Rishell et al v. Medical Card Systems, Inc. et al

Filing 37

OPINION AND ORDER re 8 Motion to Dismiss for Failure to State a Claim; and re 20 Supplemental Motion. The Court GRANTS defendants' motion to dismiss for failure to state a claim. This case is DISMISSED in its entirety. Judgment shall be entered accordingly. Signed by Judge Francisco A. Besosa on 11/14/2013. (brc)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
MARK RISHELL AND DIANA RISHELL,
Plaintiffs,
v.
MEDICAL
al.,

CARD

Civil No. 13-1113 (FAB)

SYSTEM,

INC.

et

Defendants.

OPINION AND ORDER
BESOSA, District Judge.
Before the Court are defendants Medical Card System, Inc.’s
(“MCS”) and Maritza I. Munich’s (“Munich”) motion to dismiss
pursuant

to

Federal

Rule

of

Civil

Procedure

12(b)(6)

(“Rule

12(b)(6)”); defendants’ supplemental motion to dismiss; and all
relevant replies and surreplies.
36.)

(Docket Nos. 8, 20, 26, 31, &

Having considered the parties’ filings, the Court GRANTS

defendant MCS’ motion to dismiss for the reasons discussed below.
I.

BACKGROUND
A.

Procedural History
On April 13, 2012, plaintiff Mark Rishell (“plaintiff

Rishell”) and plaintiff Diana Rishell (“plaintiff Diana Rishell”)
(collectively “plaintiffs”), filed a complaint seeking to enforce
a bylaw that required defendant MCS to prepay plaintiff Rishell’s
attorney’s fees.

Civil No. 12-1249 (“the Advancement Action”).

Civil No. 13-1113 (FAB)

2

Plaintiff Rishell filed claims for breach of bylaws and breach of
an employment agreement, as well as a request for declaratory
judgment and a claim for fees on fees in accordance with MCS’
bylaws.

Id.

Plaintiff Diana Rishell sought tort damages pursuant

to article 1802 of the Puerto Rico Civil Code.

Id.

Ruling on

defendants’ motion to dismiss, the Court dismissed plaintiffs’
claims with prejudice on February 28, 2013.

Plaintiffs appealed

this ruling on March 29, 2013.1
On February 7, 2013, plaintiffs filed this action against
MCS and

Munich

seeking

(1)

enforcement

of a

different

bylaw

requiring defendant MCS to “indemnify” plaintiff Rishell for the
legal fees and expenses connected to the investigation raised in
the first complaint, and (2) to recover damages against both
defendants in tort.

(Docket No. 1.)

plaintiffs’ claims on April 24, 2013.

Defendants moved to dismiss
(Docket No. 8.)

On June 3,

2013, plaintiffs filed an amended complaint adding a claim for
indemnification of legal fees incurred by Holland & Knight in
relation to a Puerto Rico state court action against plaintiff
Rishell (the “State Court Action”).

(Docket No. 11.)

Defendants

filed a supplemental motion to dismiss on July 11, 2013 (Docket
No. 20), plaintiffs filed an opposition on August 5, 2013 (Docket

1

As the appeal in this case remains pending, the Court’s
previous ruling has no res judicata effect on the current case.

Civil No. 13-1113 (FAB)

3

No. 26), defendants filed an opposition on August 23, 2013 (Docket
No. 31), and plaintiffs filed a surreply on September 9, 2013.
(Docket No. 36.)
Plaintiffs invoke subject-matter jurisdiction over the
Puerto Rico claims pursuant to 28 U.S.C. § 1332(a)(1) because the
matter

in

controversy

exceeds

$75,000

and

there

is

complete

diversity of citizenship between the defendants (MCS is a Puerto
Rico corporation and Munich is a resident of Puerto Rico) and the
plaintiffs (Mark and Diana Rishell are residents of Florida).
(Docket No. 11 at ¶¶ 3-4.)
B.

Factual Background
For the purposes of the motion to dismiss, the Court

treats all “properly pled factual allegations” as true and draws
all reasonable inferences in plaintiff’s favor.

Ocasio-Hernandez

v. Fortuño-Burset, 640 F.3d 1, 11-12 (1st Cir. 2011).
In 2007, defendant MCS employed plaintiff Rishell as its
Chief Financial Officer, and it subsequently promoted him to Chief
Executive Officer.

(Docket No. 11 at p. 2.)

In October of 2011,

the U.S. Department of Health & Human Services and the U.S.
Attorney’s

Office

for

the

investigating defendant MCS.

District

of

Id. at p. 6.

Puerto

Rico

began

They targeted only a

few officers, including plaintiff Rishell, in their investigation
(hereinafter “the Investigation”).

Id.

Civil No. 13-1113 (FAB)

4

On October 14, 2011, Munich — general counsel for MCS —
met with Rishell regarding the Investigation and informed him that
“MCS was going to take care of engaging an attorney for him,” that
she and MCS “were going to look after his best interests and that
MCS would be covering all legal expenses associated with the
Investigation.”
negotiated

to

Id. at p. 6.
retain

Rishell’s behalf.

Munich subsequently identified and

Francisco

Rebollo-Casuldec

Id. at p. 7.

on

plaintiff

On November 7, 2011, Rebollo and

Munich signed a professional services agreement, then submitted the
agreement to plaintiff Rishell for his signature.

Id.

Rishell,

relying on Munich to protect his interests, did not read the
agreement prior to signing it.

Id.

During this process, no MCS

representative ever indicated to plaintiff Rishell that MCS’s
commitment

to

cover

Rishell’s

Investigation had any conditions.

expenses
Id.

associated

with

the

No MCS representative sent

plaintiff Rishell an undertaking or informed him that he would lose
his rights to advancements under bylaw 6.2 if he did not provide an
undertaking.

Id. at p. 8.

In October of 2011, MCS executed plaintiff Rishell’s
employment agreement, with an effective date of June 1, 2011.
at p. 8.

Id.

As part of plaintiff Rishell’s employment agreement,

defendant MCS agreed to maintain indemnification provisions in its
bylaws that were “no less favorable than those in effect as of the

Civil No. 13-1113 (FAB)
effective date of [the contract].”
bylaws. Id. at p. 5.

5
Id. at p. 8.

MCS drafted the

The relevant provision of the bylaw covering

indemnification, the applicability of which is disputed in this
case, states:
The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by
applicable law as it presently exists or may
hereafter be amended, any person who was or is
made or is threatened to be made a party or
who is otherwise involved in any action, suit
or
proceeding,
whether
civil,
criminal,
administrative
or
investigative
(a
“proceeding”) by reason of the fact that he,
or a person for whom he or she is the legal
representative, is or was a director or
officer of the Corporation or is or was
serving at the request of the Corporation as a
director, officer, employee or agent of
another corporation or of a partnership, joint
venture,
trust,
enterprise
or
nonprofit
entity, including service with respect to
employee benefit plans, against all liability
and loss suffered and expenses (including
attorneys’ fees) reasonably incurred by such
person, but only if such person acted in good
faith and in a manner which he or she
reasonably believed was in the best interests
of the Corporation; or not opposed to such
interests and, with respect to any criminal
action or proceeding, such person did not have
reasonable cause to believe that his or her
conduct was illegal. The Corporation shall be
required to indemnify a person in connection
with a proceeding (or part thereof) initiated
by such person only if the proceeding (or part
thereof) was authorized by the Board of
Directors of the Corporation, but only if such
person acted in good faith and in a manner
which he or she reasonably believed was in the
best interests of the Corporation, or not
opposed to such interests.

Civil No. 13-1113 (FAB)

6

(Docket No. 1-2 at p. E-8 sec. 6.1.)
Additionally, the bylaws contain a section providing for
prepayment of legal expenses, the applicability of which was
disputed in the Advancement Action, which states:
The Corporation shall pay the expenses
(including
attorneys’
fees)
incurred
in
defending any proceeding in advance of its
final disposition, provided, however, that the
payment of expenses incurred by a director or
officer in advance of the final disposition of
the proceeding shall be made only upon receipt
of an undertaking by the director or officer
to repay all amounts advanced if it should
ultimately be determined that the director or
officer is not entitled to be indemnified
under this Article or otherwise.
Id. at sec. 6.2.
The bylaws specify the procedure that must be followed to
pursue an indemnification claim in court:
If a claim for indemnification or payment of
expenses under this Article is not paid in
full within sixty (60) days after a written
claim therefor has been received by the
Corporation, the claimant may file suit to
recover the unpaid amount of such claim and,
if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting
such claim. In any such action the Corporation
shall have the burden of proving that the
claimant was not entitled to the requested
indemnification of expenses under applicable
law.
Id. at sec. 6.3.

Civil No. 13-1113 (FAB)

7

In December 2011, defendant MCS terminated plaintiff
Rishell from
company.

his

position as

Chief

(Docket No. 11 at p. 8.)

Executive

Officer

of

the

Despite her awareness that

Rishell would be terminated, Munich never told Rishell that he
needed to take steps to protect his advancement rights.
p. 8.

Id. at

Subsequently, in February 2012, plaintiff Rishell retained

the law firm Black, Srebnick, Kornspan & Stumpf, P.A., (“BSK&S”),
following Mr. Rebollo’s recommendation.

Id. at p. 9. Plaintiff

Rishell then sent a letter to defendant MCS through his counsel
informing it that he had retained BSK&S.

(Docket No. 1-3.)

He

asked defendant MCS to pay the retainer and deposit, he promised to
repay

the

advancements

if

he

was

found

ineligible

indemnification, and he included a written undertaking.

for

Id.

Defendant MCS refused to pay the retainer and deposit, or
any other expense connected with BSK&S.

(Docket No. 11 at p. 9.)

In addition to plaintiff Rishell’s promise to repay the advance if
he was not eligible for indemnification, defendant MCS required
plaintiff
Agreement”

Rishell
that

to

sign

compelled

indemnification claim.

an

both

“Undertaking
parties

to

(Id.; Docket No. 1-4.)

and

Cooperation

cooperate

with

an

Plaintiff Rishell

refused to sign the agreement, and defendant MCS stopped paying the
advancement of fees for Mr. Rebollo’s representation.
No. 11 at p. 10).

(Docket

Civil No. 13-1113 (FAB)
Plaintiff

8

Rishell

subsequently

Advancement Action on April 14, 2012.

filed

suit

in

the

(Docket No. 11 at p. 10.)

On February 28, 2013, the Court dismissed the complaint in that
case, finding that advancement rights pursuant to bylaw 6.2 could
only

be

exercised

incurred.

by

current

employees

for

fees

reasonably

Rishell v. Med. Card Sys., Inc., 925 F. Supp. 2d 211

(D.P.R. 2013).

On December 19, 2012, plaintiff Rishell submitted

a written claim to MCS requesting indemnification for his expenses
in connection with the Investigation, offering to accept “for the
time being” the highest hourly rate that MCS was paying its
counsel.
2013.

(Docket No. 1-5.)

(Docket No. 1-6.)

MCS denied the claim on January 3,

On February 19, 2013, plaintiff Rishell

submitted an additional written claim to MCS seeking advancement
and/or indemnification

of

expenses

associated

with

litigation

pending before the Court of First Instance in Puerto Rico (the
“State Court Action”).
claim.

(Docket No. 11-7.)

MCS also denied this

(Docket No. 11 at p. 13.)
Plaintiffs allege that Munich’s conduct was tortious and

that it caused economic damages and mental anguish to plaintiff
Rishell and that MCS is vicariously liable for Munich’s actions.
Id. at pp. 15-16.
indemnify

Plaintiffs further allege that MCS’s refusal to

Rishell constitutes

a

breach

of

the

bylaws

and

of

Rishell’s employment agreement. Id. at pp. 16-18. Plaintiffs also

Civil No. 13-1113 (FAB)

9

allege that plaintiff Diana Rishell is entitled to recover damages
caused by both defendants’ tortious conduct.
II.

Id. at 19.

LEGAL STANDARD
Rule 12(b)(6) permits the Court to dismiss a complaint that

fails

to

state

Fed.R.Civ.P.

a

claim

12(b)(6).

upon
When

which

relief

assessing

can

whether

be
a

granted.

plaintiff’s

complaint provides “fair notice to the defendants” and states “a
facially

plausible

two-pronged approach.

legal

claim,”

the

Court

must

utilize

a

See Ocasio-Hernandez v. Fortuño-Burset, 640

F.3d 1, 11-12 (1st Cir. 2011).

First, the Court can disregard

statements that “offer legal conclusions couched as fact,” because
the plaintiff must do more than “parrot the elements of the cause
of action.”

Id. at 12.

Second, the Court is bound to treat all

“properly pled factual allegations” as true and draw all reasonable
inferences in the plaintiff’s favor.

Id.

Pursuant to Rule 12(b)(6), a court must base its determination
solely on the material submitted as part of the complaint or
central to it. Fudge v. Penthouse Int’l. Ltd., 840 F.2d 1012, 1015
(1st Cir. 1988).

Generally, “a court may not consider documents

that are outside of the complaint, or not expressly incorporated
therein, unless the motion is converted into one for summary
judgment.”

Alt. Energy, Inc. v. St. Paul Fire & Marine Ins. Co.,

267 F.3d 30, 33 (1st Cir. 2001).

“When . . . a complaint’s factual

Civil No. 13-1113 (FAB)

10

allegations are expressly linked to - and admittedly dependent upon
-

a

document (the

authenticity of

which is

not

challenged),

[however,] that document effectively merges into the pleadings and
the trial court can review it in deciding a motion to dismiss under
Rule 12(b)(6).”

Beddall v. State St. Bank & Trust Co., 137 F.3d

12, 17 (1st Cir. 1998) (internal citation omitted).
The factual material pled must be sufficient “to raise a right
to relief above the speculative level,” and to permit the Court to
“draw the reasonable inference that the defendant is liable for the
misconduct alleged.”

Ocasio-Hernandez, 640 F.3d at 12 (quoting

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
has held

The Supreme Court

that a plaintiff’s pleading must cross “the line between

possibility and plausibility.” Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 577 (2007).

A district court should not attempt to

forecast the likelihood of success even if proving the alleged
facts is “improbable.”

Id. at 556.

A complaint that contains a

plausible basis for relief, therefore, “may proceed even if it
appears that a recovery is very remote and unlikely.”
(internal citation omitted).
experience

and

plausibility.

common

sense”

Id. at 556

The Court draws “on its judicial
in

evaluating

the

complaint’s

Grajales v. P.R. Ports Auth., 682 F.3d 40, 44 (1st

Cir. 2012) (internal citation omitted).

Civil No. 13-1113 (FAB)

11

III. DISCUSSION
A.

Count I: Plaintiff Rishell’s Tort Claim Against Munich
and MCS
Plaintiffs contend that Munich, while acting as Rishell’s

attorney

in

connection

with

the

Investigation,

made

misrepresentations to Rishell that caused him to fail to protect
his advancement rights under the bylaws.
16.)

(Docket No. 11 at pp. 14-

Plaintiffs contend that Munich and MCS are liable to Rishell

for the damages caused to him by the denial of his advancement of
fees.
because

Id.

Defendants MCS and Munich move to dismiss this claim

plaintiffs

fail

to

allege

the

causation, and because it is time-barred.

necessary

element

of

(Docket No. 8 at pp. 9-

11, 19-25.)
To state a claim pursuant to article 1802 of the Puerto
Rico Civil Code, a plaintiff must allege “(1) the presence of a
physical or emotional damage; (2) that the damage arose as a
consequence of a negligent or intentional act or omission of the
defendant; and (3) that there is a causal nexus between the damage
suffered and said act or omission.”

Torres v. KMart Corp., 233 F.

Supp. 2d. 273, 275-76 (D.P.R. 2002) (internal citation omitted);
P.R. Laws Ann. tit. 31, § 5141 (2012).

Article 1803 of the Civil

Code allows for employers to be held vicariously liable for “any
damages caused by their employees in the service of the branches in

Civil No. 13-1113 (FAB)

12

which the latter are employed or on account of their duties.” P.R.
Laws Ann. tit. 31, § 5142.
Plaintiffs’ tort claim “is simply an old wine in a new
bottle: we already have refuted the substance of this argument . .
. and we see no point in decanting it again.”

Culhane v. Aurora

Loan Services of Nebraska, 708 F.3d 282, 294 (1st Cir. 2013).

In

the Advancement Action, the Court dismissed Rishell’s claim for
breach of bylaw 6.2, finding that (1) advancement rights applied
only to present and not former employees; (2) Rishell failed to
allege that the fees sought were reasonable; and (3) in the
alternative, Rishell failed to comply with the requirement of a
signed undertaking, and was thus not entitled to advancement
pursuant to MCS’s bylaws.

Rishell, 925 F. Supp. 2d at 216-20.

In

other words, the Court found that Rishell was ineligible for
advancement rights pursuant to MCS’s bylaws for reasons independent
of any action, whether wrongful or not, taken by Munich.

Thus,

plaintiffs fail to allege a causal nexus linking Munich’s conduct
to plaintiff Rishell’s damages.

Plaintiffs’ attempt to repackage

a failed claim in a new cause of action is unavailing.
Defendants also contend that plaintiff Rishell’s tort
claim, insofar as it relates to the State Court Action, is barred
by the statute of limitations.

(Docket No. 20 at p. 9-11.)

The

Court is mindful that an order of dismissal at the 12(b)(6) stage

Civil No. 13-1113 (FAB)

13

may be based on a statute of limitations defense only if the
documents considered “show beyond doubt that the claim is asserted
out of time.” Rodi v. Southern New England School of Law, 389 F.3d
5, 17 (1st Cir. 2004).

Pursuant to Puerto Rico law, the statute of

limitations for tort claims is one year.

P.R. Laws Ann. tit. 31,

§ 5298(2). The prescriptive period begins to run “when the injured
party knew or should have known of the injury and of the likely
identity of the tortfeasor.”

Tokyo Marine and Fire Ins. Co., Ltd.

v. Perez & Cia., de Puerto Rico, Inc., 142 F.3d 1, 3 (1st Cir.
1998). The alleged tortious conduct by Munich related to the State
Court Action occurred between October and December, 2011.
No. 11 at pp. 6-8.)

(Docket

Plaintiff Rishell, however, did not learn of

his injury until after February 13, 2013, when MCS denied his
request for indemnification.

(Docket No. 11 at ¶ 55.)

Since the

amended complaint including the State Court Action claim was filed
on June 3, 2013, plaintiff’s tort claim regarding the State Court
Action was timely brought and withstands the motion to dismiss
based on statute of limitations.
Nevertheless, because Rishell fails to state a facially
plausible tort claim for relief against Munich and MCS, Count I is
DISMISSED WITH PREJUDICE.

Civil No. 13-1113 (FAB)
B.

14

Count II: Plaintiff Rishell’s Claim that Defendant MCS
Breached its Bylaws
Defendant MCS contends that it did not breach its bylaws

with respect to its refusal to indemnify Rishell for his legal
expenses associated with the Investigation and the State Court
Action because (1) the conditions necessary for indemnification
have not been satisfied, and (2) Rishell’s request for advancement
of legal fees is unreasonable.
pp. 3-9.)

(Docket Nos. 8 at pp. 5-16; 20 at

In Puerto Rico, when an employment agreement references

the company’s bylaws, they are considered part of the contract.
See Sellosse v. Fund. Educ. Ana G. Mendez, 22 P.R. Offic. Trans.
498, 513-14 (P.R. 1988).

Plaintiff Rishell’s employment contract

explicitly states that defendant MCS would maintain indemnification
provisions in its bylaws that were at least as good as the ones in
place on the effective date of the contract.
p. 6 sec. 14.)

(Docket No. 1-1 at

Thus, the Court will examine whether defendant MCS

breached its bylaws pursuant to Puerto Rico law governing breach of
contract.
“To properly assert a claim for breach of contract, a
party must sufficiently allege (1) a valid contract, (2) a breach
of that contract, and (3) resulting damages.

First Med. Health

Plan, Inc. v. CaremarkPCS Caribbean, Inc., 681 F.Supp.2d 111, 116
(D.P.R. 2010) (internal citation omitted).

Neither party disputes

Civil No. 13-1113 (FAB)

15

that the bylaws became a part of the valid employment contract.
(See Docket Nos. 1, 8.)

The parties do dispute, however, the

applicability of the bylaw governing indemnification of legal
expenses and whether or not defendant MCS breached the bylaws when
it refused to indemnify Rishell.
First, defendant MCS argues that bylaw 6.1 provides for
indemnification only after a final disposition of the proceedings
at issue, and it therefore does not apply to plaintiff’s claims.
(Docket No. 8 at p. 9.)

Plaintiff Rishell contends that bylaw 6.1

provides an immediate right to indemnification for liability and
expenses incurred in connection with an applicable proceeding, and
that it does not include a final resolution or success requirement.
(Docket No. 26 at p. 8.)

Because plaintiff properly alleged that

he has already incurred liability and expenses for proceedings
contemplated by the bylaw, he argues, MCS’s refusal to indemnify
him

for

the

same

constitutes

a

breach

of

the

bylaws.

Id.

Bylaw 6.1 imposes an obligation on MCS to (1) “indemnify and hold
harmless, to the fullest extent permitted by applicable law,”
(2) “any person who was or is made or is threatened to be made a
party

or

who

is

otherwise

involved

in

any

action,

suit

or

proceeding,” (3) “against all liability and loss suffered and
expenses (including attorney’s fees) reasonably incurred,” (4) “but
only if such person acted in good faith and in a manner which he or

Civil No. 13-1113 (FAB)
she

reasonably

16

believed

Corporation . . . .”

was

in

the

best

interests

of

the

(Docket No. 1-2 at p. E-8, sec. 6.1.)

Bylaw 6.2, in contrast, obliges MCS to “pay the expenses (including
attorney’s fees) incurred in defending any proceeding in advance of
its final disposition . . . .” Id. at sec. 6.2.
Puerto Rico law requires enforcing the literal meaning of
the contract when the terms are unambiguous.

P.R. Laws Ann.

tit. 31, § 3471; see Entact Servs., LLC v. Rimco, Inc., 526
F.Supp.2d 213, 221 (D.P.R. 2007).

A contract is unambiguous when

it can “be understood in one sense alone, without leaving any room
for doubt, controversies or difference[s] of interpretation . . .”
Exec. Leasing Corp. v. Banco Popular de Puerto Rico, 48 F.3d 66, 69
(1st Cir. 1995) (quoting Catullo v. Metzner, 834 F.2d 1075, 1079
(1st Cir. 1987)).

When construing a contract in Puerto Rico, the

stipulations “should be interpreted in relation to one another,
giving to those that are doubtful the meaning which may appear from
the consideration of all of them together.”

P.R. Laws. Ann.

tit. 31, § 3475; Entact Servs., LLC, 526 F.Supp.2d at 221-22
(D.P.R. 2007) (interpreting a car rental contract statement on
payment based on the other clauses in the contract).
The Puerto Rico Supreme Court has not addressed corporate
indemnification.

Because the Puerto Rico Law of Corporations is

modeled after the Delaware Law of Corporations, the Court looks to

Civil No. 13-1113 (FAB)

17

Delaware law for guidance when addressing the parties’ arguments.
See Marquis Theatre Corp. v. Condado Mini Cinema, 846 F.2d 86, 91
(1st Cir. 1988) (looking to Delaware law to interpret Puerto Rico
law governing the business judgment rule); Wiley v. Stipes, 595 F.
Supp. 2d 179, 185 (D.P.R. 2005) (looking to Delaware law to
interpret

Puerto

Rico

law

governing

demand

futility

in

a

shareholder derivative action).
After examining the contract as a whole, the Court
determines that the indemnification bylaw unambiguously requires a
final disposition of the proceeding for which expenses are sought.
Bylaw 6.1 provides indemnification rights only if the person
seeking such rights “acted in good faith and in a manner which he
or she reasonably believed was in the best interests of the
Corporation.”
this

condition

(Docket No. 1-2 at p. E-8, sec. 6.1.)
requires

the

party

seeking

On its face,

indemnification

to

establish that he acted in good faith with regard to the related
proceedings, which in turn presupposes a final disposition in the
proceeding that would allow a factfinder to determine whether good
faith was exercised. Moreover, the bylaw immediately subsequent to
6.1 explicitly provides for payment of expenses incurred during a
proceeding “in advance of its final disposition.” Id. at sec. 6.2.
Bylaw 6.1, in contrast, does not contain language specifying that
indemnification is available “in advance of [] final disposition.”

Civil No. 13-1113 (FAB)

18

See 31 L.P.R.A. § 3475 (“The stipulations of a contract should be
interpreted in relation to one another, giving to those that are
doubtful the meaning which may appear from the consideration of all
of them together.”)

To the contrary, permitting a party to

exercise his or her right to indemnification prior to a final
disposition of the proceeding at issue would render the good faith
requirement meaningless. See Majkowski v. Am. Imaging Mgmt. Serv.,
LLC, 913 A.2d 572, 586 n.34 (Del. Ch. 2006) (citing R. Franklin
Balotti & Jesse A. Finklestein, Delaware Law of Corporations and
Business Organizations § 4.24 (3d ed. 2006) for the proposition
that “an indemnification dispute generally cannot be resolved until
after the merits of the underlying controversy are decided because
the good faith standard requires a factual inquiry into the events
that gave rise to the lawsuit.”)
with

the

entire

contract

Reading bylaw 6.1 in conjunction

shows

unambiguously

that

a

final

resolution is required in order to satisfy the good faith condition
of the indemnification right.
Puerto Rico and Delaware corporate law also support this
reading of the contract. The language of bylaw 6.1 closely mirrors
that of the Puerto Rico Law of Corporations provision concerning
corporate indemnification.
This

provision

See P.R. Laws Ann. tit. 14, § 5141.

specifically

states

that

a

corporation

“may

compensate any person who is” party to “any imminent, pending, or

Civil No. 13-1113 (FAB)

19

resolved” proceeding. Id. § 3568(a) (emphasis added). Bylaw 6.1’s
language,

in

contrast,

does

not

include

the

word

“pending,”

indicating a narrower scope of applicability than that provided by
section 3568(a).

Indeed, Delaware courts considering claims for

corporate indemnification presuppose that a final disposition of an
indemnifiable proceeding has occurred.

See Kaung v. Cole Nat.

Corp., 884 A.2d 500, 509 (Del. 2005) (“Whether a corporate officer
has a right to indemnification is a decision that must necessarily
await the outcome of the investigation or litigation.”); Paolino v.
Mace Sec. Int’l., Inc., 985 A.2d 392, (Del. Ch. 2009) (“It is
generally premature to consider indemnification prior to the final
disposition of the underlying action.”).
Because

plaintiffs

fail

to

allege

that

a

final

disposition of the Investigation or the State Court Action has
occurred, or to put forth any facts supporting the conclusory
allegation that Rishell acted in good faith, plaintiff’s claim that
MCS breached its bylaws fails.

At this time the Court does not

find that defendant MCS breached its bylaws when it refused to
indemnify plaintiff Rishell for legal expenses associated with the

Civil No. 13-1113 (FAB)

20

Investigation and State Court Action, and plaintiff’s claim is
DISMISSED WITHOUT PREJUDICE.2
C.

Count III:
Plaintiff Rishell’s Breach of Employment
Contract Claim
Additionally,

contract

plaintiff

Rishell

claim

defendant

MCS

against

for

brings

a

failing

breach
to

of

provide

plaintiff Rishell the indemnification rights that were in place at
the time of the formation of his employment agreement.

2

(Docket

The Court points out to plaintiffs that they again fail to
allege that the expenses for which indemnification is sought were
reasonable. “[A]ll contracts for advancement and indemnification
are subject to an implied reasonableness term.” Reddy v. Elec.
Data Sys. Corp., No.CIV.A.19467, 2002 WL 1358761, at *5 (Del. Ch.
2002) (citing Citadel Holding Corp. v. Roven, 603 A.2d 818, 823
(Del. 2002)). The indemnification provision covers “all liability
and loss suffered and expenses (including attorneys’ fees)
reasonably incurred by” the current or former director. (Docket
No. 1-2 at p. E-8 sec. 6.1.) The reasonableness of an attorney’s
hourly rate is usually measured against what is typical in the
local community, with allowances for increases for out-of-town
specialists performing work that local attorneys are unable to do.
Maceira v. Pagan, 698 F.2d 38, 40 (1st Cir. 1983).
Recently,
Puerto Rico lowered requested attorney’s fees to $225 an hour for
out-of-court work and $250 an hour for in-court work based on the
market rates in the district. Crispin-Taveras v. Municipality of
Carolina, No. 07-2017, 2012 WL 967413, at *3, *5 (D.P.R. 2012)
(awarding legal fees for the prevailing lawyers in a 42 U.S.C.
§ 1983 case at reduced rates and decreased hours because it was
unnecessary to have three lawyers on a “relatively straightforward
police brutality case.”); see also Guillemard-Ginorio v. Contreras,
603 F. Supp. 2d 301, 313-14, 316 (D.P.R. 2009) (finding that an
hourly rate of $330 for out-of-court work and $350 for in-court
work was reasonable for an extremely experienced Boston attorney
appearing in an especially difficult political discrimination case,
and noting that fees for paralegals are generally capped at $50 an
hour in Puerto Rico). Thus, were the bylaws applicable at this
stage, plaintiffs’ claim would fail for lack of reasonableness.

Civil No. 13-1113 (FAB)
No. 11 at pp. 17-18.)

21
As stated earlier, “[t]o properly assert a

claim for breach of contract, a party must sufficiently allege (1)
a valid contract, (2) breach of that contract, and (3) resulting
damages.”

First Med. Health Plan, Inc., 681 F. Supp. 2d at 116

(internal citation omitted).

The fact that defendant MCS and

plaintiff Rishell made the bylaws part of a valid employment
contract is not in dispute.

(See Docket Nos. 11, 8.)

The Court

found above, however, that the claim that defendant MCS breached
its bylaws fails to withstand the motion to dismiss.

Therefore,

plaintiff Rishell’s breach of contract claim must also fail at this
time.

The Court accordingly DISMISSES WITHOUT PREJUDICE plaintiff

Rishell’s breach of contract claim.
D.

Count IV: Plaintiff Rishell’s Request for Declaratory
Judgment
Plaintiff Rishell also requests that this Court issue a

declaratory judgment that he should be immediately indemnified and
held harmless in connection with the Investigation and State Court
Action.
Act

(Docket No. 11 at pp. 18-19.)

gives

judgments.

federal

courts

The Declaratory Judgment

jurisdiction

28 U.S.C. § 2201.

to

issue

declaratory

It “confers a discretion on the

courts rather than an absolute right upon the litigant.” Wilton v.
Seven Falls Co., 515 U.S. 227, 287 (1995).

It “created no new

rights, but rather created a new remedy with which to adjudicate

Civil No. 13-1113 (FAB)
existing rights.”

22

Universal Ins. Co. v. Office of Ins. Comm’r.,

No. 12-1639, 2012 WL 4894668, at *4 (D.P.R. 2012) (quoting Bourazak
v. N. River Ins. Co., 379 F.2d 530, 533 (7th Cir. 1967)).
courts

have

significant

discretion

when

deciding

District

whether

a

declaratory judgment is appropriate.

De Novellis v. Shelala, 124

F.3d 298, 312-14 (1st Cir. 1997).

In this case, declaratory

judgment is inappropriate because the plaintiffs fail to state a
claim upon which relief can be granted.

Accordingly, the Court

DECLINES to issue a declaratory judgment.
E.

Count V: Plaintiff Rishell’s Claim for Fees on Fees
Plaintiff Rishell requests an award of fees on fees for

the cost of filing and pursuing this action.
at p. 19.)

(Docket No. 11

Section 6.3 of MCS’ bylaws states:
If a claim for indemnification or payment of
expenses under this Article is not paid in
full within sixty (60) days after a written
claim therefor has been received by the
Corporation, the claimant may file suit to
recover the unpaid amount of such claim and,
if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting
such claim.
In any such action the
Corporation shall have the burden of proving
that the claimant was not entitled to the
requested
indemnification or
payment
of
expenses under applicable law.

(Docket No. 1-2 at p. E-8 sec. 6.3.)

Defendant MCS requests that

this claim be dismissed because it is dependent upon a successful
claim for breach of bylaws.

(Docket No. 8 at p. 18.)

The Court

Civil No. 13-1113 (FAB)

23

agrees. Defendant MCS was successful in “proving that the claimant
was not entitled to the requested . . . payment of expenses under
applicable law” at this time.
sec. 6.3.)

(See Docket No. 1-2 at p. E-8

Accordingly, the Court DISMISSES WITHOUT PREJUDICE

plaintiff Rishell’s claim for fees on fees.
F.

Count VI: Plaintiff Diana Rishell’s Tort Claim
Plaintiff Diana Rishell brings a tort claim against both

defendants pursuant to article 1802 of the Civil Code to recover
her own damages resulting from defendants MCS and Munich’s breach
of

her

husband’s

contract.

(Docket

No.

11

at

pp.

19-20.)

Defendants argue that because they do not owe plaintiff Diana
Rishell any legal duty, her tort claim must fail.
at pp. 14-17.)

(Docket No. 14

The Court found in the Advancement Action — and

continues to be of the mind — that plaintiff Diana Rishell could
claim damages pursuant to article 1802.

See Rishell, 925 F. Supp.

2d at 220 (citing Muñiz-Olivari v. Stiefel Labs., Inc., 174 D.P.R.
813 (P.R. 2008)3 for the proposition that “there is nothing to
prevent that third party, who is an outsider in the contractual
3

In Muñiz-Olivari v. Stiefel Labs., Inc., the federal court
submitted questions to the Puerto Rico Supreme Court through
interjurisdictional certification to clarify this exact issue. The
Puerto Rico Supreme Court responded that damages for suffering and
mental anguish can be sought pursuant to a breach of contract claim
and that a non-party to the contract who the breach directly
affects can also seek damages. Defendants submitted a certified
translation of the opinion to this Court in compliance with Local
Rule 5(g). (Docket No. 8-4.)

Civil No. 13-1113 (FAB)

24

relationship from which the damages claim arises, from claiming
compensation for his [or her] own damages pursuant to article 1802
of the Civil Code.”).
To establish a claim pursuant to article 1802, plaintiff
Diana Rishell must plausibly allege that:
compensable

moral

conduct

breaching

in

(emotional)
its

harm;”

contract

(1) she has “suffered a

(2)

with

defendants’
plaintiff

tortious

Rishell

is

responsible for the harm; and, (3) defendants “committed a tortious
act pursuant to the all-embracing definition we give tortious
actions in [Puerto Rico].”

Santini Rivera, 137 D.P.R.; see also

P.R. Laws Ann. tit. 31, § 5141.

As discussed above, plaintiffs’

complaint fails to plausibly allege that defendant MCS breached
plaintiff Rishell’s employment contract.

Without a plausible

allegation of a breach of contract, therefore, there can be no
valid allegation of tortious conduct.

Plaintiff Diana Rishell’s

claim pursuant to article 1802 must fail, and is DISMISSED WITHOUT
PREJUDICE.
IV.

ATTORNEY’S FEES
Puerto Rico Rule of Civil Procedure 44.1 regarding awards of

attorney’s fees is substantive law to be applied by the United
States District Court sitting in diversity cases. De Leon Lopez v.
Corporacion Insular de Seguros, 931 F.2d 116, 126 (1st Cir. 1991).
Rule 44.1 allows a district court to hold a “losing party who has

Civil No. 13-1113 (FAB)

25

been ‘obstinate’ during the course of a lawsuit” liable for its
adversary’s

attorney’s

fees.

App. III, Rule 44.1(d).

Id.;

P.R.

Laws

Ann.

tit.

32,

To find that a party has been obstinate,

the Court must determine that party “to have been unreasonably
adamant or stubbornly litigious, beyond the acceptable demands of
the litigation, thereby wasting time and causing the court and the
other litigants unnecessary expense and delay.” De Leon Lopez, 931
F.2d at 126.
The

Court

finds

that

plaintiffs’

pursuit

of

repetitive,

piecemeal litigation qualifies as obstinate litigation.
case,

plaintiffs

stubbornly

attempted

again

to

In this

demand

more

attorney’s fees while their previous complaint, seeking similar
relief, remained pending.

Once their previous complaint was

dismissed with prejudice, plaintiffs filed an amended complaint in
this

case

that

largely

repackaged

the

same

claims,

without

resolving many of the defects in their previous pleadings, of which
plaintiffs

had

ample

notice.

This

litigation

has

generated

additional legal expenses — from attorneys billing at rates well
above the local average — that plaintiffs tack onto the relief
sought from defendants. Plaintiffs’ filings in this case constitute
a

premature,

barefaced

attempt

to

recover

expenses to which they are not entitled.

extravagant

legal

They have wasted the time

of this Court and opposing parties, and caused “unnecessary expense

Civil No. 13-1113 (FAB)
and delay.”

26

De Leon Lopez, 931 F.2d at 126.

Accordingly, pursuant

to Rule 44.1, the Court awards attorney’s fees to defendants in the
amount of $5,000.
IV.

CONCLUSION
For the reasons expressed above, the Court GRANTS defendants’

motion to dismiss for failure to state a claim.

Count I is

DISMISSED WITH PREJUDICE; Counts II, III, V, and VI are dismissed
WITHOUT PREJUDICE.

The Court DECLINES to issue a declaratory

judgment as sought in Count IV.
entirety.

Plaintiffs

are

This case is DISMISSED in its

further

ordered

to

pay

defendants

attorney’s fees in the amount of $5,000. Judgment shall be entered
accordingly.
IT IS SO ORDERED.
San Juan, Puerto Rico, November 14, 2013.

s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE