GOVERNO LAW FIRM LLC vs. KENDRA ANN BERGERON & others. [Note 1]

WENDLANDT, J. Over the course of more than two decades representing clients in asbestos litigation, the plaintiff Governo Law Firm LLC (GLF) systematically created the contents of a research library, a treasure trove of materials amassed from GLF's own matters as well as other sources, that gave it a competitive edge in attracting and providing legal services to clients in this specialized field. GLF also built electronic databases to render the library readily searchable, facilitating retrieval of the information. In the fall of 2016, these proprietary materials were taken by a group of nonequity employees at GLF (attorney defendants) as they prepared to start a new law firm, the defendant CMBG3 Law LLC (CMBG3), in case their planned purchase of GLF proved unfruitful. The attorney defendants took turns secretly downloading the library and databases, as well as GLF's employee handbook, other administrative materials, and client lists, onto high-capacity "thumb drives"; [Note 2] the attorneys then surreptitiously removed these materials from GLF's offices. They subsequently made an offer to GLF's sole owner, David Governo, to buy GLF, stating that they would resign if the offer were not accepted that day. Governo rejected the offer that same day and locked the attorney defendants out of GLF's computer systems. The next day, the attorney defendants opened for business under the previously incorporated CMBG3, where they used the stolen materials and derived profits therefrom.

GLF filed a complaint in the Superior Court asserting claims against its former employees and CMBG3. A jury found some or all of the defendants liable on the claims for conversion, breach

Page 190

of the duty of loyalty, and conspiracy, [Note 3] and none of the defendants liable for unfair or deceptive trade practices in violation of G. L. c. 93A, § 11. The jury awarded GLF $900,000 in damages, calculated based on the defendants' net profits. The judge then issued a permanent injunction enjoining the defendants from using the library and databases, and ordering those materials removed from the defendants' computers.

In GLF's appeal from certain of the judge's instructions at trial, as well as his posttrial rulings, we first address the question whether the attorney defendants, who misappropriated proprietary materials from their employer during their employment, and subsequently used those materials to compete, may be liable for unfair or deceptive trade practices pursuant to G. L. c. 93A, § 11, for actions that were, in part, taken while still employed by GLF. We conclude that that they, and their new firm, may be. Because the judge erroneously instructed the jury that the defendants' preseparation conduct was not relevant to GLF's claim under G. L. c. 93A, § 11, and because GLF has shown that its rights were affected thereby, the matter must be remanded for a new trial on the G. L. c. 93A, § 11, claim. We next address the scope of the permanent injunction. Although the jury found that the defendants were liable for conversion of GLF's proprietary materials, the judge issued a permanent injunction precluding the defendants' use of only a subset of these materials. We conclude that the judge abused his discretion. Finally, we consider GLF's claims with respect to pre- and postjudgment interest. We conclude that prejudgment interest was not required under G. L. c. 231, § 6H, but that GLF is entitled to postjudgment interest.

1. Background. We recite the facts in the light most favorable to GLF. See Linkage Corp. v. Trustees of Boston Univ., 425 Mass. 1, 4, cert. denied, 522 U.S. 1015 (1997).

In 2016, the attorney defendants -- each a nonequity partner at GLF -- were considering acquiring GLF from its sole owner, Governo. GLF was a law firm that specialized in representing insurance companies in asbestos litigation. While the attorney defendants considered a potential purchase, they simultaneously pursued the possibility of starting their own firm, the defendant CMBG3.

In October of 2016, three of the attorney defendants began downloading materials from their GLF computers onto high-capacity

Page 191

thumb drives. The attorney defendants kept the copying secret from Governo, believing that, had he been aware of it, Governo would have prevented the copying. [Note 4] One of the attorney defendants indicated that it would have been to CMBG3's business detriment not to copy the material.

The materials copied included three different types of information: a research library, databases, and administrative files. The research library contained over 100,000 documents relevant to asbestos litigation, including witness interviews, expert reports, and investigative reports, and was known within GLF as the "8500 New Asbestos Folder" (8500 folder). The library was developed by GLF over a period of twenty years, at a cost of more than $100,000. [Note 5] According to testimony by GLF's expert, these materials were "extremely valuable" and provided a competitive advantage to GLF over other law firms within the field of asbestos litigation.

The second category of copied materials, the databases, organized the GLF resources from the 8500 folder and elsewhere into categories, sortable by multiple criteria, such as legal theory or client. One database, for instance, housed all materials related to the state-of-the-art defense as it is used in asbestos litigation. [Note 6] Another database contained literature, historical information, and scientific information concerning talc, a potential cause of mesothelioma. [Note 7] These databases, which, like the research library, were developed at a cost of over $100,000, were, according to GLF's expert, also extremely valuable and provided GLF a competitive advantage. The third category of copied documents, the administrative files, included a manual on office procedures, an employee handbook, marketing materials, and client lists.

Page 192

Once the materials were downloaded onto the removable electronic devices, the defendants took the devices from GLF's offices. After one of the attorney defendants had removed some materials himself, he sent a text message to another attorney defendant informing the attorney that she should bring a gym bag when she removed materials, in order not to arouse the suspicions of building security. The attorney defendants then uploaded the copied information onto a laptop computer they had purchased for their new law firm.

The attorney defendants incorporated CMBG3 on November 1, 2016. On November 18, 2016, they "hijack[ed]" the scheduled GLF partners' meeting and offered Governo $1.5 million in cash, plus net profits for some of the attorneys' work performed through the end of the year, to buy GLF. [Note 8] The attorney defendants gave Governo until 5 p.m. that day to respond and told Governo that if he rejected their offer, they would resign in thirty days.

Governo rejected the offer that same day. Two days later, on November 20, 2016, Governo sent an electronic mail message to the attorney defendants asking them to confirm that they had not taken and were not in possession of any GLF data. The attorney defendants did not respond. Governo then secured the attorney defendants' computer login information so they could not access the GLF computer systems. [Note 9] The last day the attorney defendants were employed by GLF was November 20, 2016.

By November 21, 2016, the attorney defendants were officially operating CMBG3. They accessed GLF's materials (now on CMBG3's laptop) to assist in their representation of clients in paid legal work for CMBG3. An analysis of the laptop computer suggested that users of it interacted with tens of thousands of the files.

2. Discussion. [Note 10] a. General Laws c. 93A, § 11. GLF first maintains

Page 193

that the judge provided an erroneous instruction to the jury in connection with GLF's G. L. c. 93A claim. [Note 11] The instruction provided:

"Conduct is part of trade or commerce, as a general matter, if it takes place in a business context and it's not personal or private in nature. But by law an employee and employer are [not] in trade or commerce with each other for purposes of the statute. That means that [G. L. c.] 93A does not apply to anything a defendant did toward the Governo Firm while they were still employed there. So anything that happened before the 20th of November, 2016, whether it was negotiations, copying of materials, anything else[,] that's all irrelevant for purposes of [the G. L. c. 93A claim]. Instead for this claim the Governo Firm must prove the defendants did something to compete with the Governo Firm after they left that firm that was unfair or deceptive. So given the evidence in this case, the Governo Firm must convince you that the defendant[s] used confidential information or documents belonging to the Governo Firm, to compete against that firm in an [unfair] or deceptive manner and that they did so after their employment at the Governo Firm had [ended]."

GLF asserts that the instruction was erroneous because it precluded the jury from considering a critical aspect of the misconduct of the attorney defendants, that is, their copying and taking GLF's proprietary materials while they were GLF's employees. [Note 12]

Page 194

In examining whether an instruction "adequately explain[s] the applicable law," Kelly v. Foxboro Realty Assocs., LLC, 454 Mass. 306, 316 (2009), we consider the "adequacy of the instructions as a whole," Selmark Assocs., Inc. v. Ehrlich, 467 Mass. 525, 547 (2014). "We review objections to jury instructions to determine if there was any error, and, if so, whether the error affected the substantial rights of the objecting party" (citation omitted). Dos Santos v. Coleta, 465 Mass. 148, 153-154 (2013). "An error in jury instructions is not grounds for setting aside a verdict unless the error was prejudicial -- that is, unless the result might have differed absent the error." Blackstone v. Cashman, 448 Mass. 255, 270 (2007). See Abramian v. President & Fellows of Harvard College, 432 Mass. 107, 118-119 (2000).

General Laws c. 93A, § 11, provides,

"Any person who engages in the conduct of any trade or commerce and who suffers any loss of money or property . . . as a result of the use . . . by another person who engages in any trade or commerce of . . . an unfair or deceptive act or practice [Note 13] . . . may . . . bring an action in the [S]uperior [C]ourt . . . ."

In order for G. L. c. 93A, § 11, to apply to a given dispute, there must be "a commercial transaction between a person engaged in trade or commerce and another person engaged in trade or commerce, such that they were acting in a 'business context.'" Milliken & Co. v. Duro Textiles, LLC, 451 Mass. 547, 563 (2008). See Szalla v. Locke, 421 Mass. 448, 451 (1995); Begelfer v. Najarian, 381 Mass. 177, 190-191 (1980). Thus, purely intra-enterprise disputes fall outside the reach of G. L. c. 93A, § 11. See Linkage Corp., 425 Mass. at 23 n.33. See, e.g., First Enters., Ltd. v.

Page 195

Cooper, 425 Mass. 344, 347-348 (1997) (G. L. c. 93A, § 11, was inapplicable to internal business dispute between parties in same venture); Szalla, supra at 452 (G. L. c. 93A, § 11, was inapplicable to dispute between partners in business venture); Zimmerman v. Bogoff, 402 Mass. 650, 662-663 (1988) (G. L. c. 93A, § 11, was inapplicable to disputes between parties to joint venture and shareholders in close corporation); Riseman v. Orion Research Inc., 394 Mass. 311, 313-314 (1985) (G. L. c. 93A, § 11, was inapplicable to corporate stockholder claims against corporation stemming from dispute as to internal corporate governance of corporation). Accordingly, G. L. c. 93A, § 11, does not apply to employer-employee disputes arising out of the employment relationship. [Note 14] See Manning v. Zuckerman, 388 Mass. 8, 13-14 (1983).

Importantly, however, the inapplicability of G. L. c. 93A, § 11, to disputes arising from an employment relationship does not mean that an employee never can be liable to its employer under G. L. c. 93A, § 11. To the contrary, we have recognized that G. L. c. 93A "is a statute of broad impact." Slaney v. Westwood Auto, Inc., 366 Mass. 688, 693 (1975). In carving out certain employment disputes from the otherwise broad reach of G. L. c. 93A, § 11, we have explained that such 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." Manning, 388 Mass. at 13. 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

Page 196

give rise to a claim under G. L. c. 93A, § 11. See, e.g., Specialized Tech. Resources, Inc. v. JPS Elastomerics Corp., 80 Mass. App. Ct. 841, 847 (2011) (employee who obtained trade secret during course of employment and misappropriated it in violation of confidentiality provision of employment contract was liable under G. L. c. 93A, § 11); Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 939-940 (1984) (employee who misappropriated trade secret while employed by plaintiff and then used trade secret to start his own competing business was liable under G. L. c. 93A, § 11). [Note 15] That the individuals were employees at the time of the misappropriation does not shield them from liability under G. L. c. 93A, § 11, where they subsequently used the ill-gotten materials to compete with their now-former employer.

Here, the judge instructed the jury that G. L. c. 93A did not apply to "anything" the defendants did "while they were still employed" by GLF, and that the copying of GLF's materials, because it occurred prior to the attorney defendants' last day as GLF's employees, was "irrelevant" to the jury's determination of G. L. c. 93A liability. In effect, the jury were instructed to ignore how the attorney defendants obtained GLF's materials in determining whether the subsequent use of those materials was unfair or deceptive. Yet, the G. L. c. 93A, § 11, claim required the jury to consider that the attorney defendants stole GLF's materials in order to determine whether the subsequent use of these materials was unfair or deceptive. [Note 16] See Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 839 (1972) (explaining "basic principles of equity" as foundation for rule that employee "may be enjoined from using or disclosing confidential information" entrusted to employee during course of employment [citation omitted]).

The erroneous instruction was prejudicial. Had the jury considered

Page 197

the attorney defendants' conduct during their employment -- in particular, their conversion of GLF property [Note 17] -- the jury well might have reached a different result. [Note 18] Had they not been told to disregard this conversion, the jury could have found that the defendants' subsequent use of the converted materials was an unfair or deceptive act, rendering the defendants liable under G. L. c. 93A, § 11. If the jury had done so, GLF would have been entitled to attorney's fees and potentially double or treble damages. See G. L. c. 93A, § 11. The error in the jury instruction thus affected GLF's substantial rights. See Dos Santos, 465 Mass. at 153-154. Because GLF was prejudiced by the error, a new trial on GLF's G. L. c. 93A, § 11, claim is warranted. See Pfeiffer v. Salas, 360 Mass. 93, 101 (1971) (new trial warranted where jury instruction was not sufficiently clear).

b. Permanent injunction. The jury found the defendants liable for conversion of GLF's proprietary materials -- the research library, databases, and administrative files. The judge, however, only permanently enjoined the defendants with regard to the research library and the databases, apparently leaving the defendants free to continue their unrestricted access and use of the administrative files. [Note 19] Believing the omission of the administrative files from the scope of the permanent injunction to be inadvertent, GLF moved to modify the injunction. The judge denied the motion, offering no explanation other than to observe that a trial judge has broad discretion to determine the appropriate scope of permanent injunctive relief and that he had entered the permanent injunction he deemed to be appropriate and equitable based on the evidence presented at trial. As GLF contends, this was an abuse of discretion. See LightLab Imaging, Inc. v. Axsun Techs., Inc., 469 Mass. 181, 194 (2014) (appellate standard of review of scope of permanent injunction is abuse of discretion).

Page 198

While the scope of equitable relief is within the sound discretion of the trial judge, Commonwealth v. Adams, 416 Mass. 558, 566 (1993), such discretion is not without limit, see Curtiss-Wright Corp. v. Edel-Brown Tool & Die Co., 381 Mass. 1, 10 (1980). Here, without explanation and with no evident basis in the record, [Note 20] the judge allowed the defendants to continue to use GLF's administrative files and thereby improperly permitted them to continue to benefit from their theft. See Restatement (Third) of Unfair Competition § 44 (1995). See also Maxham v. Day, 16 Gray 213, 215 (1860) (common-law remedy of replevin allows owner to recover property that was wrongfully taken). Accordingly, the exclusion of the administrative files from the scope of the permanent injunction was an abuse of discretion.

c. Prejudgment interest. GLF maintains that the judge erred by vacating the assessment of prejudgment interest; GLF contends that the award of prejudgment interest was mandatory under G. L. c. 231, § 6H, which provides:

"In any action in which damages are awarded, but in which interest on said damages is not otherwise provided by law, there shall be added by the clerk of court to the amount of damages interest thereon . . . from the date of commencement of the action . . . ."

General Laws c. 231, § 6H, is a "catch-all interest provision," see Herrick v. Essex Regional Retirement Bd., 465 Mass. 801, 807

Page 199

(2013), that "reflects the Legislature's intent that prejudgment interest always be added to an award of compensatory damages," George v. National Water Main Cleaning Co., 477 Mass. 371, 378 (2017). GLF argues that this statute requires the addition of prejudgment interest to all monetary awards including where, as here, the monetary relief does not compensate GLF for its loss and instead is based on a defendant's profits. Our review of this legal issue is de novo. See Anastos v. Sable, 443 Mass. 146, 149 (2004).

In assessing whether G. L. c. 231, § 6H, requires the assessment of prejudgment interest on the disgorgement of the defendants' profits in this case, we are guided by the difference between compensatory damages, on the one hand, and restitutionary remedies, on the other. Under the common law of torts, at the time of an accident, an injured party accrues a right to be made whole and compensated for injuries wrongfully inflicted by the tortfeasor. See Smith v. Massachusetts Bay Transp. Auth., 462 Mass. 370, 375 (2012). There almost always is a delay, however, between the time of the tortious injury and the resolution of the resulting lawsuit. See id. "As a result of such delay, the plaintiff incurs additional injury, including the depreciation of his [or her] eventual recovery. The award of [prejudgment] interest compensates the [injured party] for this additional injury." (Citations omitted.) Id. See Anastos, 443 Mass. at 155 (prejudgment interest is awarded "so that a person wrongfully deprived of the use of money should be made whole for his [or her] loss" [citation omitted]); Conway v. Electro Switch Corp., 402 Mass. 385, 390 (1988) (prejudgment interest is "awarded to compensate a damaged party for the loss of use or the unlawful detention of money"). Thus, prejudgment interest "ensure[s] that a party is fully compensated for its injuries." Boston Children's Heart Found., Inc. v. Nadal-Ginard, 73 F.3d 429, 442 (1st Cir. 1996).

Not every form of monetary relief, however, is compensatory in nature. A monetary award based on disgorgement of profits, for example, is measured by the defendant's gain, rather than by the plaintiff's loss. Such restitutionary recoveries are not designed to make the plaintiff whole; as such, they are "distinct from damages, which measures compensation for loss rather than disgorgement of the defendant's gain." See 3 D.B. Dobbs, Law of Remedies § 12.1(1), at 9 (2d ed. 1993). See also Restatement (Third) of Restitution and Unjust Enrichment § 51 (2011) (object of restitution in certain contexts is to eliminate profit from wrongdoing). Thus, in USM Corp. v. Marson Fastener Corp., 392 Mass. 334,

Page 200

349 (1984), we held that G. L. c. 231, § 6B, [Note 21] does not require the addition of prejudgment interest to a monetary award where the award is based on the defendant's profits. We reasoned that, whereas prejudgment interest is designed to make a plaintiff whole, monetary relief based on a defendant's profits is not. See USM Corp., supra.

Moreover, a restitutionary award based on the defendant's gain can account for the delay between the filing of a cause of action and the eventual recovery by including in the calculation unjust profits earned subsequent to the filing of the complaint. See Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 182 n.21 (1979) (Jet Spray II). Thus, in USM Corp., 392 Mass. at 349, we concluded that, because a monetary award based on disgorgement of the defendant's profits already accounted for the defendant's gain after commencement of the action, unlike a typical tort action where damages accrue at the time of injury, imposing prejudgment interest pursuant to G. L. c. 231, § 6B, on the award of unjustly obtained profits from the commencement of the action would be misplaced.

For the same reasons, prejudgment interest under G. L. c. 231, § 6H, does not apply to the monetary award here. Prejudgment interest applies to awards of compensatory damages because both prejudgment interest and compensatory damages seek to make a plaintiff whole. See Smith, 462 Mass. at 375-376; Fontaine v. Ebtec Corp., 415 Mass. 309, 327 (1993). In the circumstances of this case, however, GLF's recovery was based on the defendants' wrongful gains rather than on GLF's own losses. Accordingly, the jury's award did not seek to make GLF whole. Moreover, the jury award included the defendants' unjust profits gained during the time period that the case was pending. Providing prejudgment interest on the award, which already accounted for the profits during the pendency of the suit, would produce a windfall for GLF. Compare Sterilite Corp. v. Continental Cas. Co., 397 Mass. 837, 841 (1986) ("The common law was particularly sensitive to the possibility that a liberal award of prejudgment interest could

Page 201

result in a windfall for plaintiffs amounting, in essence, to an award of punitive damages"). GLF will not be "unfairly deprived of compensation," and the defendants will not be "unjustly enriched," if they are not required to pay prejudgment interest. See Jet Spray II, 377 Mass. at 183-184. Accordingly, the jury's monetary award does not constitute damages within the meaning of G. L. c. 231, § 6H, and an assessment of prejudgment interest was not required. [Note 22]

d. Postjudgment interest. GLF contends that it is entitled to postjudgment interest and that the judge erred in determining that the defendants' deposit of funds with the court satisfied the judgment in full. A decision on a motion to deposit funds is left to the sound discretion of the motion judge, see Commerce Ins. Co. v. Szafarowicz, 483 Mass. 247, 258 (2019) (Szafarwicz); however, we review de novo the judge's legal conclusion that the defendants' deposit of funds terminated the accrual of postjudgment interest, see Brown v. Office of the Comm'r of Probation, 475 Mass. 675, 677 (2016).

Postjudgment interest serves to compensate the prevailing party for any delay in payment. See Anderson v. National Union Fire Ins. Co. of Pittsburgh PA, 476 Mass. 377, 383 (2017). Postjudgment interest accrues daily, see Trinity Church in Boston v. John Hancock Mut. Life Ins. Co., 405 Mass. 682, 684 (1989), until the judgment is fully satisfied, see City Coal Co. of Springfield v. Noonan, 434 Mass. 709, 717 (2001) (Noonan). In this case, the defendants proposed to deposit $915,937.23 with the court pursuant to Mass. R. Civ. P. 67, 365 Mass. 835 (1974); they were not willing to pay the funds directly to GLF if GLF pursued an appeal and asserted that the deposit would terminate the accrual of all postjudgment interest. The judge allowed the defendants'

Page 202

motion to deposit funds and later clarified that he intended "both that those funds would constitute sufficient post-judgment security and that the payment would satisfy the judgment in full if the judgment is affirmed on appeal." The defendants then deposited $915,937.23 with the court.

Contrary to the judge's determination, defendants may not escape the accrual of postjudgment interest by making an offer to satisfy the judgment conditioned on a party forgoing its appellate rights. See Szafarwicz, 483 Mass. at 261 ("unlike some other jurisdictions, rule 67 in Massachusetts does not expressly provide for abatement of postjudgment interest when money is deposited with the court"). The second amended judgment awarded GLF $915,937.23; until that judgment is satisfied, postjudgment interest will continue to accrue. See Noonan, 434 Mass. at 717.

3. Conclusion. So much of the judgment as concerns the denial of the claim under G. L. c. 93A, § 11, is vacated and set aside, and the matter is remanded to the Superior Court for a new trial on that claim. The remainder of the judgment, and its exclusion of prejudgment interest, is affirmed.

On remand, the permanent injunction issued on September 13, 2019, shall be modified consistent with this opinion to include the return of the administrative files the defendants copied from GLF, the deletion of those files and any copies from CMBG3's electronic devices, and a certification from the defendants to that effect.

The order that the defendants' deposit of funds with the court satisfies the judgment in full is vacated. Postjudgment interest shall accrue at the statutory rate of twelve percent from the date of entry of the initial judgment on June 18, 2019, until the judgment is paid in full.

So ordered.