Section Review

Impacts of the 'Phone Sex Case' on Future Games of Legal Hardball

V. Douglas Errico is a principal in the law firm of Marcus, Errico, Emmer & Brooks, P.C., with offices in Braintree. His practice concentrates in the areas of land use, real estate development and condominium operations. His firm represents approximately 1,000 community associations.

The recent Supreme Judicial Court ruling in Office One, Inc. v. Lopez, 437 Mass. 113, 769 N.E.2d 749 (2002) should provide interesting reading for attorneys throughout the commonwealth. First, the case is a must-read for real estate practitioners, because it clarifies the scope of G.L. c. 231, ß 59H (the "Anti-SLAPP Statute"), while also establishing certain rules of engagement in disputes between condominium boards and unit owners. Of greater interest to the casual reader, however, is the business conducted by the protagonist of the case: a telecommunication service provider whose menu of services included what has commonly come to be known as "phone sex."

The underlying dispute that gave rise to the litigation is a perfect example of how relatively minor differences, when coupled with emotionally charged circumstances and "hot button" issues, can create a volatile mix that often spirals out of control. By the time such battles finally end, the combatants are usually hard-pressed to remember exactly how and why it all started. Such was the case here, and now, after nearly six years of litigation, it is finally drawing to a close. In its wake, the case has left some important legal principles, but also some casualties. Through its many twists and turns, I believe that it exposed the very best and the very worst aspects of the legal profession and why we, as attorneys, are often both revered and reviled by the general public.

I write this article as an insider, since I and my firm served as counsel to the defendant condominium association throughout the proceedings (although not as trial counsel, since we ourselves were joined as defendants in the action by the disgruntled unit owner and its attorneys). As a result, what follows may stray at times from strict objectivity, for which I offer no apologies. Any opinions expressed, whether about the case itself or about the legal profession, are strictly my own.

 

Factual background

The River Court Condominium is a luxury, high-rise condominium complex located near the Charles River in Cambridge. Approximately 166 residential units are located in the upper floors, while there are a number of office and commercial units located on the ground-floor level. There also is an underground parking garage that, as set forth in the condominium's master deed, is restricted in use to the condominium residents, except for a few visitor parking spaces. As one might expect, building security and the enhancement of property values are both matters of high priority for the condominium's Board of Trustees and on-site manager.

The initial dispute between the parties began innocently enough in the spring and summer of 1996. The Federal Deposit Insurance Corporation ("FDIC"), as receiver for the failed Bank of New England, owned certain of the office and commercial units on the building's first floor. The principal plaintiff in the case, Office One, Inc., wished to purchase those units, as well as 36 parking spaces in the underground garage, and then lease them to its affiliate, Pilgrim Telephone, Inc. Pilgrim Telephone was already operating nearby and desired to use this space to supplement those business operations. The primary shareholder of the two companies also owned a residential unit at River Court. Before closing the transaction, however, the companies wanted to confirm that there would be no unacceptable restrictions upon their employees' access to the building and its parking garage 24 hours per day, or upon those employees' use of the condominium's indoor swimming pool and health club, if they so desired. Inquiries were therefore made to the buildings' property manager, which then resulted in the direct involvement of the Board of Trustees and the condominium association's legal counsel.

From the very outset, the trustees expressed a number of concerns, including maintenance of building security, overuse of health club facilities and parking garage, and the probable displacement of certain valued retail establishments that were then renting some of the space.

Moreover, a number of legal questions arose with respect to the proposed use of the facilities, pursuant to restrictions set forth in both the condominium documents and in the special permit granted by the city of Cambridge for the initial construction of the project. These concerns were shared by all of the trustees, and also a significant number of residential owners in the building. It was therefore agreed that an open meeting would be convened, at which the principal owner of Office One and Pilgrim Telephone would fully explain to the trustees and residents the nature of their businesses and how the condominium facilities would be utilized.

As fate would have it, during the weeks and days leading up to that meeting, word began to spread throughout the condominium that Pilgrim Telephone was not just a typical telecommunication service provider, but rather a leading provider of telephonic communications of an explicit sexual nature, more commonly known as "phone sex." Not surprisingly, voices of protest and outrage arose throughout the building, and the open meeting turned into a standing-room-only spectacle attended not only by the condominium's trustees and unit owners but by hordes of media, as well.

Try as they might, representatives of Pilgrim Telephone could not convince those in attendance that such activities were only a small segment of the company's business, and that its occupancy of the space on the first floor would be limited to low-profile and inconspicuous office and computer operations. The overwhelming consensus was that Pilgrim Telephone should take its business elsewhere, and when asked directly if it would withdraw its offer to purchase the property from the FDIC, the primary owner of the company stated that he would be willing to do so, as long as he did not incur any financial loss.

In the weeks that followed, numerous calls and inquiries were made to the FDIC, city of Cambridge officials, Congressmen Joseph Kennedy and U.S. Sen. John Kerry, by a number of the building's owners, trustees and condominium counsel. A few of the unit owners went so far as to post a bulletin in the lobby of the building and distribute leaflets, complete with sample letters to public officials protesting the sale. All of those efforts failed, and the FDIC closed its sale of the property to Office One less than two weeks after the open meeting was held.

Inquiries into a number of zoning issues continued thereafter, however. Upon hearing of the proposed use, the city of Cambridge took the position that only 15 of the parking spaces in River Court's underground parking garage could be utilized by non-residential occupants. A city official sent a letter summarizing that position to the trustees and their legal counsel in mid-October 1996, and within a few weeks thereafter, the trustees adopted a condominium regulation to that effect. Since other office and commercial unit owners had previously purchased 10 of those spaces, only five parking spaces remained for use by Pilgrim Telephone. Apparently believing that the new regulation was unfairly adopted, and alleging that notice of the city's position on the issue was purposely delayed in order to deprive Pilgrim One of any appeal rights, Office One and Pilgrim Telephone immediately filed a lawsuit in Superior Court against all of their perceived opponents and adversaries: the condominium trustees, the most vocal unit owners and condominium counsel. The various counts in the complaint included intentional interference with advantageous business relations, defamation, interference with contractual relations, declaratory judgment, breach of fiduciary duty on the part of the trustees, "aiding and abetting" and civil conspiracy on the part of condominium counsel, and alleged violation of G.L. c. 93A by the trustees and condominium counsel.

In the months and years that followed, there was virtually no communication between the parties other than by pleadings. At one point in time, there were actually four separate lawsuits pending, all of which were instituted by Office One and Pilgrim Telephone: the original Superior Court action, two additional Land Court actions related to use of the parking garage, and a Land Court appeal against the city of Cambridge challenging the city's interpretation of the special permit. That latter appeal was ultimately successful, thus rendering moot various counts in the Superior Court complaint relating to the parking garage restriction. Thankfully, all of the legal proceedings have now been either concluded or dismissed.

 

The Supreme Judicial Court decision

A. The Anti-SLAPP Statute

From the standpoint of most legal practitioners, the most important aspect of the SJC ruling issued this past June relates to the court's further clarification and interpretation of G.L. c. 231, ß 59H, Massachusetts' version of an "Anti-SLAPP Statute." "SLAPP" is an acronym for "Strategic Lawsuit Against Public Participation." Such legislation has been adopted in a number of states in order to provide more complete protection of the fundamental rights of free speech and to petition the government by requiring the court to dismiss the lawsuit (and award attorneys' fees to the successful moving party) where it is found that the action was filed in order to prevent or punish the defendant's petitioning activity. The Massachusetts version of such statutory protection provides, in relevant part, as follows:

In any case in which a party asserts that the civil claims, counterclaims, or crossclaims against said party are based on said party's exercise of its right of petition under the constitution of the United States or of the commonwealth, said party may bring a special motion to dismiss. The court shall advance any such special motion so that it may be heard and determined as expeditiously as possible. The court shall grant such special motion, unless the party against whom such special motion is made shows that (1) the moving party's exercise of its right to petition was devoid of any reasonable factual support or any arguable basis in law and (2) the moving party's acts caused actual injury to the responding party. In making its determination, the Court shall consider the pleadings and supporting and opposing affidavits stating the facts upon which the liability or defense is based.

The Office One case, therefore, presented a classic case for application of these statutory protections, and all parties moved to dismiss. The plaintiffs argued, however, that the statute should not be applied where the lawsuit is filed against a group of "politically connected individuals in an upscale condominium complex, who attempted through wrongful means to prevent the sale and subsequent use of condominium units and parking spaces in a wholly private transaction." The court disagreed, stating unequivocally that the statute was intended to provide broad protection for various petitioning activities. Moreover, it is not necessary that the challenged activity be motivated by a matter of public concern. In short, the nature of the cause and the financial means of the lawsuit's target are irrelevant. The court then set forth a multi-pronged test, directly derived from the statutory language. First, is the lawsuit aimed at the petitioning activity alone, with no other substantial basis? If so, then the plaintiff must establish, in order to defeat the motion to dismiss, that the petitioning activity (a) is devoid of any factual support or arguable basis in law, and (b) caused the plaintiff actual harm. When applying these standards to the underlying facts, the dismissal of the first three counts of the complaint was affirmed.

The Office One case constitutes a significant development in the evolution of the Anti-SLAPP Statute, because it shows that the law's protections are alive and well, notwithstanding the SJC's earlier limitations set forth in Duracraft Corp. v. Holmes Prods. Corp., 427 Mass. 156, 691 N.E.2d 935 (1998). Perhaps more significantly, the Office One case clearly establishes that, under appropriate circumstances, an award of attorneys' fees upon dismissal need not be apportioned, even when only some of the counts in the complaint are dismissed as a result of the Act's application. The statute provides that "… the Court shall award the moving party costs and reasonable attorney's fees, including those incurred for the special motion and any related discovery matters." In the words of the SJC, "We read this language to mean that attorney's fees and costs are mandatory for successful special motions, and the amount of the award need not be limited to legal work incurred in bringing the special motion itself." 437 Mass at 126.

B. Dismissal of other counts against the condominium trustees

The Office One decision also represents a significant landmark in the ongoing evolution of condominium law in Massachusetts, since it quite clearly establishes two basic principles governing disputes between condominium associations and their unit owners. First, it is often stated, in general terms, that condominium board members owe a fiduciary duty to the unit owners they represent. That simply is not the case, and it never has been the case. While condominium board members clearly constitute fiduciaries, the duty is owed to the association itself, in furtherance of its overall best interests. No such fiduciary duty is owed to any particular unit owner, whose interests are often in direct conflict with those of the association. As enunciated by the court, "…as a matter of law, members of a governing board of a condominium association, in the capacity of the trustees here, owe no fiduciary duty to individual condominium unit owners… Any duties of a fiduciary nature that may be owed in this context run to the condominium trust, and not to the plaintiffs themselves." 437 Mass. at 125.

Next, the SJC summarily dismissed the count in the complaint alleging violations of G.L. c. 93A on the part of the condominium trustees. A statutory prerequisite for the invocation of Chapter 93A is that the alleged unfair or deceptive acts or practices take place "in the conduct of any trade or commerce." G.L. c. 93A, ß 2. Condominium trustees, however, are members of a volunteer board of the organization of unit owners, and consequently are not engaged in "trade or commerce."

As a practitioner representing countless condominium associations over the years, it has been increasingly frustrating to repeatedly hear threats advanced by unit owners against condominium board members predicated upon so-called breaches of fiduciary duty and/or violations of Chapter 93A. This case will hopefully diminish that practice, but only time will tell.

 

The troubling concept of suing opposing counsel

As alluded to at the beginning of this article, this author and his law firm were joined as defendants in the case, for reasons that have never been made clear. The initial complaint made allegations about a vast "conspiracy" between me, my law partners and the condominium trustees to unfairly deprive Office One and Pilgrim Telephone of their rights to challenge the city's limitations on the use of River Court's parking garage. As was later established, there was no such conspiracy; it was merely imagined or fabricated with no factual support whatsoever. Moreover, Office One and Pilgrim Telephone were in no way barred from contesting the city's legal position, and in fact, they successfully did so later in Land Court. The trustees, upon hearing that legal ruling, immediately rescinded the condominium regulation they had previously adopted at the behest of the city and negated any parking fines which had been assessed.

What I consider to be an extremely troubling aspect of this case was the unflinching willingness of the plaintiffs' counsel to include opposing counsel as defendants in their lawsuit, without explanation and apparently without any factual investigation at all. Absent extraordinary circumstances where the attorney is clearly acting in bad faith and beyond the zealous representation of his or her client (which circumstances were not present here), there is no basis for targeting the opposing attorney in a dispute. (See generally Section 722 of the Restatement (Second) of Torts; Andrews v. Tuttle-Smith Co., 191 Mass 461, 468 (1906); Spinner v. Nutt, 417 Mass 549, 556 (1994). Such professional cannibalism is, in my view, extremely dangerous to our profession. It is my sincere hope that it was merely an isolated case, born out of frustration or some misguided desire to please a client at all cost. A simple phone call could have resolved matters, at least as to the conspiracy alleged in the complaint, but that call was never made.

Admittedly, a certain measure of vindication was achieved when all counts against condominium counsel were dismissed and a sizable award of legal fees was assessed by the court against the plaintiffs. Nonetheless, it is to be hoped that this practice does not occur on a widespread basis in the future.

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