Opinion
No. 11–P–1490.
2012-05-29
Alan S. ADAMS & others v. Gary P. RICHARD & others.
By the Court (KANTROWITZ, COHEN & MEADE, JJ.).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
In this civil action, the plaintiffs, purchasers of stock in Sun–Up Products, Inc. (Sun–Up), a start-up company incorporated in Massachusetts by defendant Gary P. Richard, contend that their investments in Sun–Up were procured by means of untrue statements and omissions of material facts. After an eight-day bench trial in the Superior Court, the trial judge entered a judgment (1) in favor of the defendants on all six counts of the plaintiffs' second amended complaint, including count VI, alleging violation of the Uniform Securities Act, G.L. c. 110A, § 410( a )(2); and (2) in favor of three plaintiffs against whom the defendants had asserted counterclaims for breach of fiduciary duty. Before us are the parties' cross appeals from the judgment,
as well as a separately docketed appeal taken by the defendants from an order of a single justice of this court allowing the plaintiffs to file a late notice of appeal. For the following reasons, we affirm the order of the single justice, vacate the judgment as to the defendants' counterclaims and count VI of the plaintiffs' complaint, and remand the case for reconsideration of the plaintiffs' Uniform Securities Act claim and the defendants' counterclaims, under the appropriate legal standards.
The plaintiffs make no argument as to the dismissal of counts I–V of their complaint; any such argument is therefore waived.
1. Timeliness of the plaintiffs' appeal. Given the breadth of discretion granted to the trial judge in such matters, we cannot say that he abused his discretion in refusing to dismiss the plaintiffs' appeal. See Karen Constr. Co. v. Lizotte, 396 Mass. 143, 146 (1985). Likewise, we cannot say that the single justice abused his broad discretion pursuant to Mass.R.A.P. 14(b), as amended, 378 Mass. 939 (1979), in allowing the plaintiffs to renew their notice of appeal.
We note at the outset that the judge adopted hundreds of findings proposed by the parties, and, rather than summarizing them or organizing them in a coherent fashion, simply identified the numbers of the proposed findings that he accepted. While we recognize that the demands on trial judges are many, findings should be made in a manner that fulfills the objectives of Mass.R.Civ.P. 52(a), as amended, 423 Mass. 1402 (1996), including facilitating appellate review. See Cormier v. Carty, 381 Mass. 234, 236–237 (1980).
2. Plaintiffs' appeal from the judgment on count VI. The plaintiffs argue that the judge's application of the law to the facts found was erroneous in two respects: (a) the judge erroneously placed the burden of proof upon the plaintiffs to prove that Richard knew or, in the exercise of reasonable care, could have known of untruths and omissions in the information provided to the plaintiffs about patent issues potentially affecting the development of Sun–Up's products; and (b) the judge erroneously concluded that it was not a “material” omission for the defendants to fail to disclose their December 24, 2004, agreement that investment monies would first be allocated to reimbursing funds loaned to Sun–Up by another company owned and operated by the Richard family, Banner Industries of New England, Inc. (Banner).
a. Burden of proof. In his discussion of the patent issues claim, the judge discussed the plaintiffs' various theories of recovery together, placing the burden upon the plaintiffs to show that Richard knew or reasonably should have known that the information provided to them as prospective investors was untrue or incomplete. While the judge correctly placed the burden of proof upon the plaintiffs with respect to their other claims, count VI stands on a different footing. Section 410( a )(2) of the Uniform Securities Act plainly requires the seller of the security to “sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission.” Because we cannot be assured that the judge's misallocation of the burden of proof played no role in his decision, and because there was evidence to support a different conclusion, the judge's conclusion that Richard cannot be liable for failing to disclose information that he neither knew nor should have known must be reconsidered under the proper burden of proof. See Germain v. Girard, 72 Mass.App.Ct. 409, 415 (2008). See also Horvitz v. Commissioner of Rev., 51 Mass.App.Ct. 386, 396 (2001).
b. Materiality. The judge's conclusion that any failure to disclose the defendants' plan to reimburse Banner was not “material” also must be revisited for two reasons: (1) in order to explain the apparent inconsistency of this ruling with the judge's finding (adopted verbatim by the judge from “Plaintiffs' Proposed Finding of Fact No. 74”) that “[t]he existence of this December 24, 2004 Agreement is a material fact which should have been made clear to all of the potential investors, particularly those who it was anticipated would be tendering checks in January 2005,” and (2) to consider the issue using the applicable objective standard. See Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 57–58 (2004).
The judge's rationale that “[t]he [p]laintiffs, for the most part, were professionals who had previously engaged in similar investments” is inapplicable to a claim under the Uniform Securities Act. See Marram, supra at 53 (sophistication of buyer is irrelevant). Likewise, later behavior by three of the ten investors does not directly bear on the question whether the information would have been material to a reasonable investor at the time the plaintiffs were considering whether or not to buy shares in Sun–Up.
3. Counterclaims. Without additional explanation from the judge, we are not in a position to review his dismissal of the defendants' counterclaims. On remand, the judge should address this aspect of his decision, with reference to both the essential elements of the claim—existence of fiduciary duty, breach, damage, and causation—see Hanover Ins. Co. v. Sutton, 46 Mass.App.Ct. 153, 164 (1999), and the pertinent facts found.
Conclusion. In Docket No. 11–P–1490, the order of the single justice is affirmed. In Docket No. 11–P–1609, the judgment is vacated and the findings are set aside as to count VI of the plaintiffs' second amended complaint and as to the defendants' counterclaims, and the case is remanded to the Superior Court for further proceedings consistent with this memorandum and order. In all other respects the judgment is affirmed.
So ordered.