Spring Investor Services, Inc. v. Carrington Capital Management, LLC

Filing 127

Judge F. Dennis Saylor, IV: MEMORANDUM AND ORDER entered. Plaintiff's 68 motion for summary judgment will be GRANTED as to defendant's obligation to pay a commission on the fees it has earned on undisputed accounts and otherwise DENIED, and defendant's 71 motion for summary judgment will be GRANTED as to plaintiff's chapter 93A claim, and otherwise DENIED.(Cicolini, Pietro)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_______________________________________
)
SPRING INVESTOR SERVICES, INC.,
)
)
Plaintiff/Counterclaim-Defendant,
)
)
Civil Action No.
v.
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10-10166-FDS
)
CARRINGTON CAPITAL
)
MANAGEMENT, LLC,
)
)
Defendant/Counterclaim-Plaintiff.
)
_______________________________________)

MEMORANDUM AND ORDER ON
CROSS-MOTIONS FOR SUMMARY JUDGMENT
SAYLOR, J.
This dispute arises from a contract for services between a hedge-fund manager and a
broker-dealer hired to market its funds and recruit suitable investors. Both parties have alleged
claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and
violation of Mass. Gen. Laws ch. 93A § 11.
Defendant Carrington Capital Management, LLC, is a hedge-fund manager responsible
for the investments and operations of several funds. In 2004, in an effort to market its product
and identify qualified investors, Carrington entered into an agreement with plaintiff Spring
Investor Services, Inc. Under the contract, Spring committed to perform certain marketing and
recruitment services. In exchange, the agreement provided for Spring to receive commissions
based on the monthly management fees and annual performance fees earned by Carrington on
investor accounts “serviced” by Spring.
In October 2005, little more than a year after entering the contract, Carrington terminated

the agreement. At the time, Carrington provided written assurances that it would continue to pay
commissions on all investor accounts serviced by Spring. However, in the spring of 2006, it
ceased making payments.
Spring filed suit in February 2010, seeking payment of all unpaid commissions, as well
as attorney’s fees, treble damages under chapter 93A, and punitive damages. Carrington filed a
counterclaim alleging material breach of the agreement by Spring and seeking compensatory
damages, treble damages under chapter 93A, and attorney’s fees.
Each party has moved for partial summary judgment. Spring has moved for summary
judgment on all of Carrington’s counterclaims, as well as partial summary judgment on the issue
of Carrington’s obligation to pay a commission on the fees it has earned on certain undisputed
accounts. Carrington has moved for summary judgment on Spring’s chapter 93A claim, all
claims for fees based on events after October 1, 2008, and all claims for fees from two investors
in the fund, Fix and Paradigm.1
I.

Factual Background
Unless otherwise noted, the facts set forth below are undisputed.
A.

The Parties

Spring Investor Services, Inc., is a registered broker-dealer based in Massachusetts. (PSF
¶¶ 3-4).2 Spring has been in business since at least 2001. (PSF ¶ 4). Jonathan Spring is the sole
manager and principal of Spring. (PSF ¶ 3).

1

Carrington also moved for summary judgment on Spring’s claims for relief under the contract’s arbitration
clause and on Spring’s claims for compound relief. Because Spring has indicated that it does not intend to pursue
either claim, the Court will not consider them in this memorandum and order.
2
Cites to “PSF ¶ __” are to Spring Investor Services, Inc.’s Rule 56.1 Statement of Undisputed Material
Facts. Cites to “DSF ¶ __” are to Carrington Capital’s Rule 56.1 Statement of Undisputed Facts.

2

Carrington Capital Management, LLC, is a hedge-fund manager based in Connecticut.
(DSF ¶ 1). Carrington launched its first fund in March 2004. (PSF ¶ 7). As the manager of
various funds, Carrington receives fees from the investments made in the fund, and therefore has
an interest in increasing capital contributions to the funds. (Pl. App., Ex. 1). Carrington ceased
charging management fees from the funds on June 30, 2010. (PSF ¶ 10). Bruce Rose is the
founding member and manager of Carrington. (PSF ¶ 5).
B.

The Agreement

On October 1, 2004, Spring and Carrington entered into a contract. (PSF ¶ 18). The
contract set forth a relationship whereby Spring would assist Carrington in obtaining investors.
In particular, Spring agreed to:
•

refer prospective investors to Carrington;

•

perform marketing and fund-raising, with the goal of familiarizing prospective
investors with the funds, and ultimately causing them to invest in the funds;

•

assist prospective investors with due-diligence activities;

•

continue to communicate with and assist both prospective investors and those
who chose to invest in the funds; and

•

perform all services in a professional and diligent manner, to the best of its
abilities.

(Pl. App, Ex. 1 ¶ 1). The contract contained a provision conferring to Spring exclusive, nontransferable marketing rights for the funds. (Pl. App., Ex. 1 ¶ 4).
In exchange for Spring’s services, the contract required Carrington to pay Spring “a fee
equal to 20% of all fees collected by [Carrington] on all assets from investors serviced by
[Spring] and invested in the funds subsequent to September 21, 2004 . . . .” (Pl. App., Ex. 1 ¶
2(a)). “Serviced by” was defined broadly as “having been exposed, directly or indirectly to the
3

work product of [Spring] previous to investment in the [f]unds.” (Pl. App., Ex. 1 ¶ 2(a)). The
contract also indicated that Spring would be reimbursed for all reasonable legal fees incurred in
collection of fees and expenses, and could charge interest on fees paid more than thirty days after
the agreed-upon payment date. (Pl. App., Ex. 1 ¶ 2(a)).
Carrington retained control over the ultimate decision as to which investors would be
included in the funds. (Pl. App., Ex. 1 ¶ 1(h)). The contract specified that Spring “does not
represent or warrant that any [p]rospect or [i]nvestor will be qualified to invest in [Carrington’s
funds], or that [the funds] are suitable for any [p]rospective or [i]nvestor.” (Pl. App., Ex. 1 ¶
1(h)). Those decisions remained with Carrington. Carrington also retained responsibility for
proper disclosure to prospective investors, “as applicable under law and regulation, of the
compensation arrangement” between Carrington and Spring. (Pl. App., Ex. 1 ¶ 1(h)).
The contract included a provision, entitled “Termination,” that governed its length and
the means by which it could be ended. That provision reads, in full:
3. Termination
a. This agreement shall continue for three years, with automatically
renewable terms and conditions, from the date hereof, unless terminated by a
party. Either party may terminate the Agreement, with cause, immediately, or
without cause, on 15 days prior written notice to the other party.
b. Termination (by either [Carrington or Spring]) shall not affect
[Spring’s] right to receive the [f]ee. In all circumstances and regards, the
[compensation provisions] of Section 2 shall survive the termination of this
[a]greement. For purposes of calculating the [f]ee, assets from investors serviced
by [Spring] but first invested in the [f]unds more than 180 days after termination
shall not be considered assets from investors serviced by [Spring]. [Spring]
agrees that in the event of notice of termination it shall cease all [s]ervices with
respect to the [f]unds.
(Pl. App., Ex. 1 ¶ 3).

4

The contract included warranties by both parties concerning compliance with all laws and
licensing requirements. Spring warranted that it held all necessary licenses, registrations, and
approvals; it further warranted that it would “perform its duties hereunder in compliance with all
applicable federal, state and security laws and regulations, including Rule 206(4)-3 of the
Investment Advisers Act of 1940, as amended . . . .” (Pl. App., Ex. 1 ¶ 9(a)).3 Similarly,
Carrington warranted that it held all necessary licenses, registration, and approvals, and that it
would comply with all applicable laws and regulations. (Pl. App., Ex. 1 ¶ 9(b)). Unlike the
paragraph governing Spring’s compliance responsibilities, the paragraph governing Carrington’s
responsibilities does not include a specific reference to Rule 206(4)-3.
C.

Carrington’s Termination of the Agreement

The contract remained in force for just over a year. During that time, Spring contacted
potential investors on behalf of Carrington. At least some of those contacts resulted in capital
contributions to the funds by new investors, although the parties dispute the number of new
investors and total capital contributions resulting from Spring’s services.
On October 15, 2005, Bruce Rose, Carrington’s manager, sent an e-mail to Jonathan
Spring. The e-mail contained a notice of termination. (DSF ¶ 12). In that e-mail, Rose stated
that he had “absolutely no questions at all regarding your loyalty and level of advocacy for
Carrington, and for me.” (DSF, Ex. 16). However, he indicated that “as time and growth of the
[funds] assets continues, the slight divergences in approach that may have been at worst nominal

3

Rule 206(4)-3 provides for disclosure to prospective investors of the terms and conditions of any referral
arrangement that exists between an investment adviser and a solicitor who receives referral fees for recommending
that adviser. The rule requires, among other things, that a solicitor provide certain written disclosure statements to
each prospective client at the time of the solicitation, and that an investment adviser obtain a signed acknowledgment
of receipt of these disclosure statements at the time of any investment.

5

in the beginning are now becoming significantly more magnified.” (DSF, Ex. 16). Rose went
on to discuss a series of meetings Carrington held with various prospective investors referred by
Spring, and the frustrations and problems those meetings caused. He further explained the basis
of the decision as follows:
Your marketing style and apparent successes are more suited from my view to the
startup phase of a fund, confirmed by the size and style of the other funds that you
represent. I believe you even indicated as such when we began. I have said it
repeatedly; we never forget where we started, but we are definitely NOT a startup
fund anymore. Our growth and success longer term will be driven by accurate,
educated, targeting marketing. Prescreening and pre-educating investors is the
responsibility of marketing; not referring database inquiries after sending out a
DDQ and the investor presentation. Several meetings referred to us recently have
been precisely that.
The Carrington Team and I do look forward to continuing to work with you on an
ongoing basis: it cannot, however, be on an exclusive basis any longer as we
need to shift our attention. This correspondence will serve effectively as the 15
day notice as required by our agreement. It is not evident to me that you are
presently in contact with the level of institutional-type investors that we seek, and
we do not want to continue the seemingly random meeting pattern with the small
investor base . . . .
I realize that this all probably appears to be a sudden event and reaction from your
view; understand that our frustration has been building steadily since the early
summer. I have, on multiple occasions, tried to subtly telegraph our frustration,
but I wanted desperately not to offend you. My fault; I should have been as blunt
and direct as I was the other day and I believe I am being in this letter.
(DSF, Ex. 16).
In a separate e-mail sent later the same day, Rose stated that “I will, as always, pay your
fee on a timely basis and continue to do so as per the [a]greement as long as investors introduced
by you remain in the fund.” (PSF, Ex. 2).
D.

Payments after Termination

Carrington continued to pay commissions to Spring after the October 15 termination of

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the agreement on three occasions: February 3, March 13, and April 24, 2006. (PSF ¶ 36). In
total, Carrington paid Spring fees of $530,762 during that period. (PSF ¶ 37). On May 10, 2006,
Carrington sent a letter to Spring indicating that it was Carrington’s position that Spring had
materially breached the contract prior to its termination, and that Carrington was thus not
obligated to pay any further fees. (PSF ¶ 38). Since that time, Carrington has not provided any
payment to Spring. (PSF ¶ 39).
Spring contends that Carrington has earned $11,759,170.70 in fees on accounts serviced
by Spring; it further contends that as a result, it is entitled to 20% of that amount, or an
additional $1,821,072.14, beyond what it has already been paid. (PSF ¶ 41). Carrington
disputes that any payment is still due.
II.

Standard of Review
The role of summary judgment is to “pierce the pleadings and to assess the proof in order

to see whether there is a genuine need for trial.” Mesnick v. General Elec. Co., 950 F.2d 816,
822 (1st Cir. 1991) (internal quotations omitted). Summary judgment is appropriate when the
pleadings, the discovery and disclosure materials on file, and any affidavits show that “there is
no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). A genuine issue is “one that must be decided at trial because the
evidence, viewed in the light most flattering to the nonmovant . . . would permit a rational fact
finder to resolve the issue in favor of either party.” Medina-Munoz v. R.J. Reynolds Tobacco
Co., 896 F.2d 5, 8 (1st Cir. 1990). In evaluating a summary judgment motion, the Court
indulges all reasonable inferences in favor of the non-moving party. O’Connor v. Steeves, 994
F.2d 905, 907 (1st Cir. 1993). When “a properly supported motion for summary judgment is

7

made, the adverse party ‘must set forth specific facts showing that there is a genuine issue for
trial.’” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (quoting Fed. R. Civ. P.
56(e)). The non-moving party may not simply “rest upon mere allegation or denials of his
pleading,” but instead must “present affirmative evidence.” Id. at 256-57.
III.

Analysis
The parties seek summary judgment on six separate issues: (1) the correct interpretation

of the contract’s terms concerning the time period for fee payments, (2) plaintiff’s claim for fees
for the “undisputed” accounts, (3) plaintiff’s claim for fees for two disputed accounts, (4)
plaintiff’s chapter 93A claim, (5) defendant’s chapter 93A claim, and (6) defendant’s claims for
breach of contract and breach of the implied covenant of good faith and fair dealing. The Court
will consider each issue in turn.
A.

The Contract’s Fee Payment Provision

It is uncontested that the agreement required Carrington to pay certain fees to Spring, and
that the amount of those fees was determined based on the assets invested in the funds by
investors who had been “serviced by” Spring. The parties disagree as to whether the agreement
established a time limit for the payment of such fees. Carrington contends that—barring either
early termination or early renewal—all rights and obligations under the agreement, including
Spring’s compensation rights, automatically expired after three years. (Def. MSJ at 13). Thus,
Carrington contends that any payment obligations it may have had to Spring ceased on October
1, 2007, three years after execution of the contract. Spring counters that the contract set forth no
such time limit, and that the agreement provided for compensation rights to continue for as long
as any investor introduced by Spring remained invested in a Carrington fund.

8

As noted, Section 3 of the contract is entitled “Termination.” Section 3(a) states: “This
[a]greement shall continue for three years, with automatically renewable terms and conditions,
from the date hereof, unless terminated by a party.” Section 3(b) further sets forth that
“[t]ermination . . . shall not affect [Spring’s] right to receive the fee. In all circumstances and
regards, the terms of [the compensation provision] shall survive the termination of this
[a]greement.”
The plain language of the agreement unambiguously states that “termination” of the
contract does not have any impact on Spring’s right to receive a fee. Carrington does not dispute
that fact; rather, it suggests that the scope of the right is defined by the three-year term of the
contract set forth in the termination provision. In other words, Carrington contends that Spring’s
right to receive fees was understood by the parties to last only for the length of the contract itself.
While a mid-stream termination of the contract would not affect Spring’s right to receive a fee
for the duration of the contract term, the expiration of that term itself, after three years, would
end Carrington’s payment obligations.
The language of the contract provides no support for Carrington’s interpretation. The
compensation provision of the contract provides that Spring will be paid a fee on all fees
collected by Carrington on all assets from investors serviced by Spring subsequent to September
21, 2004. The contract contains no time period or end date to limit its compensation provisions.
There is no reference to the three-year contract term anywhere in the compensation provision.
While the parties undoubtedly could have negotiated for an end date for the contract’s
compensation provisions, there is no indication in the contract that they did so. The Court will

9

not read a term into the contract that simply is not there.4
To the extent that the absence of such a provision is arguably ambiguous, the Court also
finds that the extrinsic evidence, including Carrington’s own admissions, weigh against
Carrington’s interpretation. In interpreting a contract, “[j]ustice, common sense, and the
probable intention of the parties” may be used as guides. City of Haverhill v. George Brox, Inc.,
47 Mass. App. Ct. 717, 720 (1999). While the Court takes no position on the most “just”
interpretation of the contract, both common sense and the probable intention of the parties
support Spring’s position. If Carrington’s interpretation were correct, and the term of
compensation for all investments was set based on the start of the contract itself, Spring’s
incentives to recruit investors would have constantly diminished as the contract term wore on
and the time period for earning fees on new investments constantly decreased. By the final
months of the contract, Spring would have had virtually no incentive to market the fund to new
investors. Such an incentive structure is contrary to common sense.
Furthermore, statements made by Carrington’s representative at the time the contract was
terminated contradict this interpretation. On the day the contract was terminated, Rose stated
that “I will, as always, pay your fee on a timely basis and continue to do so as per the
[a]greement as long as investors introduced by you remain in the [f]und.” (PSF, Ex. 2)
(emphasis added). This statement contains no suggestion of an end date to the fees other than
the termination of the investor’s involvement in the fund.
Nor is this interpretation of the contract undermined by Carrington’s evidence of industry

4

Carrington suggests that this interpretation of the contract converts the contract’s three-year term to
surplusage. But that provision makes clear that the agreement could end in two separate ways: through termination,
at any time; or through “expiration” at the end of the three-year term, if any party sent notice of non-renewal.

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custom and usage. Far from supporting its interpretation, the evidence of industry custom raises
further questions about the incentive structure created by Carrington’s asserted interpretation.
While each of the three sample contracts submitted as exhibits includes an express end date to
the obligation to pay, these end dates are tied to the date of initial investment, not the date the
contract commenced. These contracts suggest two things. First, to the extent there was any
uniform industry custom, it favored an incentive structure that tied compensation to the
investment date, rather than the contract date. Second, when parties in the industry intended to
limit compensation to a finite number of years, they knew how to do so using an express
limitation in the clause governing the payment of fees.
The language of the agreement imposes no time limit on Spring’s right to receive a
commission on assets from investors serviced by it. As envisioned by Carrington, such a time
limit is contrary to common sense and imposes a restriction that is unsupported by industry
custom and usage and that the parties did not intend. Accordingly, the Court will interpret the
contract as providing that Spring should receive fees for as long as investors serviced by Spring
remained in the fund.
Carrington’s motion for summary judgment on the ground that all possible obligations to
pay fees ceased on October 1, 2007, will therefore be denied.
B.

Fees Owed on the “Undisputed” Accounts

Spring contends that there are at least 30 investor accounts as to which there is no factual
dispute, because Carrington paid commissions on these accounts through March 31, 2006.
Spring seeks summary judgment obligating Carrington to pay commissions on these accounts for
the period from April 1, 2006, through June 30, 2010. Carrington sets forth three bases for

11

opposing the motion. First, it contends that Spring was a “faithless agent” whose disloyal and
deceptive behavior during the term of the contract excuses any payment obligations and requires
disgorgement of those fees previously paid. Second, it contends that Spring’s material breaches
of the agreement excuse any payment obligations. Third, it contends that Spring has not put
forth sufficient evidence that it “serviced” the accounts at issue, and thus is not entitled to
summary judgment on the issue.
1.

“Faithless-Agent” Doctrine

An agent has a duty to exercise utmost good faith in all dealings with his principal.
Under the “faithless-agent” doctrine, an agent who is guilty of disloyal conduct toward his
principal may lose his right to compensation. Little v. Phipps, 208 Mass. 331, 333-34 (1911).
Even if some services were properly performed, and even if the principal benefitted from those
services, an agent’s inappropriate conduct may completely destroy an agent’s right to any
compensation. Chelsea Indus., Inc. v. Gaffney, 389 Mass. 1, 13-14 (1983).
Carrington contends that the faithless-agent doctrine excuses it from any payment
obligation to Spring, based on Spring’s “disloyal and deceptive behavior.” In particular,
Carrington points to evidence that Spring (1) promoted other hedge funds at the same time that it
promoted Carrington’s; (2) deliberately misled Carrington as to its interactions with two
potential investors, Fix and Gottex, so as to secure additional fees; and (3) aided a potential
investor, Palm Beach, in an effort to copy certain proprietary information from Carrington under
the guise of contemplating an investment with Carrington.
This defense fails as a matter of law. As even the cases cited by Carrington make clear,
the faithless-agent defense arises when an agent is alleged to have breached a fiduciary duty.

12

Carrington has nowhere alleged that Spring owed it a fiduciary duty, let alone identified the
actions that constituted a breach of that fiduciary duty. Nor has Carrington pointed to any
evidence in the record that would support an assertion that a fiduciary relationship existed here.
Furthermore, the agreement itself states that “[Spring] shall perform these services as an
independent contractor . . . .” (Pl. App., Ex. 1 ¶ 1(e)). An independent contractor does not
typically owe a fiduciary duty for the services it performs. See, e.g., Intertek Testing Servs. N.A.
v. Curtiss-Strauss LLC, 2000 Mass. Super. LEXIS 354 (Aug. 7, 2000). There is nothing in the
record to suggest that there is any reason to depart from the normal rule in this case. Thus, the
faithless-agent defense is inapplicable to this case, and provides no basis for denying summary
judgment.
2.

Material Breach as Excuse

A material breach of an agreement is a breach of “an essential and inducing feature of the
contract.” Teragram Corp. v. Marketwatch.com, Inc., 444 F.3d 1, 11 (1st Cir. 2006). Such a
breach by either party to an agreement will excuse the other party from further performance of
their responsibilities under the agreement. Id. Such a breach can also excuse the non-breaching
party from contractual obligations that do not take effect until after the termination of the
contract. Ward v. American Mut. Liability Ins. Co., 15 Mass. App. Ct. 98, 101 (1983).
Carrington contends that the evidence demonstrates that Spring materially breached the
agreement in October 2005, and that those material breaches excused any further obligation to
pay fees under the agreement.
The question of whether a material breach has occurred is generally left to the trier of
fact. However, even assuming such a breach occurred, it is nonetheless irrelevant to Spring’s

13

right to continue to recover fees in the situation presented here. The agreement’s language as to
termination is clear and unambiguous. The agreement could be terminated in two ways: with
notice, if the termination was without cause; or without notice, if the termination was for cause.
Termination “for cause,” although undefined by the contract, clearly would include termination
as a result of a material breach.
Spring’s right to continue receiving fees after termination is also clear and unambiguous.
That right was to survive termination of the agreement in all circumstances. In the face of such
clear language, Carrington now suggests that the obligation does not survive termination of the
agreement in the circumstance of a material breach. Where the parties have chosen such plain
and expansive words governing post-termination obligations, the Court will not rewrite the
agreement. See, e.g., Walsh v. Atlantic Research Associates, 321 Mass. 57, 65 (1947) (“It is hard
to see how the plaintiff’s hands are so unclean that the court should send him away when he
seeks only that which the defendant has agreed he should have in the very circumstances which
have come about. Although the defendant did not agree that the plaintiff might be unfaithful, it
did . . . agree as to what should be done with the profits even if the plaintiff should be
unfaithful.”).
Carrington’s interpretation is contradicted not only by the language of the agreement, but
by its own words and conduct at the time it terminated the contract in 2005. Despite
Carrington’s contention that it terminated the agreement at the time because of Spring’s material
breach, it gave no indication that it considered its obligations under the contract to be excused by
such a breach. Instead, its own statements indicate that it understood the agreement to be in
effect, and undertook to terminate the agreement in accordance with its terms. Rose e-mailed

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Jonathan Spring that “[t]his correspondence will serve effectively as the 15 day notice as
required by our agreement.” (DSF, Ex. 16) (emphasis added). Later that day, Rose stated that “I
will, as always, pay your fee on a timely basis and continue to do so as per the [a]greement . . .
.” (PSF, Ex. 2) (emphasis added). On October 24, 2005, Carrington’s general counsel further
stated: “Since we are currently in a period after notice of termination has been sent to you, we
assume . . . [§ 3(b)] to be in effect.” (Def. Ctrstmt. to PSF ¶ 105). Carrington’s own actions thus
indicate that it intended to terminate the agreement according to the terms set forth in the
agreement, including the terms of § 3.
As long as the contractual terms governed, the clear language of the agreement required
Carrington to continue to pay Spring’s fees. Thus, Carrington remained obligated to pay
commissions on those investor accounts serviced by Spring for as long as those accounts
remained in the fund.
3.

Evidence That Spring Serviced the Accounts

Spring bears the burden of proving that it serviced each of the accounts at issue, and that
Carrington is therefore obligated to pay commissions on those accounts. Carrington contends
that Spring has not put forth evidence that it serviced these accounts in accordance with the
agreement.
Spring has come forward with sufficient evidence that it serviced all 30 investor accounts
at issue. Carrington has not disputed that evidence sufficiently to create a triable issue of fact.
Carrington does not dispute that it paid Spring a 20% commission on all 30 of these accounts
through March 31, 2006. Nor does it dispute that its own general counsel sent an e-mail—one
that was first reviewed by Carrington’s founder and manager—to Spring in December 2005 that

15

identified the 30 accounts as “having been introduced to [Carrington] by [Spring],” and assured
Spring that it will “receive credit for” any investors on the list. (Pl. App., Ex. 73). Rather,
Carrington now suggests that payment of fees on these accounts is not a concession that
these investors were serviced by Spring. But it cannot create a triable issue of fact by vaguely
suggesting that its own authorized representatives were not actually authorized, or did not mean
what they said. Carrington’s general counsel indicated that Spring would receive fees for these
accounts in a document reviewed by its own founder and manager. While Carrington has made
vague references to ulterior motives for sending an e-mail misstating Spring’s involvement with
these accounts, (Def. Ctrstmt. to PSF ¶ 36) (stating payments were made “to ensure the least
possible disruption to Carrington’s business and its relationship with existing limited partners in
the Fund”), it has not set forth any evidence that these accounts were not serviced by Spring.
Thus, Spring is entitled to summary judgment that these 30 accounts were serviced by it.
Accordingly, Spring’s motion for summary judgment as to Carrington’s liability for
payment of commissions on thirty accounts for the period from April 1, 2006, through June 30,
2010, will be granted.
C.

Fees Owed to Spring for the Fix and Paradigm Accounts

Carrington has moved for summary judgment on Spring’s claim for fees for capital
invested in the fund by investors Fix and Paradigm. Carrington contends that both Rule 206(4)-3
and the terms of the contract bar Spring from receiving payment for these investments.
1.

Rule 206(4)-3

Section 206(4) of the Investment Advisers Act makes it unlawful for an investment
adviser to engage in fraudulent or deceptive acts. 15 U.S.C. § 80b-6 (2013). It further

16

authorizes the Securities and Exchange Commission to promulgate rules and regulations to
define such conduct.
Rule 206(4)-3, promulgated pursuant to this authority, governs the use of third-party
solicitors on behalf of registered investment advisers looking to generate business by recruiting
new investors. It is intended to alert potential investors to the potential conflict of interest that
exists for solicitors who receive referral fees for recommending a particular fund.
The rule places complementary obligations on both solicitors and investment advisers. A
solicitor is required, at the time of any solicitation activities, to provide certain written disclosure
statements to any prospective client. 17 C.F.R. 275.206(4)-3(a)(2)(iii)(A), (b)(1)-(6) (2010).
The investment adviser is then obligated to obtain from the client a signed fee-disclosure
acknowledgment form prior to entering into any investment contract.
The rule also requires that there be a written agreement documenting any referral
arrangement between an investment adviser and a solicitor that expressly mandates that the
solicitor provide the client with a written disclosure statement at the appropriate time. 17 C.F.R.
275.206(4)-3(a)(1)(iii) (2010).
2.

Contractual Compliance Requirements

There are two relevant provisions of the contract. First, § 1(h) states as follows:
[Spring] will not make an offering of interests in the [f]unds to any [p]rospect or
[i]nvestor. An offering of interests in the [f]unds and delivery of the [f]unds’
partnership agreements, offering memoranda and subscription documents, or any
other documents required to make an offering of interests in the [f]unds under
applicable law and regulation, are the responsibility of, and shall be made by,
[Carrington] . . . . [Carrington] shall further be responsible for proper disclosure
to [p]rospects and [i]nvestors, as applicable under law and regulation, of the
compensation arrangement between Manager and Consultant.
(Ex. 1, § 1(h)).
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Second, the contract includes a separate relevant provision, entitled “Compliance.” In
relevant part, that provision states:
9.

Compliance

a. [Spring] warrants and covenants that it holds and will hold all licenses,
registrations and approvals necessary to carry out its duties hereunder; that it will
perform its duties hereunder in compliance with all applicable federal, state and
security laws and regulations, including Rule 206(4)-3 of the Investment Advisers
Act of 1940, as amended . . .
b. [Carrington] warrants and covenants that it holds and will hold all licenses,
registrations and approvals necessary to carry out its duties hereunder; that it will
perform its duties hereunder in compliance with all applicable federal, state and
security laws and regulations . . . .
(Ex., 1 § 9). Both parties agree that the inclusion of a specific reference to Rule 206(4)-3 was a
negotiated addition to the original draft agreement.
3.

Applicability of and Compliance with 206(4)-3

Carrington contends that (1) the agreement required Spring to deliver signed feedisclosure statements from each potential investor as a pre-condition for payment and (2) to the
extent that the Court interprets the agreement as allowing payment in the absence of a signed-fee
disclosure statement, the agreement is unlawful and unenforceable. Spring counters that the
language of Rule 206(4)-3 is inapplicable, and that nothing in the agreement suggests that
compensation is contingent on Spring’s ability to obtain a signed fee-disclosure acknowledgment
form.
There is considerable doubt as to whether Rule 206(4)-3 even applied to the relationship
between Spring and Carrington at the time of their agreement. As Spring points out, the rule
applies only to payments made to a solicitor who “solicits any client for, or refers any client to, an
investment adviser.” 17 C.F.R. § 275.206(4)-3 (2010). Carrington does not anywhere suggest
18

that Spring was hired to solicit potential investment advisory clients for Carrington; rather, Spring
was tasked with soliciting potential investors into hedge funds managed by Carrington. Here,
Carrington served as the manager of the hedge fund in which Fix and Paradigm ultimately
invested; there is no evidence that either entity was ever a client of Carrington’s. This reading of
the regulation is supported by the agency’s own interpretation. Mayer Brown LLP, SEC NoAction Letter, 2008 WL 2908929 (July 28, 2008) (“We believe that Rule 206(4)-3 generally does
not apply to a registered investment adviser’s cash payment to a person solely to compensate that
person for soliciting investors or prospective investors for . . . an investment pool managed by the
adviser.”). However, the Court need not decide this issue, because the matter can be resolved on
other grounds. Even assuming the applicability of Rule 206(4)-3, Carrington is not entitled to
summary judgment.
It is uncontested that Spring did not provide fee-disclosure statements to either Fix or
Paradigm at the time of solicitation, and did not deliver signed fee-disclosure acknowledgment
forms to Carrington from either investor. But neither the rule, nor the contract, placed any such
obligation on Spring. The rule places the burden of collecting signed fee-disclosure
acknowledgment forms squarely on the investment adviser, and nothing in the contract alters that
arrangement. Indeed, § 1(h) of the agreement explicitly places the burden of disclosure on
Carrington, stating that “[Carrington] shall further be responsible for proper disclosure to
[p]rospects and [i]nvestors . . . .” Accordingly, delivery of these forms to Carrington was not a
pre-condition of payment, and the absence of the forms is not a bar to Spring’s recovery.
Spring’s failure to provide fee-disclosure statements to either Fix or Paradigm at the time
of solicitation is somewhat more relevant. Spring contends that it solicited both Fix and Paradigm

19

prior to the termination of its contract, and that the agreement thus entitles Spring to commissions
on both investor accounts. (Pl. Opp. to MSJ at 14). However, Spring concedes that it did not
provide Fix with a fee-disclosure statement until October 22, 2005, and never provided one to
Paradigm. (DSF ¶¶ 21- 22). Assuming the applicability of Rule 206(4)-3, Spring was thus in
breach of the contractual requirement that it comply with the rule.
It does not necessarily follow, however, that Spring’s breach excuses Carrington from
paying fees to Spring on investments by Fix and Paradigm that would otherwise be due. While §
206 of the Investment Advisers Act proscribes certain conduct, the rule does not create civil
liability or provide for a private right of action. Transamerica Mortg. Advisors, Inc. v. Lewis, 444
U.S. 11, 19-20 (1979). Rather, the statute sets forth a series of judicial and administrative
remedies available to the SEC as means for enforcing compliance. The compliance mechanisms
provided by the statute are the exclusive remedies. Id. Thus, Carrington does not, and cannot,
allege that any injury resulted from Spring’s breach. The SEC has not brought any judicial or
administrative action against Carrington to enforce compliance. Nor is there any evidence that
either Fix nor Paradigm have complained about the failure to provide disclosure forms, or that the
absence of such forms injured their relationships with Carrington. Without any proof of injury,
Spring’s failure to make appropriate disclosures does not excuse Carrington’s contractual
obligations.
Summary judgment on the Fix and Paradigm accounts is thus inappropriate. There is a
triable issue of fact as to whether Fix and Paradigm were potential investors who were “serviced
by” Spring, as that term is defined in the agreement. Spring contends that they were; Carrington
disagrees. Both sides have put forth plausible evidence in support of their contentions. There is

20

thus a genuine factual dispute for the jury to decide.
Accordingly, summary judgment on the fees owed to Spring for the Fix and Paradigm
accounts will be denied.
D.

Plaintiff’s Chapter 93A Claim

Carrington has moved for summary judgment on Spring’s claim of unfair or deceptive
business practices under Chapter 93A. Carrington contends that the claim fails as a matter of law
for two reasons: first, that there is insufficient evidence of any unfair or deceptive act, and
second, that the complained-of conduct did not occur primarily and substantially within
Massachusetts, as required by the statute. Because Carrington’s second argument is dispositive,
the Court will address it first.
Section 11 of chapter 93A expressly provides that no action may be brought under the
statute unless the complained of conduct occurred “primarily and substantially within the
Commonwealth.” Mass. Gen. Laws ch. 93A, § 11. Carrington bears the burden of proving that
the complained-of conduct did not take place primarily or substantially within Massachusetts.
Zyla v. Wadsworth, 360 F.3d 243, 255 (1st Cir. 2004). The Supreme Judicial Court has indicated
that the critical inquiry is “whether the center of gravity of the circumstances that give rise to the
claim is primarily and substantially within the Commonwealth.” Kuwaiti Danish Computer Co.
v. Digital Equip. Corp., 438 Mass. 459, 473 (2003). In making this determination, a court focuses
solely on the actionable conduct said to give rise to the violation; other conduct, no matter where
it takes place, may not be considered on the question. Id. at 473-74.
Spring essentially sets forth five factors to support a finding that Massachusetts is the
“center of gravity” in this circumstance: (1) Carrington retained a Massachusetts-based solicitor;

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(2) Carrington sent an allegedly coercive letter to plaintiff’s counsel in Massachusetts; (3) in that
letter, Carrington requested a meeting in Massachusetts; (4) Spring and its counsel both received
the letter in Massachusetts; and (5) Spring learned of its losses in Massachusetts. Even taken in
the light most favorable to the plaintiffs, those factors do not support the conclusion that the
“center of gravity” of the conduct was in Massachusetts. Virtually all of the allegedly unfair
conduct—the alleged decision to coerce Spring, the drafting of the allegedly coercive letter, the
mailing of the letter—took place in Connecticut. Indeed, the only relevant factors that arguably
point toward Massachusetts are those that allege that Spring learned of, and felt, financial injury
in Massachusetts.
As many courts have previously held, a place of injury within Massachusetts is not a
sufficient basis for finding that conduct occurred “primarily and substantially” within the
Commonwealth. See, e.g., Korpacz v. Women’s Prof’l Football League, 2006 WL 220762, at *5
(D. Mass. Jan. 27, 2006) (“Although plaintiffs themselves reside in Massachusetts and any losses
they may have suffered would have been incurred here, defendants’ conduct occurred outside of
the state.”; see also Central Mass. Television, Inc. v. Amplicon, Inc., 930 F. Supp. 16, 27 (D.
Mass. 1996) (“[W]hen ‘place of injury’ is the only factor weighing in favor of a claimant, the
admonition of Massachusetts courts that liability under chapter 93A is not to be imposed lightly is
particularly relevant.”). Indeed, if the courts were to apply a “place of injury” test, “practically no
case involving a Massachusetts plaintiff would be exempt from chapter 93A status, no matter how
negligible the defendants’ business activity in this [s]tate.” Makino, U.S.A., Inc. v. Metlife
Capital Credit Corp., 25 Mass. App. Ct. 302, 310 (Mass. App. Ct. 1988). Spring has not put forth
evidence of any additional conduct by Carrington that could support a finding that Massachusetts

22

is the “center of gravity” of Carrington’s allegedly unfair conduct. Accordingly, Spring’s chapter
93A claim fails as a matter of law, and summary judgment as to that claim will be granted in
Carrington’s favor.5
E.

Defendant’s Chapter 93A Claim

Spring has also moved for summary judgment on Carrington’s claim of unfair or
deceptive business practices under Chapter 93A. Spring contends that the claim fails as a matter
of law because Carrington has not alleged any facts that rise to the level of a chapter 93A
violation.
In its counterclaim, Carrington contends that Spring allegedly violated chapter 93A by
“(a) failing to find suitable investors for the [f]und; (b) failing to educate potential investors
regarding the [f]und; and (c) attempting to collect fees from Carrington despite its willful and
deliberate failure to perform its obligations.” (Countercl. ¶ 31). In its briefing, Carrington
appears to abandon these contentions, and instead sets forth three acts of alleged
misrepresentation that it suggests are sufficient to support a chapter 93A claim. First, Carrington
alleges that Jonathan Spring misrepresented his expertise and marketing approach to Carrington

5

Carrington’s failure to list the “primarily and substantially” defense as an affirmative defense in its answer
did not waive its right to contest the issue. The purpose of the requirement that a defendant set forth all affirmative
defenses at the pleading stage is to provide the plaintiff with adequate notice of a defendant’s intention to litigate that
issue, and to afford the plaintiff the opportunity to offer evidence and argument relating to the defense. See
Davignon v. Clemmey, 322 F.3d 1, 15 (1st Cir. 2003). While it is true that the “primarily and substantially” defense
was not listed as an affirmative defense in Carrington’s answer, Spring had clear notice that Carrington disputed that
the requirement was met in this case. Spring alleged in its complaint that “Carrington’s unfair and deceptive acts
and practices occurred primarily and substantially within the Commonwealth of Massachusetts,” (Compl. ¶ 109);
Carrington explicitly denied the allegation in its answer, (Answer ¶ 109). Accordingly, Spring had notice of the
defense, and cannot be said to be prejudiced by the omission. Carrington’s answer denying the allegation is
sufficient to preserve its affirmative defense. Stoneridge Control Devices, Inc. v. Teleflex, Inc., 17 Mass. L. Rptr.
335, *14 (Mass. Super. 2004) (“While merely the wording of the answer [denying the ‘primarily and substantially’
allegation] may seem a bit thin, when read in the context of the purpose for pleading affirmative defenses, the
liberality with which notice pleadings are received and the specific authority grants to courts in Rule 8(c), if justice
so requires, to treat a pleading as if there had been a proper designation, this Court is disinclined to rule that the
defense has been waived.”)

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in order to induce it to enter the contract. Second, it alleges that Jonathan Spring lied to
Carrington about contacts with investors Fix and Gottex. Third, it alleges that Spring tried to
assist a third party in misappropriating Carrington’s proprietary tax structure.
To begin, these new allegations are not properly before the Court. Carrington appears to
have substantially changed the theory underlying its chapter 93A claim, without any attempt to
modify its pleadings. Spring complains—with ample justification—that the counterclaim did not
provide fair notice of the grounds that Carrington currently asserts as the basis for its chapter 93A
claim.
Furthermore, and in any event, there is simply no allegation in the record of any conduct
by Spring that would rise to the level of unfair and deceptive practices contemplated by the
statute. To establish a violation of chapter 93A, a “defendant’s conduct must be not only wrong,
but egregiously wrong.” Massachusetts Sch. of Law at Andover, Inc. v. American Bar Ass’n,
142 F.3d 26, 41 (1st Cir. 1998). The conduct must “fall within the penumbra of some commonlaw, statutory, or other established concept of unfairness, or [be] immoral, unethical, oppressive
or unscrupulous.” Commercial Union Ins. Co. v. Seven Provinces Ins. Co., 217 F.3d 33, 40 (1st
Cir. 2000) (internal quotations omitted).
Nothing in the record comes close to meeting this standard. First, Carrington has not
pointed to any evidence that Jonathan Spring misrepresented his marketing experience. Second,
Carrington has not set forth any evidence that Spring lied to Carrington about his contact with
Fix or Gottex. Although he may have presented the nature of his communications in a way that
involved something less than full disclosure, he does not appear to have manufactured
communications that did not happen or deceived Carrington about the nature of those

24

communications. Finally, Carrington does not cite any evidence to support its allegation that
Spring intended to aid a third party in misappropriating Carrington’s tax information. While
there is evidence that Spring communicated with Carrington about setting up a conference call
with Palm Beach, there is absolutely no support for the suggestion that he did so with an
improper purpose. Pure speculation by Carrington about what he intended is insufficient to
survive summary judgment.
Accordingly, Carrington’s chapter 93A claim fails as a matter of law, and summary
judgment as to the claim will be granted in Spring’s favor.
F.

Carrington’s Breach of Contract and Breach of Implied Covenant Claims

Finally, Spring has moved for summary judgment on Carrington’s claims for breach of
contract and breach of the implied covenant of good faith and fair dealing. Spring contends that
Carrington cannot prove that it suffered any damages as a result of Spring’s alleged breach.
There are two bases for this argument: first, Spring contends that the damages that Carrington
has alleged are too speculative as a matter of law to be recoverable; and second, it contends that
Carrington has not set forth any evidence that it caused the alleged damages as a result of
foregone opportunities to hire alternative solicitors.
1.

Speculative Nature of Carrington’s Alleged Damages

Carrington alleges that Spring’s actions constituted a breach of contract and a breach of
the implied covenant of good faith and fair dealing, and thus deprived Carrington of the value of
performance it was entitled to under the contract. It also alleges that it could have hired alternate
solicitors who would have raised more capital than Spring. Carrington seeks damages to cover
the shortfall in Carrington’s profits that allegedly resulted from Spring’s failure to perform its

25

obligations and Carrington’s foregone opportunity to hire an alternate solicitor. In other words,
Carrington essentially seeks damages in the form of lost profits.6
Massachusetts law is clear that lost profits are a recoverable form of damages, so long as
they are established with sufficient certainty. Augat, Inc. v. Aegis, Inc., 417 Mass. 484, 488
(1994). However, such damages may not be recovered when they are so “remote, or so
uncertain, contingent, or speculative as not to be susceptible of trustworthy proof.” John
Hetherington & Sons, Ltd. v. William Firth Co., 210 Mass. 8, 21-22 (1911). The party seeking
to recover lost profits bears the burden of proving that they are the proximate result of a breach,
and that the amount of loss is “capable of ascertainment by reference to . . . established
experience or direct inference from known circumstances.” Id.
Spring suggests that Carrington’s asserted damages are based on pure speculation, with
no adequate foundation in fact. In particular, Spring contends that Carrington has not introduced
any facts into the record to suggest that an alternate solicitor existed, and that such a solicitor
would have brought in additional investors. Spring therefore argues that Carrington will be
unable to prove an essential element of its claims, and those claims should be denied as a matter
of law.
Carrington has certainly put forth evidence intended to support its damages theory; the

6

Carrington’s counterclaim focuses on lost investment revenue caused by the foregone opportunity to hire
an alternate solicitor. However, in its briefing, Carrington suggests that it intends to set forth two separate theories
of damages: expectation damages, based on Spring’s alleged failure to perform, and foregone opportunity profits,
based on Carrington’s inability to hire another solicitor during the term of the agreement. Although Spring
complains that the former theory is newly invented for the purposes of surviving summary judgment, the Court finds
nothing in the record to suggest that the expectations damages theory is newly manufactured. Massachusetts law
does not require a party to specify damages at the pleading stage. Bosque v. Wells Fargo Bank, N.A., 762 F. Supp.
2d 342, 352 (D. Mass. 2011). In addition, given that expectation damages are the presumptive relief for breach of
contract, Spring cannot claim lack of notice or prejudice resulting from this theory. Accordingly, the Court’s
analysis will consider both theories.

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only question is whether that evidence is sufficient to create a triable issue of material fact.
Carrington’s primary evidence of damages is an expert report, submitted and prepared by Lauren
Ryan. (PSF, Ex. 18). That report includes a series of calculations comparing Spring’s
performance with the performance of other solicitors who Carrington hired during the same time
period. For the purposes of those calculations, Ryan took into account certain assumptions. For
example, she assumed that Spring breached the agreement, that an available alternate solicitor
existed who would have brought in additional investors beyond those recruited by Spring, and
that those additional investors would have remained in the fund through June 30, 2010. Ryan’s
report includes the bases for her determination that certain assumptions were reasonable. For
some other assumptions, the report simply indicates that the assumptions were provided to Ryan
by Carrington’s counsel, and does not indicate her basis for determining that the assumptions
were reasonably reliable. Based on her assumptions and analysis, Ryan provided an expert
opinion that Carrington has suffered lost-profit damages exceeding $3.9 million. (PSF, Ex. 18).
There is no question that Ryan’s report relies on inferences, and that there are at least
minor evidentiary gaps in Carrington’s damages claim. Neither Ryan nor Carrington’s Rule
30(b)(6) deposition designee was able to name an alternate solicitor, and it is not entirely clear
that there was a reasonable basis for Ryan’s assumption that such an alternate solicitor would
have raised more money. However, such questions concerning the reliability of an expert’s
testimony are better addressed in the form of a Daubert motion, and not on a motion for
summary judgment.
The cases cited by Spring are not to the contrary. In all three cases, the experts’
testimony relied on pure conjecture or speculation in setting forth damages calculations that were

27

not even arguably supportable by the facts. In Atlantic Research Marketing Systems v. Saco
Defense, Inc., 997 F. Supp. 159 (D. Mass. 1998), plaintiff’s damages expert set forth a lost
profits estimate that was one thousand times greater than plaintiff’s profit records from the
highest year on record. In Albert v. Warner-Lambert Co., 234 F. Supp. 2d 101 (D. Mass. 2002),
plaintiff’s expert himself admitted that his calculations were not scientific, and he was unable to
answer even basic questions about his methodology and assumptions at his deposition. Finally,
in Van Brode Grp., Inc. v. Bowditch & Dewey, 36 Mass. App. Ct. 509 (1994), plaintiff’s expert’s
testimony was based on the assumption that the company would experience a dramatic
turnaround and unprecedented new profits, without any believable basis for that explanation.
Here, Carrington’s expert has relied on certain assumptions, and has employed various
inferences to complete her calculations, but has not engaged in anything resembling the pure
fabrication of facts present in the above cases. As a general matter, experts are permitted to
make inferences and assumptions, if those inferences and assumptions are scientifically
reasonable. At this stage in the lawsuit, the Court expresses no position as to whether Ryan’s
testimony should ultimately be excluded because it does not meet the requirements of Rule 702
of the Federal Rules of Civil Procedure—that is, because it is not based on sufficient facts or
data, is not the product of reliable principles or methods, or is not a reliable application of those
principles and methods. The Court will withhold ruling on the admissibility of Ryan’s report
until such time as it has the benefit of Daubert briefing on the subject.
However, if Ryan’s methods are sound, and if there is a reasonable basis for her
inferences, then there is sufficient evidence in the record to support Carrington’s claim of
damages resulting from lost profits. The record contains references to numerous other solicitors

28

operating at the time, some of whom were already performing limited work for Carrington.
Those references, at least for present purposes, give rise to a reasonable inference that an
alternate solicitor was available. Taken in the light most favorable to Carrington, this evidence
is sufficient to survive summary judgment.
2.

Spring’s Causation of Carrington’s Losses

Spring also contends that Carrington cannot meet its burden to prove that Spring caused
Carrington to forego hiring other solicitors, and as a result cannot prove that Spring caused its
damages. Spring asserts that although the agreement provided Spring with exclusive marketing
rights for Carrington, Carrington nonetheless utilized other solicitors while the agreement was in
effect. Thus, Spring suggests that Carrington must introduce facts that indicate that it could not
have hired yet another solicitor, notwithstanding the terms of the agreement.
This argument is unavailing. Carrington entered into a contract that conferred to Spring
exclusive rights to market the fund. The existence of minor carve-outs or agreed-upon
deviations from those exclusive rights does not change the nature of the agreement. Nor do the
facts that Carrington could have chosen to breach that contract, or could have chosen to attempt
to negotiate an amendment to the terms of the contract, alter Carrington’s duty to abide by the
terms of the agreement. Carrington was entitled to expect that Spring would perform according
to the terms of the contract, and was under no obligation to seek to negotiate an amendment to
the terms of the contract in order to receive the equivalent of the performance it expected under
the agreement. Similarly, Spring cannot undermine Carrington’s breach-of-contract claim by

29

suggesting that Carrington could have breached first.7
Accordingly, Spring’s motion for summary judgment as to all of Carrington’s
counterclaims will be denied.
V.

Conclusion
For the foregoing reasons, Spring’s motion for summary judgment will be GRANTED as

to Carrington’s obligation to pay a commission on the fees it has earned on undisputed accounts
and otherwise DENIED, and Carrington’s motion for summary judgment will be GRANTED as
to Spring’s chapter 93A claim, and otherwise DENIED.

So Ordered.
/s/ F. Dennis Saylor
F. Dennis Saylor IV
United States District Judge
Dated: March 28, 2013

7

Spring also points out that Carrington had the right to terminate the agreement at any time, either with or
without cause. Spring contends that if Carrington was dissatisfied with Spring’s performance, it could have
terminated the agreement, and thus cannot allege damages based on its inability to hire another solicitor. The
question of whether, and when, Carrington had a duty to mitigate damages appears to be a complicated one. The
matter has not been fully briefed by the parties, and any analysis of the subject would likely rely heavily on disputed
questions of fact. Carrington certainly was not required to terminate the contract at the first sign of poor
performance, but neither could it sit back and allow damages to multiply in the face of an obvious material breach.
At what point Spring’s alleged conduct could have crossed that line, and what limitations on damages may result, are
questions that cannot be resolved on the present record.

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