Opinion
14-P-280
05-18-2015
GERIANNE COHEN, conservator, & another v. BROKERS' SERVICE MARKETING GROUP II, LLC.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
On January 11, 2010, the plaintiffs, Albert Cohen, Harold Cohen, and David Andelman as executor of the estate of Julie Cohen (collectively, the Cohens), filed a complaint in the Superior Court alleging that the defendants, Brokers' Service Marketing Group II, LLC (Brokers'), Allianz Life Insurance Company of North America (Allianz), Sun Life Financial, Inc. (Sun Life), Sarah Ely Baldo, and John Baldo, had committed various acts resulting in the embezzlement and conversion of approximately $1.6 million of the Cohens' retirement funds. At an early stage in the proceedings, both claims against Brokers', which asserted the aiding and abetting of John Baldo's fraud, were ordered dismissed on the ground that there was no allegation that Brokers' had knowledge of the scheme. Many of the claims against the other defendants survived their motions to dismiss. In April, 2012, on the basis of new information learned during the discovery process for the claims against the remaining defendants, the Cohens filed a motion to vacate the order of dismissal of the claims against Brokers'. Two months later, the Cohens made a motion to file a second amended complaint, to revise and supplement the previously dismissed aiding and abetting claims against Brokers', and add two new claims against Brokers' alleging violations of G. L. c. 93A. The motion to vacate was denied in a memorandum and order that also implicitly denied the motion to amend, and the Cohens appeal. We affirm in part and reverse in part.
The plaintiffs' first amended complaint added Sun Life Assurance Company of Canada (U.S.) as an additional defendant.
During the interim between the order of dismissal of the claims against Brokers' and the filing of the motion to vacate, Harold Cohen passed away, and David Andelman was appointed executor of his estate. During that same period, Gerianne Cohen was substituted for Albert Cohen as his conservator, due to Albert's advancing dementia.
Prior to the filing of the notice of appeal, the plaintiffs had stipulated to the dismissals of each of the other defendants and orders of dismissal entered accordingly. Although it appears that no final judgment of dismissal has entered on the only remaining claims, those against Brokers', we reach the merits of the appeal in our discretion. See Lalchandani v. Roddy, 86 Mass. App. Ct. 819, 820 n.2 (2015).
1. Background. Viewing the allegations in the light most favorable to the Cohens, Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 223 (2011), the relevant facts are as follows. Brokers' is a company that functions as a managing general agent for insurance companies that do not employ their own sales forces. In practice, Brokers' vouches for the character and reputation of independent agents to its affiliated insurance companies, and then acts as intermediary in facilitating paperwork and communication between the insurance companies and the agents selling the companies' products. Acting in this capacity, in the summer of 2005, Brokers' signed agent applications for John Baldo (Baldo), thereby allowing him to sell annuities offered by Allianz. In signing the application, Brokers' certified that it had investigated Baldo's "character, general reputation and background" and was satisfied that Baldo was "trustworthy and qualified to act as an agent." In fact, Baldo had a criminal history of credit card fraud. Beginning in December, 2005, and continuing through August, 2006, Baldo induced the Cohens to write checks payable to his investment company, purportedly for the purchase of Allianz and Sun Life annuities. Brokers' processed the contract applications and facilitated the transfer of the Cohens' funds. Baldo subsequently embezzled the funds from the annuity accounts.
Brokers' had also agreed to function as managing general agent for Sun Life, and processed Baldo's application to become an agent for Sun Life.
The amount Baldo embezzled from the surrender of the annuity accounts was only a portion of the total amount Baldo took from the Cohens. The rest he stole by directly cashing the Cohens' checks.
In December, 2005, Brokers' received notification that Baldo had forged a signature on a client's check and had embezzled the proceeds. The letter was written by an attorney, and further informed Brokers' that Baldo had sold an insurance policy to the client by making false representations of the terms of the policy. During this same time frame, a former business associate of Baldo informed Brokers' that Baldo "had been living a life of lies and was a thief." Brokers' did not disclose this information to Sun Life, Allianz, or the Cohens.
In their initial and first amended complaint, the Cohens allege that Brokers' committed two counts of aiding and abetting the commission of a fraudulent scheme. In support of this allegation, the Cohens state only that Brokers' negligently or recklessly processed the Cohens' annuity contracts and failed to conduct an adequate investigation of Baldo's background and character. The judge allowed Brokers' motion to dismiss on the ground that the complaint did not allege Brokers' had knowledge of Baldo's tortious acts. In their subsequent motions to vacate the order of dismissal and amend their complaint against Brokers', the Cohens further allege the specific information detailed above, which they learned during the ongoing case against the other defendants. On May 17, 2013, the judge denied the motion to vacate, again concluding that the Cohens had failed to show sufficient knowledge on the part of Brokers' to sustain the aiding and abetting claims. As to the newly proposed c. 93A claims, the judge reached the same conclusion, noting that the claims were based at most on allegations of negligence and were merely derivative of the failed aiding and abetting claims.
2. Discussion. Because the denial of the Cohens' motion to vacate was, in substance, also a denial of their motion to amend their complaint as to Brokers', we review it as such. We review the denial of a motion to amend for abuse of discretion. Doherty v. Admiral's Flagship Condominium Trust, 80 Mass. App. Ct. 104, 112 (2011). Reasons for denying a motion to amend "include futility, undue delay, and prejudice to the opposing party." Ibid. See Mass.R.Civ.P. 15(a), 365 Mass. 761 (1974) (with respect to amending a pleading, "leave shall be freely given when justice so requires"). A motion to amend is futile if the proposed amendment fails to state a claim upon which relief may be granted. Jessie v. Boynton, 372 Mass. 293, 295 (1977). To move beyond the pleadings stage, the factual allegations in the proposed amended complaint "must be enough to raise a right to relief above the speculative level . . . [based] on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), quoting from Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
We accordingly disagree with the Cohens' contention that we should conduct de novo review of the rulings of the motion judge.
a. Aiding and abetting. To survive a motion to dismiss a claim for aiding and abetting the commission of a tort, the Cohens must sufficiently allege that: "(1) [Baldo] committed the relevant tort; (2) [Brokers'] knew he was committing the tort; and (3) [Brokers'] actively participated in or substantially assisted in his commission of the tort." Go-Best Assets Ltd. v. Citizens Bank of Mass., 463 Mass. 50, 64 (2012) (Go-Best), citing Arcidi v. National Assn. of Govt. Employees, 447 Mass. 616, 623-624 (2006), and Restatement (Second) of Torts § 876(b) (1977). The Cohens' initial complaint contains no allegations concerning the second and third prongs of the Go-Best test (knowledge and participation). Although the proposed amended complaint sets forth with more specificity the allegations of aiding and abetting, a void remains concerning Brokers' actual knowledge that Baldo was stealing money from the Cohens. The amended complaint likewise fails to allege that Brokers' actively participated in or assisted in the commission of the tort. Although Brokers' allegedly processed paperwork and facilitated fund transfers, there are no allegations that Brokers' participated in or assisted Baldo in embezzling money from the Cohens. The judge correctly denied the Cohens' motion to amend their complaint as to the aiding and abetting claims.
b. Violations of c. 93A. General Laws c. 93A, § 2, makes unlawful any unfair or deceptive acts or practices in the conduct of any trade or commerce. Section 9 of the chapter confers a private cause of action upon individual consumers suffering loss as a result of such prohibited practices. G. L. c. 93A, § 9. To succeed in making such a claim, a consumer must show: (1) an unfair or deceptive act or practice committed by the business; (2) a loss or injury; and (3) a causal connection between the deceptive act or practice and that loss or injury. See Iannacchino v. Ford Motor Co., 451 Mass. at 629; Casavant v. Norwegian Cruise Line Ltd., 460 Mass. 500, 503 (2011).
In their proposed second amended complaint, the Cohens allege that Brokers' committed unfair and deceptive business and insurance practices by, inter alia, vouching for the character of Baldo to Allianz and Sun Life, despite its knowledge that he had a prior criminal record for fraud; continuing to act as an intermediary for Baldo even after receiving reports of his forgery, embezzlement, and pattern of lies; and in failing to disclose these reports to Allianz, Sun Life, and the Cohens. The Cohens further allege that these practices caused them to suffer economic damages. For these reasons, they argue that the motion judge erred as a matter of law in his failure to allow their motion to amend. We agree.
As relevant here, the first amended complaint was not substantively different from the initial complaint. Neither asserted c. 93A claims against Brokers'.
In considering whether a particular business practice is unfair or deceptive, the court looks to: "(1) whether the practice . . . is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; [and] (3) whether it causes substantial injury to consumers (or competitors or other businessmen)." Barron Chiropractic & Rehabilitation, P.C. v. Norfolk & Dedham Group, 469 Mass. 800, 811 (2014), quoting from PMP Assocs., Inc. v. Globe Newspaper Co., 366 Mass. 593, 596 (1975). "A failure to disclose any fact, the disclosure of which may have influenced a person not to enter into a transaction, is a violation of c. 93A." Grossman v. Waltham Chem. Co., 14 Mass. App. Ct. 932, 933 (1982). "The unfairness of an act or practice is determined from all the circumstances." Herman v. Admit One Ticket Agency LLC, 454 Mass. 611, 616 (2009).
The unfair or deceptive acts alleged on the part of Brokers' can most accurately be described as failures to disclose allegations of fraud and embezzlement by Baldo both to potentially affected insurance consumers and to Sun Life and Allianz, who, on the basis of the same information, would most likely have taken steps to terminate their relationship with him. Had Brokers' acted in some fashion (whether by investigating or, absent an investigation, simply informing interested parties), it is foreseeable that the Cohens would not have suffered the losses they did. Given the reports it had received about Baldo, particularly the notification, in writing, that he had stolen money from another client, Brokers' inaction could fairly be deemed unfair and unethical, and a foreseeable cause of the Cohens' injuries. See Iannacchino v. Ford Motor Co., 451 Mass. at 630 n.12.
In view of our disposition, we need not address, at this stage, whether Brokers' had a duty to investigate and leave that determination to a more developed record.
Brokers' counters that without a viable aiding and abetting claim, the Cohens' c. 93A claims must fail. Although it is well established that negligence, without more, does not constitute an unfair or deceptive practice under c. 93A, see Klairmont v. Gainsboro Restaurant, Inc., 465 Mass. 165, 176-177 (2013), "the statutory words 'unfair and deceptive practices' . . . are not limited by traditional tort and contract law requirements." Slaney v. Westwood Auto, Inc., 366 Mass. 688, 693 (1975), quoting from Commonwealth v. DeCotis, 366 Mass. 234, 244 n.8 (1974). Rather, c. 93A is "a statute of broad impact which creates new substantive rights and provides new procedural devices for the enforcement of those rights." Ciardi v. F. Hoffmann-La Roche, Ltd., 436 Mass. 53, 58 (2002) (citation omitted). Here, Brokers' is alleged to have engaged in a business practice of failing to disclose or otherwise act upon reports of fraud and embezzlement on the part of an insurance agent, to the most certain detriment of consumers. A fact finder could determine that Brokers' failures to act in the face of likely and substantial injury to Baldo's clients, as alleged, constituted violations of the broad remedial language of c. 93A. See Auto Flat Car Crushers, Inc. v. Hanover Ins. Co., 469 Mass. 813, 825 (2014) ("'[T]he Legislature's manifest purpose' in enacting [c. 93A] was to deter misconduct and to 'encourage vindicative lawsuits'") (citations omitted).
Brokers' further contention that the Cohens' c. 93A claims should be foreclosed because they neither had direct contact with Brokers' in completing their transactions with Baldo and the insurance companies, nor, in fact, even knew of Brokers' existence or the role it played in the insurance transactions, is likewise without merit. There is no requirement that a plaintiff establish that he or she is in privity of contract or is in a consumer relationship with the defendant to bring a c. 93A claim. See Burnham v. Mark IV Homes, Inc., 387 Mass. 575, 581 (1982) (buyer of modular home could sue manufacturer); Maillet v. ATF-Davidson Co., 407 Mass. 185, 190-191 (1990) (injured printing press operator could maintain suit against manufacturer); Ciardi v. F. Hoffmann-La Roche, Ltd., 436 Mass. at 60 (indirect purchasers may bring c. 93A claim against company for price fixing). See also Kattar v. Demoulas, 433 Mass. 1, 14-15 (2000) ("Parties need not be in privity for their actions to come within the reach of c. 93A").
Based on all the circumstances, the proposed second amended complaint alleges sufficient facts to demonstrate unfair and deceptive practices by Brokers' causing foreseeable injury to the Cohens.
c. Prejudice. Brokers' claims that if the motion to amend were allowed, it would suffer undue prejudice, as many years have passed since the filing of the complaint. Both of the Cohen brothers have also passed away.
Harold Cohen died on May 21, 2011; counsel for the Cohens represented at oral argument that Albert Cohen passed away following the filing of this appeal.
While we agree that significant time has passed, the judge did not rest his decision on this ground, noting in his memorandum of decision on the motion to vacate that "[t]he lateness of the effort to amend will not be held against [the Cohens]," due to the circumstances requiring the substitution of the party plaintiffs and the time lost in awaiting a decision on the motion to dismiss. The allegations supplementing the second amended complaint were also unavailable to the Cohens at the time they filed their initial complaint. In short, the delay in moving to amend the complaint was beyond the control of the Cohens. Given these peculiar circumstances, we conclude that the motion to amend should have been allowed as to the c. 93A claims. See Mass.R.Civ.P. 15(a) ("leave [to amend] shall be freely given when justice so requires").
3. Conclusion. The order dated May 16, 2013, denying the motion to vacate the order to dismiss the aiding and abetting claims against Brokers' is affirmed. The matter is remanded for entry of an order allowing the motion to amend as to counts XIX and XXI of the proposed second amended complaint alleging violations of c. 93A by Brokers', and for further proceedings consistent with this memorandum and order.
So ordered.
By the Court (Katzmann, Sullivan & Blake, JJ.),
The panelists are listed in order of seniority.
Clerk Entered: May 18, 2015.