Kilnapp Enterprises, Inc. v. Massachusetts State Automobile Dealers Assoc.

NOTICE: All slip opinions and orders are subject to formal

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15-P-101 Appeals Court

KILNAPP ENTERPRISES, INC.1 vs. MASSACHUSETTS STATE AUTOMOBILE

DEALERS ASSOCIATION & others.2

No. 15-P-101.

Suffolk. December 7, 2015. - March 17, 2016.

Present: Rubin, Maldonado, & Massing, JJ.

Libel and Slander. Actionable Tort. Practice, Civil, Motion to

dismiss.

Civil action commenced in the Superior Court Department on

March 10, 2014.

A motion to dismiss was heard by Judith Fabricant, J.

Travis J. Jacobs for the plaintiff.

Alan D. Rose, Sr., for Fisher & Phillips LLP & another.

James F. Radke for Massachusetts State Automobile Dealers

Association.

RUBIN, J. This is an action for defamation brought by

Kilnapp Enterprises, Inc., doing business as Real Clean (Real

Clean), which describes itself as "a broker for automobile

1

Doing business as Real Clean.

2

Fisher & Phillips LLP and Joseph Ambash.

2

detailing and reconditioning between service providers and

automobile dealerships."3 Real Clean brought this action against

the Massachusetts State Automobile Dealers Association (MSADA)

for its published statements concerning an investigation by the

United States Department of Labor (DOL) into the practices of

automobile detailing "brokers" including Real Clean. The

complaint asserts not only a claim for defamation, but includes

several other related counts that will be described more fully

below. It names as a defendant not only MSADA but the author of

the published statements, Attorney Joseph Ambash, and his law

firm, Fisher & Phillips LLP. The defendants brought a motion to

dismiss under Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974),

which was allowed. Real Clean appeals.

Because the materials properly considered by the judge in

the Superior Court demonstrate that Real Clean will be unable to

prove that the defendants' statements were materially false

under the applicable standard, which requires demonstration that

actionable statements have been made with knowledge of their

falsity or in reckless disregard of their truth or falsity, we

affirm the judgment dismissing all of Real Clean's claims.

Background. Our review of the allowance of a motion to

dismiss is de novo. Glovsky v. Roche Bros. Supermkts., Inc.,

3

Automobile detailing involves the thorough cleaning of the

interior and exterior of passenger vehicles.

3

469 Mass. 752, 754 (2014). For purposes of reviewing the

allowance of a motion to dismiss we must, of course, take all

the allegations in the plaintiff's operative complaint, here the

amended and verified complaint filed on May 7, 2014, as true.

Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), citing

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). While the

original complaint has seven documents appended to it, including

a January 2, 2014, letter from Real Clean's counsel, Stephen

Gordon, to the executive vice-president of MSADA (Gordon letter)

and Ambash's response thereto, the amended complaint replaced

the Gordon letter with an affidavit from Real Clean's general

manager. Nevertheless, the amended complaint still appended the

response to the Gordon letter and contained allegations

referring to the existence of the Gordon letter. A reviewing

court, like the judge initially evaluating and ruling upon a

motion to dismiss, is entitled to consider materials not

appended to the complaint, but referenced or relied upon in the

complaint. See Harhen v. Brown, 431 Mass. 838, 839-840 (2000),

citing Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st

Cir. 1996); Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43,

45 n.4 (2004). We recite the facts as alleged in the complaint,

supplemented by that factual information contained in these

filings that were properly considered by the trial judge.

4

Real Clean describes itself as a company that "connect[s]"

automobile dealerships with "independent contractors" who

provide automobile detailing and reconditioning services

(service providers). According to the complaint, Real Clean has

formed relationships with hundreds or thousands of automobile

dealerships in Massachusetts and New England and is one of the

largest brokers of automobile detailing and reconditioning

services in the Commonwealth. In 2013, the DOL was conducting

an investigation into potential violations of wage and hour laws

by Real Clean and others in the automobile detailing business.

The complaint and other documents properly before the judge

indicate that with respect to Real Clean, the DOL investigation

focused on two relationships. First, it focused on whether Real

Clean in fact employed the individuals nominally employed by the

service providers (detailers), and thus owed them overtime pay.

Second, it focused on whether the relationships Real Clean

brokered -- between the dealerships and the service providers --

in fact amounted to employment relationships between the

dealerships and the detailers, and whether therefore the

dealerships owed the detailers overtime pay. According to the

Gordon letter, the DOL "advised Real Clean that the DOL felt

that Real Clean owed many individual detailers overtime pay."

According to the complaint, "[the DOL] has attempted to tie the

dealership[s] to the independent contractors . . . who employ

5

the detailing and reconditioning personnel." In April, 2013,

Real Clean met with the DOL and provided materials purporting to

refute the DOL's conclusions. Between the time of those

meetings and at least the time of the Gordon letter, no

enforcement actions were brought against Real Clean.

Nonetheless, according to the Gordon letter, the DOL did visit

automobile dealers, including some who are Real Clean customers,

and assessed amounts claimed to be due from the dealers, some of

whom paid the assessment.

In November, 2013, MSADA published a newsletter featuring

an article written by defendant Ambash entitled "Alert: DOL

Cracking Down on Dealers Using Real Clean." A nearly identical

article appeared on MSADA's Web site on November 13, 2013, where

it was entitled "DEALER ALERT: U.S. DEPARTMENT OF LABOR

CONTINUES AUDITS OF AND ACTIONS AGAINST DEALERS AND REAL CLEAN."

The text of the first of these articles is as follows:

"We have learned that the Department of Labor has

approached several dealers in the past couple of weeks and

demanded payment of overtime for detailers working for Real

Clean (Kilnapp Enterprises). The amounts range from a few

thousand to tens of thousands of dollars. In some cases

the DOL has asked the dealer to pay 'liquidated damages,'

meaning a penalty equal to the total back pay owed.

"This is a serious situation for dealers who have

relationships with Real Clean, and it will only get worse.

"As we have previously reported, the DOL has been

visiting dealerships for months, demanding to interview

dealership employees and Real Clean employees. Their

6

primary objective has been to tie the dealerships to Real

Clean, in order to claim that the dealership is a 'joint

employer' of the Real Clean personnel. After the DOL

completes its investigation, which typically also covers

[Fair Labor Standards Act] compliance for the dealership

employees, the DOL schedules a 'closing conference' and

demands backpay and overtime it claims is owed both to any

dealership employees who were improperly paid, as well as

to employees of Real Clean.

"The dealers, of course, do not employ any of the Real

Clean employees directly, nor do they supervise or control

their work. Under the brokerage arrangement with Real

Clean, the dealer pays a fee directly to Real Clean for

detailing or reconditioning each car, and Real Clean is

exclusively responsible for paying its employees and

contractors.

"The DOL claims that the Real Clean contractors are

not independent, but are 'jointly' employed by the dealer

and either Real Clean or the contractor. Therefore, the

DOL says the dealers are responsible for monitoring their

hours and pay, and making sure they are paid minimum wage

and overtime.

"When the dealers explain to the DOL that they have no

knowledge of or control over the Real Clean personnel, the

DOL often threatens them with liquidated damages or legal

action if they don't pay the money, which covers alleged

back pay for two years.

"Even if a dealer decides to pay the DOL, that does

not relieve the dealer of liability, because each day Real

Clean employees are not paid overtime or minimum wage

constitutes a new violation. The DOL, therefore, can come

back again and demand more back pay unless something has

changed.

"What Should Dealers Do?

"If they feel that the DOL has no legitimate reason

demanding money from them for work done by Real Clean

employees, dealers have a variety of options to consider,

including:

"• Real Clean has indemnification agreements with

some dealers. It has indicated that it will

7

consider offering indemnification agreements to

all of its dealers. Real Clean is asking the

dealers not to agree to pay the DOL, but instead

to let Real Clean's lawyers defend them. Real

Clean has indicated through its lawyer that it

will not reimburse any dealers who choose to pay

the DOL directly.

"• Therefore, dealers have the option of not paying

the DOL and permitting Real Clean to defend any

lawsuits against them. However, any such offer

by Real Clean will not stop the DOL from coming

back, or other government agencies like the

Attorney General from getting involved. It may

also lead to time-consuming litigation.

Furthermore, being defended by Real Clean's

attorneys might give the impression that there

is, in fact, a close relationship between the

dealer and Real Clean. And the dealer may have a

real dispute with Real Clean, so its lawyer would

have a conflict representing the dealer in any

event.

"• Dealers can pay the DOL and end their

relationship with Real Clean if they feel the

risks are too great. In connection with that,

they can demand reimbursement by Real Clean or

consider offsetting any amounts paid against

monies due to Real Clean.

"• If a dealer ends its relationship with Real

Clean, the dealer can hire detailers directly,

and pay them properly as employees of the

dealership. Alternatively, a dealer can engage

the services of another outside company to

provide detailing services. Of course, the

dealer should take steps to ensure that the new

detailing company is complying with all

employment laws, including wage-hour.

"• Dealers can demand that Real Clean guarantee full

compliance with all laws by Real Clean and its

contractors, and build in appropriate offsets and

penalties against Real Clean if there are

violations.

8

"Each of these options requires careful consideration

and involves weighing risks and benefits. The situation is

very complicated. Each dealer should consult with counsel

to help determine the best course of action for your

dealership.

"Fisher & Phillips will continue to monitor the

situation and provide advice and guidance to dealers as

requested. Please contact Joe Ambash at [telephone

number]."

The November 13, 2013, version of the article contained a few

minor changes. For instance, the following sentence was added

to the end of the second-to-last bullet point: "Even then, there

is no assurance that the DOL will not pursue similar claims

against other detailing companies."

Discussion. Real Clean filed this action on March 10,

2014. In addition to the defamation count, the complaint also

asserted claims for violation of the Lanham Act, 15 U.S.C.

§§ 1051 et seq. (2012); violation of G. L. c. 93A; commercial

disparagement; and tortious interference with advantageous

relations. Because our conclusions about the defamation claim

have bearing on some of the other counts, we turn first to it.

The elements of a claim of defamation are "that the

defendant was at fault for the publication of a . . . statement

regarding the plaintiff, capable of damaging the plaintiff's

reputation in the community, which either caused economic loss

or is actionable without proof of economic loss" (footnote

omitted). White v. Blue Cross & Blue Shield of Mass., Inc., 442

9

Mass. 64, 66 (2004). See id. at 66 n.4. The contours of this

cause of action have been shaped in large measure by concerns

regarding the restrictions that it may impose on freedom of

speech. HipSaver, Inc. v. Kiel, 464 Mass. 517, 523 n.7 (2013)

("[T]he common law of defamation has become infused with

principles of the First Amendment to the United States

Constitution"). Several limitations on the scope of a

defamation claim bear upon the validity of the plaintiff's

claim.

First, as the parties agree, the statements at issue are

actionable only if they are false, and were made when knowingly

false or in reckless disregard of their truth or falsity. This

is because they are "conditionally privileged." See Retailers

Commercial Agency, Inc., petitioner, 342 Mass. 515, 520-522

(1961) ("reports made by a mercantile agency to an interested

subscriber [are] conditionally privileged" such that a false

report is not actionable unless "made . . . recklessly, without

reasonable grounds for believing it was true"). "Under

Massachusetts law, a publication will be deemed conditionally

privileged if the publisher of the statement and the recipient

have a common interest in the subject and the statement is

'reasonably calculated to further or protect that interest.'"

Downey v. Chutehall Constr. Co., 86 Mass. App. Ct. 660, 666

(2014), quoting from Sheehan v. Tobin, 326 Mass. 185, 190-191

10

(1950). This privilege, which antedates the

constitutionalization of defamation law that began with New York

Times Co. v. Sullivan, 376 U.S. 254 (1964), whether

constitutionally required or not, is consonant with the

protections for freedom of speech contained in the State and

Federal Constitutions.

As relevant here, "Massachusetts courts have recognized

that a person may possess a conditional privilege to publish

defamatory material if the publication is reasonably necessary

to the protection or furtherance of a legitimate business

interest." Bratt v. International Bus. Machs. Corp., 392 Mass.

508, 512-513 (1984). Thus, in Sheehan, 326 Mass. at 187, the

privilege was held applicable to an allegedly false and

defamatory statement in an official union magazine sent to all

union members asserting that the plaintiffs, two union members,

"entered the office of Local No. 25 and brutally assaulted one

of the business agents, Francis J. Halloran, a man old enough to

be their father. They in turn preferred charges against the

officers of the local." The court held that the statement was

conditionally privileged because it was "information of general

common interest to the members of a labor union [disseminated]

by its officers through the medium of the official journal of

the union." Id. at 191.

11

Likewise here, a statement published in a trade association

newsletter or on a trade association Web site for dissemination

to members of the trade association with a common interest in

the matter is actionably defamatory only if it is false, and is

made when knowingly false or in reckless disregard of its truth

or falsity.

Second, where, as here, falsity is a required element of a

defamation claim, to be actionable a statement must be

"materially" false. Pan Am Sys., Inc. v. Atlantic N.E. Rails &

Ports, Inc., 804 F.3d 59, 66 (1st Cir. 2015). The question of

falsity "overlooks minor inaccuracies and concentrates upon

substantial truth. . . . Put another way, [a] statement is not

considered false unless it 'would have a different effect on the

mind of the reader from that which the pleaded truth would have

produced.'" Masson v. New Yorker Magazine, Inc., 501 U.S. 496,

516-517 (1991), quoting from Sack, Libel, Slander, and Related

Problems 138 (1980).

Third, statements of opinion "that cannot 'reasonably [be]

interpreted as stating actual facts' about an individual" are

not actionable. Milkovich v. Lorain Journal Co., 497 U.S. 1, 20

(1990), quoting from Hustler Magazine, Inc. v. Falwell, 485 U.S.

46, 50 (1988).

Applying these principles, we turn to the statements that

Real Clean's claims were actionably false.

12

Real Clean asserts that "the crux of the Publications is

that a relationship with [Real Clean] is a recipe for 'serious'

negative consequences which will continue to intensify, and all

MSADA members would be wise to sever ties with [Real Clean] and

contact Defendants Ambash and Fisher & Phillips in doing so." A

central contention made by Real Clean is that the publications

were misleading because Real Clean was not the only broker of

detailing services that was under examination by the DOL.

By its own admission, Real Clean was one of the largest

brokers of detailing services to automobile dealerships in

Massachusetts. The Gordon letter states that several dealers

who were customers of Real Clean had been sent assessments by

the DOL and that some had paid these assessments. Consistent

with this statement, the defendants' articles asserted that

MSADA's counsel had "learned that the Department of Labor has

approached several dealers in the past couple of weeks and

demanded payment of overtime for detailers working for Real

Clean (Kilnapp Enterprises). The amounts range from a few

thousand to tens of thousands of dollars. In some cases the DOL

has asked the dealer to pay 'liquidated damages,' meaning a

penalty equal to the total back pay owed." Real Clean does not

claim this statement is false. There can be no doubt that in

light of the DOL's activities, MSADA's members who were

customers of Real Clean would have been interested to know that

13

other Real Clean customers had been so assessed. Cf. Shaari v.

Harvard Student Agencies, Inc., 427 Mass. 129, 133 (1998). The

defendants had no obligation to report about any other actions

being taken by the DOL with respect to other brokers, and,

indeed, if the DOL's treatment of other brokers were relevant,

the publications did not suggest that the use of other brokers

instead of Real Clean would be a safe harbor. Each statement

indicated that if they chose another company, dealers "should

take steps to ensure that the new detailing company is complying

with all employment laws." The November 13, 2013, version of

the article noted in addition that "there is no assurance that

the DOL will not pursue similar claims against other detailing

companies." The statements about Real Clean were not rendered

materially false by the failure to include reference to any

other broker or its dealer customers that might also have been

subject to the DOL's scrutiny.

Further, even if the case could be made that the

publication was false because it mentioned only Real Clean, the

allegations are insufficient to show that the defendants wrote

the article knowing it to be false or in reckless disregard of

its truth or falsity. There is no allegation in the amended

complaint that MSADA was even aware of the fact, if it is true,

that other brokers or their dealer clients had been approached

by the DOL.

14

Real Clean also objects to a series of specific statements

in the publications. The first is "[t]his is a serious

situation for dealers who have a relationship with Real Clean,

and it will only get worse."

The first half of the statement, even if viewed as a

statement of fact and not opinion, is true. The DOL assessing

overtime pay against dealerships, rightly or wrongly, is

certainly a serious matter. Real Clean has not alleged that the

publications were incorrect in stating that some dealerships had

been assessed "thousand to tens of thousands of dollars." The

Gordon letter admits that some dealerships had paid the

assessments, although it implies that the dealerships who had

done so had received assessments of considerably smaller

amounts.

The second part of the sentence, asserting that the

situation will only get worse is, quite obviously, a statement

of opinion based on the author's own professional judgment. "An

assertion that cannot be proved false" cannot be actionably

defamatory. Cole v. Westinghouse Bdcst. Co., 386 Mass. 303,

312, cert. denied, 459 U.S. 1037 (1982) (quotation omitted).

The defendants were entitled to hold this opinion, and its

expression cannot form the basis of a defamation claim.

The plaintiff next objects that the article describes those

who actually do the detailing work as Real Clean "employees" or

15

"personnel." To begin with, in the context of a newsletter

directed at lay people, we do not think that these terms can be

read as legal terms of art. Rather, they are used in their

colloquial sense simply to identify the people about whom the

author is speaking, i.e., the actual detailers "connect[ed]" to

the dealerships by Real Clean. Thus, even if those detailers

are not as a legal matter employees or personnel of Real Clean,

there is no material falsehood here.

Further, even if these words were read as legal terms of

art, they would reflect nothing more than the opinion of the

attorney author that the DOL's allegations are well taken. A

lawyer's opinion about an unsettled legal question –- in this

case whether these detailers were employees of Real Clean --

again cannot form the basis for a defamation claim unless it

implies the existence of undisclosed defamatory facts. There

was no such implication here.

The plaintiff next complains about the statement that the

DOL had attempted to tie Real Clean to dealerships under a joint

employer theory. Again, this is not materially false. Whether

the DOL's theory was in fact that these dealerships were the

detailers' joint employers with Real Clean, or were, in fact,

the detailers' sole employers, the important point for the

reader is that the DOL sought to subject dealers to assessments

for overtime pay for the work done by those detailers on the

16

basis that the detailers were their employees. "Minor

inaccuracies do not amount to falsity so long as 'the substance,

the gist, the sting, of the libelous charge be justified.'"

Masson, 501 U.S. at 517, quoting from Heuer v. Kee, 15 Cal. App.

2d 710, 714 (1936).

Next, Real Clean objects to the statements that there was a

"continuing investigation" into Real Clean. While, as Real

Clean contends, there is properly considered material indicating

that no assessments had been made against Real Clean through the

date of the Gordon letter in January, 2014, there is no

allegation in the complaint nor anything in the record that

indicates on what date, if any, the investigation of Real Clean

ended. In light of this, even if there were no continuing

investigation, the properly considered materials before the

judge could not support a conclusion that the false statement

was made knowingly or in reckless disregard of its truth or

falsity.

Finally, Real Clean alleges that to the extent that the

over-all impression created by the publications was that the DOL

was "targeting" Real Clean's customers, that impression was

false. To the extent this argument goes beyond the claim that

we have rejected above –- regarding whether the defendants were

obligated to make clear that other companies providing detailing

services were also under scrutiny by the DOL -- it is without

17

merit. The impression that Real Clean's customers were being

targeted is not false; it is true.

Because we conclude that there were no false statements

actionable in a claim for defamation, and that, read as a whole,

the publications were not actionable as defamatory, dismissal of

the defamation claim was appropriate. This conclusion also

applies to the commercial disparagement claim, with respect to

which the standards regarding falsity and intent are the same.

See HipSaver, Inc., 464 Mass. at 523.

Real Clean's Lanham Act claim fails, if for no other

reason, because such a claim may be maintained only against

one's competitors, Podiatrist Assn. v. La Cruz Azul de P.R.,

Inc., 332 F.3d 6, 19 (1st Cir. 2003), and there is no allegation

that any of the defendants competes with Real Clean.

Real Clean contends that its claim for tortious

interference must be reinstated because it has adequately

alleged the use of improper means: the publication of false

statements of fact to the plaintiff's customers.4 This argument,

4

The plaintiff's appellate brief does not raise the

argument for improper motive raised below: that Ambash and

Fisher & Phillips LLP were motivated by the desire to scare

MSADA's members into hiring them. Because this argument has

been abandoned on appeal, we need not address it. Smith v. Bell

Atl., 63 Mass. App. Ct. 702, 725 n.8 (2005) ("An argument that

is not raised in a party's principal brief may be deemed

waived").

18

however, is foreclosed by our conclusion that each of the

statements alleged to be actionably false is substantially true.

Finally, because Real Clean's G. L. c. 93A claim relies on

each of the underlying claims, its dismissal, too, was proper.

Judgment affirmed.