few decisions indicating a more expansive reading. On the one hand, the courts have shown a clear inclination to follow Governo’s lead where the facts are substantially similar, such as in Tedeschi-Freij, Marion Family Chiropractic and Koch Acton, Inc., and the theft and post-affiliation use of trade secrets are present; and to draw the line where deviations from the Governo pattern were present, such as in Petrucci (no unlawful conversion) and Barnia (no expansion to aiding and abetting claim). On the other hand, in Russo and Seaside, the Superior Court has indicated a willingness to view “marketplace effects” or “marketplace transactions” through a somewhat wider lens, to include the use of outside agencies or forces to influence an internal dispute, or where parties act in dual capacities within the same set of transactions. This may be good news for those on the plaintiffs’ side who hope that the cracks Governo opened in the exclusion become broader fissures, even if it means their 93A claims survive a motion to dismiss and provide further leverage to negotiate.
Matthew J. Ginsburg is co-manager and a member of Ascendant Law Group LLC, a boutique business litigation and bankruptcy firm located in Andover, as well as past chair of the Massachusetts Bar Association’s Complex Commercial Litigation Section Council. He has more than 20 years of experience representing individuals and corporate entities of all sizes in commercial, construction, land-use, employment, insurance and intellectual property disputes before courts, arbitrators and administrative bodies, and has tried civil jury matters in the three states in which he is admitted: Massachusetts, New Hampshire and North Carolina.
1. Section 11 claims are particularly attractive as an alternative to fraud, because the plaintiff need not either comply with the heightened pleading standard in Mass. R. Civ. P. 9 or establish the other formal elements of deceit: “[T]he definition of an actionable ‘unfair or deceptive act or practice’ goes far beyond the scope of the common law action for fraud and deceit,” particularly because “in the statutory action proof of actual reliance by the plaintiff on a representation is not required.” Slaney v. Westwood Auto, Inc., 366 Mass. 688, 703 (1975); Downey v. Wells Fargo Bank, N.A., 2014 WL 3510510, at *8 (D. Mass. July 11, 2014) (declining to enter summary judgment in Wells Fargo’s favor “on this ground alone”).
2. Marc C. Laredo, “The Applicability of Chapter 93A to Intra-enterprise Disputes in the Wake of Governo Law Firm LLC v. Bergeron — Where Do We Go From Here?,” Massachusetts Law Review, Volume 103, No. 1, Published by the Massachusetts Bar Association, February, 2022.