The U.S. Court of Appeals for the First Circuit recently reversed the dismissal of a putative class action complaint for unfair and deceptive business practices under Massachusetts’ Chapter 93A, holding that the action was not barred by a New York choice of law provision in the contract at issue.
A copy of the opinion in Kleiner v. Cengage Learning Holdings II, Inc. is available at: Link to Opinion.
In his putative class action complaint, the plaintiff asserted a single count for violation of Mass. Gen. Laws ch. 93A. Specifically, the plaintiff alleged that the defendant obfuscated information regarding the sales of his and other similarly situated authors’ published books by providing them with incorrect and otherwise confusing reports and then refusing to provide straightforward responses to inquiries.
The plaintiff author asserted that, had he been provided clear and accurate information, it would have been revealed to him that the defendant publisher was not paying the full amount of royalties due. The plaintiff author sought declaratory and injunctive relief requiring the defendant publisher to disclose its royalty calculation methods and provide reasonable disclosures of royalty-related information.
The trial court granted the defendant publisher’s motion to dismiss, concluding that the choice of law clause in its publishing agreement, mandating that all disputes be resolved according to New York law, barred the assertion of a claim arising only under Massachusetts law. The plaintiff author timely appealed.
The choice of law clause at issue read, in pertinent part, that “[t]his Agreement shall be construed and governed according to the laws of the State of New York.” The plaintiff author argued that this clause was too narrow to govern his claim because it directed only that the “Agreement . . . be construed and governed” in accordance with the laws of New York. His claim, he said, was not about how the agreement should be construed or governed but instead about the defendant publisher’s allegedly unfair and deceptive reporting practices.
The First Circuit determined that the clause at issue was equivalent to the clause considered by the Massachusetts Supreme Judicial Court (“SJC”) in Jacobson v. Mailboxes Etc. U.S.A., Inc., 646 N.E.2d 741 (Mass. 1995), which stated that the agreement was “to be construed under and governed by the laws of the State of California.” Id. at 743.
Notably, the SJC ruled in Jacobson that this narrow clause did not preclude or govern Chapter 93A claims. Id. at 746 n.9. The SJC reasoned that because “[t]he agreement does not state that the rights of the parties are to be governed by California law but only that the agreement is to be governed and construed by California law[,] [t]he choice of law clause does not purport to bar the application of G.L. c. 93A to the parties’ dealings in Massachusetts.” Id.
The clause at issue in this case stated only that “[t]his Agreement shall be construed and governed” according to New York law and, as observed by the First Circuit, did not otherwise select any state’s law as governing the parties’ rights and obligations created by statute. Therefore, in light of the SJC’s opinion in Jacobson, the First Circuit held that the agreement did not suggest that New York law was to govern the adjudication of the author’s claim that the defendant publisher breached a statutory duty imposed by Massachusetts law.
The defendant publisher argued that it was impossible to resolve the class action claim without construing the publishing agreement, but the First Circuit was not convinced. The Court determined that if the publisher deceived the author in its reporting of what royalties were due under the contract as construed under New York law, nothing in the contract would dictate the choice of law to be applied in determining whether that alleged deception was actionable, not as a breach of contract, but as a violation of Chapter 93A. See Dinan v. Alpha Networks, Inc., 764 F.3d 64, 68 (1st Cir. 2014). The Court therefore concluded that the Chapter 93A claim was not precluded by the narrow choice of law clause.
Lastly, the First Circuit declined the parties’ invitation to rule on whether the author’s complaint otherwise stated a claim under Chapter 93A. See Singleton v. Wulff, 428 U.S. 106, 121 (1976).