Psychemedics Corp. v. City of Bos.

• Decision Date: 29 January 2021
• Docket Number: SJC-12903
• Citation: 161 N.E.3d 399,486 Mass. 724
• Parties: PSYCHEMEDICS CORPORATION v. CITY OF BOSTON.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

486 Mass. 724

161 N.E.3d 399

PSYCHEMEDICS CORPORATION

v.CITY OF BOSTON.

SJC-12903

Supreme Judicial Court of Massachusetts, Suffolk..

Argued October 9, 2020.

Decided January 29, 2021.

Thomas S. Fitzpatrick (Courtney Simmons also present), Boston, for the defendant.

Peter A. Biagetti (Joel D. Rothman also present), Boston, for the plaintiff.

Present: Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.¹

LENK, J.

For over twenty years, the city of Boston (city) has contracted with Psychemedics Corporation (Psychemedics) to conduct hair follicle tests for the Boston police department to screen for the use of illicit drugs by police officers and recruits. The contracts have included an indemnification clause (article 7.3) in which Psychemedics agreed to "assume the defense of" the city, and to "hold [it] harmless" from all suits and claims arising from "wrongful or negligent" acts by Psychemedics.²

Long after a number of officers, who had been terminated in connection with positive drug hair tests by Psychemedics, brought suit against the city, Psychemedics sought declaratory relief on the ground that it had no duty to indemnify the city, because the city had not "allowed" it to assume the defense of those cases. The city, however, maintained that it had informed Psychemedics repeatedly, both orally and in writing, of its contractual obligation to defend and hold the city harmless from certain claims arising from Psychemedics's purported negligence. The city also brought counterclaims alleging breach of contract and seeking declaratory relief.

A Superior Court judge, relying on the substance of communications that the parties agreed took place between them,³ construed these communications as meaning that the city indeed had deprived Psychemedics of the opportunity of assuming the defense. On that basis, the judge granted Psychemedics's motion for summary judgment.⁴ The city appealed, and we transferred the case to this court on our own motion.

Where, as here, the parties do not specify the proper form of notice or what would constitute the opportunity to defend, we must decide what constitutes, as a matter of law, the provision of such notice and opportunity. See Browning-Ferris Indus., Inc. v. Casella Waste Mgt. of Mass., Inc., 79 Mass. App. Ct. 300, 312, 945 N.E.2d 964 (2011), quoting Fay, Spofford & Thorndike, Inc. v. Massachusetts Port Auth., 7 Mass. App. Ct. 336, 342, 387 N.E.2d 206 (1979) ("Where the parties to a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances will be supplied by the court"). We conclude that, in the absence of any specific contractual provisions by the parties, a simple statement of claims that are encompassed by the indemnification clause is sufficient to trigger the obligation to assume the defense; the notice need not be in writing or in any particular form of words, and the indemnitee need not explicitly ask for the assumption of the defense or to hold the indemnitee harmless. Once notice has been received, the burden shifts to the indemnitor proactively to attempt to assume the defense. To attempt proactively to assume the defense entails good faith efforts promptly to assume and control the defense of the claims asserted.⁵

Given this, and on the record before us, we conclude that Psychemedics did not meet its burden to establish by undisputed facts that it was entitled to judgment as a matter of law. Accordingly, the allowance of summary judgment and the entry of a declaratory judgment in Psychemedics's favor were incorrect.

1. Background. a. Parties’ prior course of dealing. Beginning in 1998, the city entered into a series of contracts⁶ with Psychemedics for hair follicle testing services.⁷ The tests were conducted on recruits and officers of the Boston police department. When a test returned a positive result, as indicated by criteria set forth in Psychemedics's standard operating procedures, a review process was triggered. The review included a second, "safety net" test. If that test, too, returned a positive result, the employee would be subject to a disciplinary hearing. At the end of the process, the police commissioner made the final determination as to the action to be taken against the officer, including termination.

Some scientific research at the time the parties entered into their first contract had cast doubt upon the efficacy of hair follicle tests, and had raised questions as to whether the method was racially biased. Critics noted, inter alia, that environmental exposure to drugs could contaminate hair samples, and that melanin content in hair, as well as hair texture (often associated with race or ethnicity) had a significant impact on the test results, leading to potential racial bias. The city sought and obtained assurances from Psychemedics with respect to the accuracy of its tests in identifying voluntary ingestion and the absence of racial bias. b. Litigation related to the hair follicle tests. Between 2001 and 2006, ten Boston police officers challenged their terminations (pursuant to positive results from Psychemedics's hair drug tests) before the Civil Service Commission (commission). In 2013, six officers succeeded in obtaining reversals of their terminations. See Thompson v. Civil Serv. Comm'n, 90 Mass. App. Ct. 462, 470-471, 59 N.E.3d 1185 (2016). A Superior Court judge affirmed the commission's decision that the officers should be reinstated, and increased the amount of back pay to be awarded to them. The Appeals Court affirmed. See id.

Eight officers also joined in a civil rights action against the city and its police department, alleging disparate impact under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e et seq. See Jones v. Boston, 845 F.3d 28 (1st Cir. 2016) ( Jones III ); Jones v. Boston, 752 F.3d 38 (1st Cir. 2014) ( Jones I ); Jones v. Boston, 118 F. Supp. 3d. 425 (D. Mass. 2015) ( Jones II ). The plaintiffs in the Jones case asserted that Psychemedics's hair tests disproportionately yielded false positives for people of color, resulting in disparate impact by race. See Jones I, supra at 45. The parties await a final determination in the Jones matter, following a jury-waived trial in 2018. See Jones III, supra at 38 (remanding for further proceedings on question whether city refused to adopt testing method that would have reduced disparate impact of hair test).

The racial bias claims are not themselves before us. We instead examine whether Psychemedics met its burden to establish that the city did not "allow" it to assume the defense of certain litigation and that Psychemedics thereby was relieved of its contractual obligations pursuant to article 7.3.

c. Contract provisions. The initial contract, based on one of the city's standard agreements for outside contractors, was executed in 1998; it has been renewed regularly since then, with the most recent three-year agreement signed in 2016. The two clauses at issue here -- articles 7.3 and 8.2 -- were largely consistent across the various contracts.⁸ Article 7.3 provided:

"The Contractor [ (Psychemedics) ] shall assume the defense of and hold the City, its officers, agents or employees, harmless from all suits and claims against them or any of them arising from any wrongful or negligent act or omission of the Contractor, its agents or employees in any way connected with performance under this Contract."

Article 8.2 stated:⁹

"If the damages sustained by the City resulting from the Contractor's wrongful or negligent acts or omissions exceed sums due or to become due, the Contractor shall pay the difference to the City."

d. City's requests for assistance. The parties agree that, beginning in 2006, the city communicated with Psychemedics regarding the subject of indemnification. They also agree as to the content and nature of certain of these communications, and, because it is upon these undisputed communications that the judge relied in awarding summary judgment to Psychemedics, we begin our analysis by focusing on them as well.

In early 2006, the city orally requested in some form that Psychemedics share in the defense costs of the Jones case. The record does not contain details as to the words exchanged during this communication. Psychemedics's letter in response, however, dated February 15, 2006, indicates that the city requested that Psychemedics "share in the out-of-pocket costs to hire an outside attorney to represent the [c]ity in the Jones et al. case." Psychemedics declined, but offered to make its scientific and legal staff available to assist the city, without charge.

On June 9, 2006, the city sent a letter to Psychemedics reiterating its request for financial contribution to the defense case in Jones I, 752 F.3d at 45. In that letter, the city quoted article 7.3 of the parties’ contract, the indemnification clause, and stated, "The conduct alleged in the [Jones ] Complaint is wrongful or negligent conduct on the part of Psychemedics Corporation." The letter suggested that cost sharing would be reasonable "in light of the alternative remedy provided for in the contract." Psychemedics replied in writing on June 19, 2006, and again declined to contribute financially. It asserted that article 7.3 was not applicable because Psychemedics had yet to be adjudicated negligent,¹⁰ and reiterated the offer of technical support.

The parties dispute whether, in 2006, a "cooperation agreement" was reached between Psychemedics and the city stating that, in lieu of a financial contribution to, or assumption of the defense of the ongoing lawsuits, Psychemedics would provide free legal and scientific expertise. In October 2007, the city filed a motion in the Jones case, seeking leave to file a third-party complaint for indemnification and contribution against Psychemedics. The motion was denied.

At that point, there was a lull in the parties’ communications about indemnification; Psychemedics...