NTV Mgmt., Inc. v. Lightship Global Ventures, LLC

• Decision Date: 05 March 2020
• Docket Number: SJC-12737
• Citation: 140 N.E.3d 436,484 Mass. 235
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: NTV MANAGEMENT, INC. v. LIGHTSHIP GLOBAL VENTURES, LLC, & another.

484 Mass. 235

140 N.E.3d 436

NTV MANAGEMENT, INC.

v.LIGHTSHIP GLOBAL VENTURES, LLC, & another.¹

SJC-12737

Supreme Judicial Court of Massachusetts, Suffolk..

Argued November 5, 2019

Decided March 5, 2020

Daniel N. Marx, Boston, for the plaintiff.

H. Joseph Hameline, Boston, for the defendants.

Laurie Flynn, Special Assistant Attorney General, & Diane Young-Spitzer, for Office of the Secretary of the Commonwealth, Securities Division, amicus curiae, submitted a brief.

Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.

LENK, J.

Plaintiff NTV Management, Inc. (NTV), sued defendant Lightship Global Ventures, LLC (Lightship), alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of G. L. c. 93A. NTV also sued Lightship's principal, defendant G. Kent Plunkett, for violations of G. L. c. 93A. A jury found Lightship liable for breach of contract and breach of the implied covenant of good faith and fair dealing; the jury also found both Lightship and Plunkett liable for violations of G. L. c. 93A, and awarded treble damages. On the defendants' motion, the judge subsequently set aside the jury verdict in its entirety, after concluding that NTV's failure to register as a securities "broker-dealer" rendered its contract with Lightship void and unenforceable.

The principal question presented in this case is whether a contract requiring NTV to "source capital and structure financing transactions from agreed-upon target investors and/or lenders" for Lightship triggered an obligation for NTV to register as a securities broker-dealer under Massachusetts and Federal securities laws. If so, the contract would be invalid and unenforceable. We conclude that the contract in question did not require a transaction in "securities," and thus did not trigger an obligation that the plaintiff register as a broker-dealer. Therefore, the jury award for breach of the enforceable contract, breach of the implied covenant of good faith and fair dealing, and treble damages under G. L. c. 93A must be reinstated.²

1. Background. Lightship, represented by its principal, Plunkett,³ hired NTV to provide "consulting and advisory services" in connection with Lightship's efforts to acquire "the business and assets" of the website Salary.com from International Business Machines Corporation (IBM).⁴ Plunkett, who started Lightship for the purpose of acquiring Salary.com, had commenced negotiations with IBM, but lacking the financial resources to complete the transaction, sought partners to help finance the purchase.

a. The contract. Lightship and NTV executed a contract under which NTV agreed to "serve as consultant and advisor" to Lightship, under the "coordination, oversight, and direction" of Plunkett, in "the acquisition" of Salary.com and the "financing transactions" necessary to "facilitate" the acquisition. As "mutually agreed," but with "final determination" by Lightship, NTV was to "source capital" from "agreed-upon target investors and/or lenders," and to assist Lightship, in a "mutually agreed" manner, in "structur[ing] financing transactions" and "facilitat[ing] and participat[ing] in meetings and due diligence with capital sources." If NTV succeeded in finding sources of capital that ultimately were accepted by Lightship and provided capital for the final acquisition, NTV would earn a commission commensurate with that amount of capital. If NTV did not introduce any sources of capital that actually were used in the purchase, but introduced at least ten "qualified sources of capital," it would earn an "advisory fee" of $330,000.

b. The dispute. The parties' relationship quickly soured. Eventually, Lightship terminated the contract and completed its acquisition of Salary.com with the support of a partner not introduced by NTV. Under the terms of the resulting transaction, Lightship and its financial partner agreed to form a new business venture, which in turn would purchase Salary.com from IBM. The financial partner received a majority stake (sixty percent) in that business. Yong Zhang was appointed chief operations officer, and Plunkett was appointed chief executive officer; both Plunkett and Zhang received identical salaries and were to serve under three-year, renewable contracts. Lightship then took the position that NTV had earned neither a commission nor an advisory fee in the acquisition of Salary.com.

2. Prior proceedings. NTV commenced an action in the Superior Court against Lightship, raising, inter alia, claims of (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) violations of G. L. c. 93A.⁵ NTV also raised a G. L. c. 93A claim against Plunkett individually. On the defendants' motion for summary judgment, a Superior Court judge determined that NTV had failed to present sufficient evidence that, even if the defendants had honored the contract, NTV successfully would have introduced capital and earned a commission.⁶ The motion judge accordingly limited NTV's claims to the defendants' failure to pay NTV the $330,000 advisory fee.

A Superior Court jury, at a trial over which a judge who was not the motion judge presided, subsequently found Lightship liable for breach of contract and breach of the implied covenant of good faith and fair dealing, and awarded NTV damages of $330,000.⁷ The jury also found that Lightship and Plunkett knowingly or willfully had engaged in unfair or deceptive practices in violation of G. L. c. 93A, and awarded NTV treble damages.

The defendants then moved to "invalidate" the verdict, on the ground that NTV had not registered as a broker-dealer, in violation of the Massachusetts Uniform Securities Act (Massachusetts act), G. L. c. 110A, § 201 (a ), and the Federal Securities Exchange Act of 1934 (Federal act), 15 U.S.C. § 78o(a).⁸ Under each act, such violations render a contract unenforceable. See 15 U.S.C. § 78cc(b) ; G. L. c. 110A, § 410 (f ).⁹ The trial judge concluded that NTV had been required to register as a broker-dealer, and that its failure to do so rendered the contract invalid and unenforceable. The trial judge further concluded that, absent a valid contract, NTV could not sustain its claim under G. L. c. 93A, and therefore, he vacated the jury award in its entirety.¹⁰

3. Discussion. On appeal, NTV argues that the defendants waived the broker-dealer defense, that its contract with the defendants did not require it to register as a broker-dealer, and that, even if the contract did so require, it still could recover from the defendants based on the violations of G. L. c. 93A. We conclude that there was no waiver, but that the judge erred in determining that the contract required NTV to register as a broker-dealer.

a. Waiver of broker-dealer defense. NTV argues that the defendants waived any affirmative defense under the Massachusetts act by failing to raise the argument explicitly in their answer to the complaint.¹¹ In their original answer, the defendants asserted the affirmative defense that the contract was "unenforceable and/or void due to violations of the securities laws and regulations." In response to a discovery request from NTV seeking to clarify what securities laws NTV was alleged to have violated, the defendants specified that they were referring to the requirement to register as a broker-dealer under the Federal act, a position they reiterated in their motion for summary judgment, and again in the joint pretrial memorandum.

During a pretrial conference, the parties agreed that the judge, not the jury, should determine whether the contract required NTV to register as a broker-dealer, and whether it was invalid and thus unenforceable under the Federal act in light of the fact that NTV was not so registered. The parties further agreed that the judge would decide the issue on motions submitted after the jury trial. In a subsequent memorandum on the eve of trial, the defendants, for the first time, argued that NTV also was required to have registered under the Massachusetts act. NTV argues that the defendants' failure explicitly to incorporate the Massachusetts act in their original answer constitutes waiver. We disagree.

"Ordinarily, a ‘failure to plead an affirmative defense results in a waiver and exclusion of the defense from the case.’ " Alicea v. Commonwealth, 466 Mass. 228, 236 n.12, 993 N.E.2d 725 (2013), quoting Demoulas v. Demoulas, 428 Mass. 555, 575 n.16, 703 N.E.2d 1149 (1998). The purpose of this rule, however, "is to provide notice to the plaintiffs of defenses that will be raised." See Demoulas, supra (no waiver where, inter alia, affirmative defense "was raised by both parties in briefs and at a hearing" in connection with defendant's motion for directed verdict).

Here, NTV has not demonstrated that it lacked sufficient notice of the defendants' contention that NTV was required to register as a broker-dealer. Although the defendants did not specifically indicate the relevant statutory provisions in their answer, they did raise an affirmative defense concerning "violations of the securities laws." In response to NTV's request, the defendants identified the applicable Federal statutes during discovery. NTV thus had ample notice at least with respect to the Federal act. Because, as discussed infra, the relevant provisions of the Massachusetts and Federal acts are essentially identical, NTV cannot claim any prejudice from the defendants not sooner specifying the Massachusetts act. In addition, NTV agreed that the question whether it needed to register as a broker-dealer could be resolved through a motion filed after the jury trial, thus suggesting that NTV had ample time in which to prepare a response. Hence, the defendants did not waive the broker-dealer defense.

b. Whether NTV could enforce the contract absent registration as a broker-dealer. The central issue in this appeal is whether NTV's contract with Lightship is invalid and unenforceable under Massachusetts...