Opinion
Civil Action No. 03-CV-10756-RGS.
February 11, 2005
MEMORANDUM AND ORDER ON DEFENDANTS' MOTIONS TO DISMISS
On April 23, 2003, Paula Perotta, as Trustee of Tory Pines Enterprise Realty Trust, Algen Construction Development LLC, and Torrey Pines Enterprise LLC, filed this Complaint against Summit Home Loans, Inc., Daniel Morris, Frank Dweller, and Caroline Investment, Inc., alleging breach of an agreement to fund the purchase of a golf course. On June 16, 2003, Morris and Dweller moved to be dismissed from the suit, arguing that plaintiffs have failed to allege any basis on which they could be found individually liable. On June 23, 2003, Morris and Dweller, joined by Summit Home Loans, filed a second motion to dismiss arguing a lack of personal jurisdiction stemming from plaintiffs' failure to allege the minimum contacts with the forum necessary to satisfy the Massachusetts Long-Arm Statute, G.L. c. 223A, § 3. On July 14, 2003, the court allowed the Morris and Dweller motion to dismiss without prejudice, giving leave to plaintiffs to file an Amended Complaint alleging facts sufficient to state a claim against the defendants in their individual capacities. The court also denied the motion to dismiss for lack of personal jurisdiction without prejudice, pending the completion of discovery. On July 21, 2003, plaintiffs filed an Amended Complaint and on July 31, 2003, Morris and Dweller filed a renewed motion to dismiss. The court denied the motion without prejudice as premature.,
On September 3, 2003, the court held a scheduling conference and bifurcated discovery. Jurisdictional discovery was to be completed by January 30, 2004.
Defendants also filed a motion for sanctions arguing that plaintiffs' amendments were not made in good faith. On August 21, 2003, the court denied the motion.
On June 14, 2004, Summit Home Loans was defaulted for its successive failures to comply with the court's November 21, 2003 Order that it obtain successor counsel. On June 15, 2004, substitute counsel entered an appearance for Summit Home Loans and the court removed the default.
On July 7, 2004, Morris and Dweller renewed their motion to dismiss for failure to state a claim and renewed their motion to dismiss for lack of personal jurisdiction. In their opposition, plaintiffs argued that discovery on jurisdictional matters remained incomplete, and that, in any event, jurisdiction attached to Morris and Dweller because their "activities as agents suffices to confer jurisdiction over the plaintiffs' claims against them as such agents for an undisclosed or partially disclosed principal. . . ." On July 26, 2004, the court ordered the defendants to respond to all outstanding jurisdictional discovery. In doing so, the court sounded a cautionary note, stating that "plaintiffs' theory supporting the existence of jurisdiction over the defendants in their individual capacities appears to confuse personal and corporate liability.See McCarthy v. Azure, 22 F.3d 351, 360 (1st Cir. 1994) (acts performed by a defendant in a corporate capacity do not as a rule provide a basis for personal jurisdiction over a defendant in his individual capacity)."
The original motion to dismiss for lack of personal jurisdiction was brought by Morris, Dweller, and Summit Home Loans. While the renewed motion to dismiss references the original, it is brought solely on behalf of Morris and Dweller. It asks that "the court dismiss the plaintiffs' complaint with prejudice as to any and all claims against them in their individual capacities." There is no pending challenge to the court's jurisdiction over Summit Home Loans.
On February 10, 2005, the court heard oral argument. Morris and Dweller insist that they cannot be held personally liable because the acts alleged in the Amended Complaint were performed in their capacities as employees of Summit Home Loans d/b/a Summit Finance. In the absence of any allegation of fraud or any facts warranting a piercing of the corporate veil, Morris and Dweller contend that there are no grounds upon which a claim of personal liability can be based.
Plaintiffs concede that there is no basis for questioning Summit Home Loans' corporate identity or for alleging any fraudulent acts on defendants' part. Instead, they rely onAtlantic Salmon A/S v. Curran, 32 Mass. App. Ct. 488, 491 (1992), for the proposition that an individual may become personably liable, even when acting on behalf of a corporation, if the identity of the corporation is undisclosed or only partially disclosed. In support of this argument, plaintiffs point to six paragraphs of the Amended Complaint.
11. Dweller approved financing to Algen by letter dated February 24, 2003 [on Summit Finance letterhead] a copy of which is attached hereto and marked "A". Morris, both before and after said letter from Dweller, communicated with Algen and its attorneys to carry forward the mortgage financing.
36. Dweller and Morris, at all times and in all correspondence, merely identified their company "Summit Finance;" at no time did they claim to be agents for or acting on behalf of Summit Home Loans, Inc.
37. Plaintiffs, prior to institution of this action, had never heard of or had actual knowledge of the entity "Summit Home Loans, Inc." Neither the business dealings with Dweller and/or Morris nor their review of the web site for "Summit Finance" disclosed such an entity or claimed that the actions of Dweller or Morris were on behalf of such an entity.
38. The identity of the corporation Summit Home Loans, Inc. was discovered by plaintiffs' counsel in his preparation for drafting of their Complaint in this litigation.
39. The actions of Dweller and Morris were, at most, actions of individuals on behalf of an undisclosed principal or a partially disclosed principal; as such, Dweller and Morris are, individually, parties to the funding contract with plaintiffs and responsible for their loss.
40. The trade name "Summit Finance" is inadequate to put plaintiffs on notice that they were contracting with the corporation Summit Home Loans, Inc."
In Atlantic Salmon, defendant Michael Curran began purchasing quantities of salmon from two Norwegian salmon exporters in 1985. He did so
as a representative of "Boston International Seafood Exchange, Inc.," or "Boston Seafood Exchange, Inc." The salmon purchased by the defendant was sold to other wholesalers. Payment checks from the defendant to the plaintiffs were imprinted with the name "Boston International Seafood Exchange, Inc.," and signed by the defendant, using the designation "Treas.," intending thereby to convey the impression that he was treasurer. Wire transfers of payments were also made in the name of Boston International Seafood Exchange, Inc. The defendant gave the plaintiffs' representatives business cards which listed him as "marketing director" of "Boston International Seafood Exchange, Inc." Advertising placed by the defendant appeared in trade journals under both the names "Boston Seafood Exchange, Inc.," and "Boston International Seafood Exchange, Inc." (indicating in one instance as to the latter that it was "Est: 1982").Atlantic Salmon, 32 Mass. App. Ct. at 489. In truth, no corporation named "Boston International Seafood Exchange, Inc.," or "Boston Seafood Exchange, Inc.," ever existed.
In 1987, after Curran stopped making payment on his salmon purchases, Atlantic Salmon discovered that Boston Seafood Exchange, Inc., was a fictitious entity. Consequently, it filed suit against Curran personally. Curran defended by arguing that he had acted as the agent of another entity, Marketing Designs, Inc., that he had incorporated in 1977 for "the purpose of selling motor vehicles." Marketing Designs, however, had been dissolved in1983, two years before Curran began doing business with Atlantic Salmon. Curran argued that it made "no difference that the plaintiffs thought they were dealing with corporate entities which did not exist, . . . because they were 'aware' that they were transacting business with a corporate entity and not with the defendant individually." Atlantic Salmon, 32 Mass. App. Ct. at 491. The Massachusetts Appeals Court rejected Curran's argument quoting liberally from Professor Mechem's treatise on agency.
The Appeals Court noted that on "December 4, 1987, a certificate was filed with the city clerk of Boston declaring that Marketing Designs, Inc. (then dissolved), was conducting business under the name of Boston Seafood Exchange (not with the designation "Inc." and not also under the name Boston International Seafood Exchange, Inc.)." Atlantic Salmon, 32 Mass. App. Ct. at 489.
The duty rests upon the agent, if he would avoid personal liability, to disclose his agency, and not upon others to discover it. It is not, therefore, enough that the other party has the means of ascertaining the name of the principal; the agent must either bring to him actual knowledge or, what is the same thing, that which to a reasonable man is equivalent to knowledge or the agent will be bound. There is no hardship to the agent in this rule, as he always has it in his power to relieve himself from personal liability by fully disclosing his principal and contracting only in the latter's name. If he does not do this, it may well be presumed that he intended to make himself personally responsible.
1 Mechem on Agency § 1413 (2d ed. 1914). The Appeals Court also cited to Restatement (Second) of Agency (1958). "Unless otherwise agreed, a person purporting to make a contract with another for a partially disclosed principal is a party to the contract." Id. at § 321. As comment (a) to § 321 and the accompanying illustrations make clear, it is not sufficient for the agent to simply disclose that he is acting on behalf of another, he must provide sufficient information about the principal so that its identity can be readily distinguished.
In this case, according to the allegations of the Amended Complaint, Morris and Dweller conducted business with plaintiffs not in the name of Summit Home Loans, Inc., but that of Summit Finance, its registered d/b/a or trade name. There is, as the Appeals Court noted in Atlantic Salmon, a fistful of cases holding that use of a trade name is not a sufficient disclosure of a principal's identity unless in the circumstances the trade name would have no tendency to mislead or deceive. But all of the cases cited by the Appeals Court share a common theme — in each case the trade name was meant to disguise the identity of the principal for some fraudulent purpose, or was asserted to avoid a legitimately incurred debt or obligation, or was injected in a misleading fashion to entice the extension of credit. See W.W. Leasing Unlimited v. Commercial Standard Title Ins. Co., 149 Cal. App. 3d 792, 795-796 (1983) (closely held company "E.D. Jones" used the fictitious trade name "Industrial Telephone Systems" to avoid repurchase obligations under a telephone system contract); J J Builders Supply v. Caffin, 248 Cal. App. 2d 292, 296 (1967) (agent misrepresented his corporate principal as a partnership in which he was personally involved in order to obtain credit); New England Whalers Hockey Club v. Nair, 1 Conn. App. 680, 683-684 (1984) (defendant attempted to avoid a debt by falsely representing himself as an officer of a non-existent corporation); Chambliss v. Hall, 113 Ga. App. 96, 100 (1966) (defendant held himself out as a partner rather than as an employee of the principal); Saco Dairy Co. v. Norton, 35 A.2d 857, 859 (Me. 1944) (defendant purchaser did not disclose that he was only the manager and not the proprietor of a family-owned hotel); Stevens v. Graf, 358 Mich. 122, 124 (1959) (defendant's testimony that he had disclosed the fact of his agency properly discounted where his ulterior purpose was to defraud creditors); Howell v. Smith, 261 N.C. 256, 258 (1964) (defendant never disclosed the fact that he had incorporated the trade name under which he had been doing business); A to Z Rental Center v. Burris, 714 S.W.2d 433, 436 (Tex.Ct.App. 1986) (defendant misled a creditor into believing that he was doing business as a partnership or sole proprietorship rather than as a corporation). Cf. Meyers-Leiber Sign Co. v. W.L. Weirich, 2 Ariz. App. 534, 536 (1966) (acknowledging the general rule, but finding sufficient evidence that plaintiff knew that Northern-Aire Lodge and Country Club and Northern-Aire Development Co. were one and the same entities).
An air of fraud permeated the Atlantic Salmon case and exerted an obvious influence on the Appeals Court's decision.See Atlantic Salmon, 32 Mass. App. Ct. at 489 n. 2 ("On the evidence in this case, one might view with considerable skepticism the good faith of the defendant's claim that he was in fact acting as the agent of Marketing Designs, Inc.").
While in an academic sense, the matter may seem reasonably close, this is not a case in which a strict application of the undisclosed principal rule is required or even desirable. Morris and Dweller did not misrepresent the fact that they were acting as employees of Summit Finance, and that Summit Finance was a Georgia company in the business of financing loans. Summit Finance is the registered trade name of Summit Home Loans, and the latter entity has done nothing to conceal the fact that the two names are interchangeable. Moreover, the names are similar enough in their mutual use of the word "Summit" to rebut any inference that one name is meant to conceal its connection to the other. But most important, unlike the cases cited in Atlantic Salmon, here there is no effort on the part of Summit Home Loans to use Summit Finance to avoid any contractual obligation Morris and Dweller may have incurred on its behalf or to accomplish some other unsavory purpose.
While there is no reason to doubt the good faith of plaintiffs' assertion that they learned of Summit Finance's formal corporate name only after the loan deal went sour, they have failed to offer any explanation as to how their earlier ignorance of this fact impacted either their contractual rights or the negotiations over the loan. The purpose of the undisclosed principal rule is to prevent abuses of the corporate form by defendants seeking to shield themselves from personal liability. To apply the undisclosed principal rule in the circumstances of this case would elevate formalism over substance, and I decline to do so.
In this age of mergers and acquisitions and the proliferation of corporate brands (Is it Exxon or is it Mobil or is it ExxonMobil? Or is it Esso?), the undisclosed principal rule seems out of place in any context other than the devious debtor cases cited in Atlantic Salmon. One can understand why the general financing arm of Summit Home Loans would want to use a name that implied a broader range of commercial interests than the home mortgage market. Things would, of course, be different if Summit Home Loans was attempting to hide behind its Summit Finance trade name.
ORDER
For the foregoing reasons, the Morris and Dweller motion to dismiss for failure to state a claim is ALLOWED. The Morris and Dweller motion to dismiss for lack of personal jurisdiction isMOOT.SO ORDERED.