Commonwealth v. Tradition (North America) Inc. / Jampel

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15-P-1543 Appeals Court
COMMONWEALTH vs. TRADITION (NORTH AMERICA) INC.; RONALD JAMPEL
& others,1 third-party defendants.
No. 15-P-1543.
Suffolk. October 5, 2016. - February 21, 2017.
Present: Meade, Milkey, & Kinder, JJ.
Bonds, Tax-exempt. Contribution. Contract, Performance and
breach, Implied covenant of good faith and fair dealing,
Indemnity, Bidding for contract, Misrepresentation, Unjust
enrichment, Interference with contractual relations,
Settlement agreement, Release from liability. Indemnity.
Massachusetts False Claims Act. Consumer Protection Act,
Unfair or deceptive act. Deceit. Fraud. Conspiracy.
Unjust Enrichment. Unlawful Interference. Release.
Limitations, Statute of. Practice, Civil, Enforcement of
liability on bond, Joinder of claims, Damages.
Civil action commenced in the Superior Court Department on
November 5, 2010.
1
Steven E. Goldberg, Trinity Plus Funding Company LLC, and
FSA Capital Management Services, LLC. We spell the parties'
names as they appear in the second amended third-party
complaint. Prior to the entry of judgment in this case,
Tradition (North America) Inc.'s third-party claims against
Adrian Scott-Jones and Capital Financial Partners, Inc., were
resolved by settlement; they are not parties to this appeal.
2
Motions to dismiss a third-party complaint against certain
third-party defendants were heard by Frances A. McIntyre, J.,
and a separate motion to dismiss the third-party complaint
against another defendant was considered by Paul D. Wilson, J.
John E. Roberts (Michael R. Hackett also present) for
Tradition (North America) Inc.
Joseph J. Bial, of the District of Columbia, for FSA
Capital Management Services, LLC.
Douglas L. Wald, of the District of Columbia (Kevin P.
Martin also present) for Trinity Plus Funding Company LLC.
Julia McLetchie for Steven E. Goldberg.
Jeremy M. Sternberg, for Ronald Jampel, was present but did
not argue.
KINDER, J. The Commonwealth brought this enforcement
action against the defendant, Tradition (North America) Inc.
(Tradition), a broker for transactions involving municipal bond
derivatives, claiming that Tradition engaged in bid rigging and
other deceptive practices that harmed the Commonwealth in
violation of the Consumer Protection Act, G. L. c. 93A, § 2, and
the False Claims Act, G. L. c. 12, § 5B. Tradition denied the
allegations, asserting that it, too, was a victim of the alleged
bid-rigging scheme. Tradition filed third-party claims against
individuals and corporations with whom it had consulted in the
allegedly fraudulent transactions, including Ronald Jampel,
Steven E. Goldberg, Trinity Plus Funding Company LLC (Trinity),
and FSA Capital Management Services, LLC (FSA) (collectively,
the third-party defendants). The third-party complaint sought
contribution from the third-party defendants pursuant to G. L.
3
c. 231B, § 1(a), for any liability Tradition might have to the
Commonwealth (contribution claims). It also alleged various
other claims, including breach of contract, breach of the
implied covenant of good faith and fair dealing, common-law
indemnification, unfair and deceptive trade practices, fraud and
deceit, intentional and negligent misrepresentation, civil
conspiracy, unjust enrichment, and tortious interference with
contractual relations (noncontribution claims).
On motions filed pursuant to Mass.R.Civ.P. 12(b)(6), 365
Mass. 754 (1974), a Superior Court judge2 dismissed Tradition's
third-party claims on multiple grounds, principally that the
contribution claims were foreclosed by Tradition's failure to
secure the release of claims against the third-party defendants
in its settlement with the Commonwealth, and the noncontribution
claims were time barred by the applicable statutes of
limitation. Tradition appeals.
For the reasons that follow, we conclude that the
contribution claims against all third-party defendants, as well
as the claims for breach of contract and breach of the implied
2
Two judges acted on the motions to dismiss. In a
comprehensive memorandum and order, the first judge allowed
motions to dismiss as to Jampel, Trinity, and FSA. In
addressing Goldberg's subsequent motion to dismiss, the second
judge adopted all of the first judge's reasoning, allowed the
motion, and entered final judgment as to all of the third-party
defendants. Because the judges' analyses of the issues are
identical, we refer to the judges in the singular.
4
covenant of good faith and fair dealing against Jampel, were
properly dismissed. We conclude that the dismissal of the
remaining noncontribution claims was error.
Background. We summarize the facts alleged in Tradition's
seventy-page second amended third-party complaint (the third-
party complaint), accepting them as true for the purpose of our
review of the motions to dismiss. Harrington v. Costello, 467
Mass. 720, 724 (2014).
1. Guaranteed investment contracts. Government and quasi
government entities, like the Massachusetts Water Pollution
Abatement Trust (MWPAT), often raise money by issuing tax-exempt
municipal bonds. If all of the proceeds from a bond offering
are not used immediately, such an entity often invests idle
proceeds in a municipal bond derivative,3 like a government
investment contract (GIC), to earn interest. An entity selects
a GIC, typically offered by major financial institutions,
through a competitive bidding process conducted by an impartial
third-party broker. Bids are solicited from at least three
3
In the Commonwealth's complaint against Tradition,
"municipal bond derivatives" are defined as follows:
"(i) securities and other instruments used to reinvest
the proceeds of a tax-exempt municipal bond issue including
but not limited to investment agreements . . . paying a
stated rate of return for such reinvested proceeds; which
investment agreements are sometimes known as "Guaranteed
Investment Contracts" . . . and (ii) instruments used to
hedge interest rate risk relating to a tax-exempt municipal
bond issue."
5
parties. The broker distributes the issuing entity's terms and
conditions prior to conducting an auction. By submitting a bid
at an auction, a bidder represents that it did not consult with
any other bidder and was not given a "last look" at competing
bids.
2. Tradition and the consultants. Tradition is a
subsidiary of Compagnie Financière Tradition (Compagnie), and
provides brokerage services to a select group of sophisticated
institutional clients. Compagnie is the third largest broker of
such services in the world. Tradition first entered the GIC
market as a broker in 1998, after being introduced to Jampel and
Adrian Scott-Jones (the consultants). The consultants proposed
to conduct GIC auctions on Tradition's behalf in full compliance
with all applicable laws and regulations. In reliance on those
representations, Tradition entered into an agreement (the
consulting agreement) with the consultants' employer, Capital
Financial Partners, Inc. (CFP), pursuant to which CFP and the
consultants agreed to "work on an exclusive basis on business
opportunities acceptable to Tradition . . . including, but not
limited to, [GICs]." Over the next ten years, CFP and the
consultants conducted approximately 138 GIC auctions across the
country on Tradition's behalf. At all times, CFP and the
consultants certified to Tradition that the auctions were
6
conducted in a lawful manner. According to the Commonwealth,
however, that was not always true.
3. The 2000 and 2004 MWPAT GIC auctions. Tradition served
as the broker for MWPAT in connection with GIC auctions held on
October 19, 2000, and November 2, 2004, at which Trinity and FSA
were the respective winning bidders. Prior to each auction, one
of the consultants, Scott-Jones, allegedly informed Goldberg,
who was representing Trinity at the first auction and FSA at the
second, of the interest rate needed to win the auction. Armed
with that information, Trinity and FSA lowered their previously
submitted bids and still won the auctions. As a result, MWPAT
was deprived of a higher rate of return over the terms of those
two contracts. Tradition denies that it knew of the alleged
fraudulent conduct, noting, among other things, that it had no
financial incentive to engage in such wrongdoing, since it
received a flat fee for both auctions that was not contingent
upon the interest rate, yield, or other terms associated with
the winning bid.
4. March, 2007, Department of Justice subpoena. In March,
2007, Tradition received a subpoena from the United States
Department of Justice (DOJ) seeking documents concerning
numerous types of "municipal contracts" awarded pursuant to
competitive bidding, including GICs, anywhere in the country.
The subpoena sought documents related to certain specific
7
persons and companies: "CDR Financial Products of Beverly
Hills, California, and/or David Rubin, and/or companies
controlled by David Rubin." The subpoena did not identify any
specific State or transaction that was under scrutiny. Nor did
it identify Tradition, CFP, or the consultants as subjects or
targets of the investigation.
Tradition retained outside counsel to respond to the
subpoena and conduct an internal investigation. Outside counsel
interviewed Scott-Jones and Jampel, both of whom denied any
wrongdoing. Outside counsel also reviewed documents responsive
to the subpoena and, ultimately, concluded that there was no
evidence of wrongdoing.
5. May 27, 2008, call from DOJ. On or about May 27, 2008,
Tradition received a telephone call from DOJ indicating that the
consultants had allegedly engaged in wrongdoing in connection
with GIC auctions allegedly brokered on behalf of Tradition.
DOJ uncovered the alleged wrongdoing by listening to telephone
conversations recorded by, among others, Trinity and FSA. Those
recordings had not been available to Tradition during its
internal investigation. According to Tradition, this May 27,
2008, telephone call was the earliest that it knew, or
reasonably could have known, of any alleged wrongdoing.
6. The swap transactions. On or about June 2, 2008,
Tradition further learned that CFP and the consultants were
8
secretly awarded swap transactions4 and provided with other
revenue by Goldberg, Trinity, and FSA in exchange for sharing
confidential bidding information. The swap transactions related
to the MWPAT GIC transactions at issue or other GIC transactions
brokered in Tradition's name. Though the swaps allegedly were
awarded as a bribe, Tradition maintains that they served a
legitimate purpose by helping the issuing entities manage
interest rate exposure. Tradition further asserts that under
its consulting agreement with CFP it was entitled to the
compensation earned in connection with those swap transactions,
as well as the other revenue provided to CFP and the
consultants.
Discussion. 1. The contribution claims. While the
motions to dismiss were pending, the Commonwealth and Tradition
entered into a settlement agreement in which Tradition agreed to
make a payment to the Commonwealth in exchange for dismissal and
release of the Commonwealth's claims against Tradition. The
judge concluded that Tradition's contribution claims were barred
because the settlement agreement did not discharge the common
4
According to the third-party complaint, "A swap is a
derivative in which the counterparties exchange certain benefits
of one financial instrument for those of another."
9
liability of all joint tortfeasors, a statutory prerequisite for
contribution.5 We agree.
We review the dismissal de novo, accepting the allegations
in the third-party complaint as true and drawing all reasonable
inferences in Tradition's favor. Curtis v. Herb Chambers I-95,
Inc., 458 Mass. 674, 676 (2011). In Massachusetts, claims for
contribution are governed by a statutory scheme adapted from the
Uniform Contribution Among Tortfeasors Act. See G. L. c. 231B,
§§ 1-4 (act), inserted by St. 1962, c. 730, § 1. Under the act,
"a joint tortfeasor who pays damages, whether under a settlement
agreement or a court imposed judgment, is entitled to
contribution." Medical Professional Mut. Ins. Co. v. Breon
Labs., Inc., 966 F. Supp. 120, 122 (D. Mass. 1997). Here,
Tradition seeks contribution under § 1(a) of the act: "where
two or more persons become jointly liable in tort for the same
injury . . . , there shall be a right of contribution among them
even though judgment has not been recovered against all or any
of them."
The act, however, contains certain conditions that must be
satisfied before a contribution claim can proceed. As relevant
here, § 3(d)(2) of the act provides that a party like Tradition
is barred from pursuing a claim for contribution unless, by its
5
The judge found that a separate settlement between MWPAT
and Trinity barred Tradition's contribution claim against
Trinity. On appeal, Tradition has abandoned the claim.
10
settlement, it has "agreed . . . to discharge the common
liability and has within one year after the agreement paid the
liability and commenced [its] action for contribution." Section
4(a) of the act further provides that "[w]hen a release . . . is
given in good faith to one of two or more persons liable in tort
for the same injury . . . [i]t shall not discharge any of the
other tortfeasors from liability for the injury unless its terms
so provide."
Here, the settlement agreement released only Tradition.
The agreement stated expressly that it did not extend to Jampel
and Scott-Jones. Nor did it release any of the other third-
party defendants. Tradition, therefore, did not "discharge the
common liability" of Jampel, Goldberg, or FSA. See Medical
Professional Mut. Ins. Co., 966 F. Supp. at 123-124 (where
settlement agreement in underlying suit failed to secure release
of third-party defendant joint tortfeasor, §§ 3[d][2] and 4[a]
of act barred third-party plaintiffs from seeking statutory
contribution); Spinnato v. Goldman, 67 F. Supp. 3d 457, 467 (D.
Mass. 2014) (under act, "a claim for contribution . . . is
barred unless a judgment or settlement has discharged the common
liability").
Tradition contends that it was not required to release the
third-party defendants in its settlement with the Commonwealth
because, at the time the settlement agreement was signed, the
11
statutes of limitation had already expired on any claims the
Commonwealth might have had against them. Thus, Tradition
argues, Jampel, Goldberg, and FSA had no liability left to be
discharged. In analyzing this argument, "[w]e begin with the
canon of statutory construction that the primary source of
insight into the intent of the Legislature is the language of
the statute." Deutsche Bank Natl. Trust Co. v. Fitchburg
Capital, LLC, 471 Mass. 248, 253 (2015), quoting from
International Fid. Ins. Co. v. Wilson, 387 Mass. 841, 853
(1983). Therefore, we turn to the language of the act.
Section 3(d) of the act provides that a "right of
contribution shall be barred unless [the moving party] has . . .
(2) agreed while action is pending against [it] to discharge the
common liability" (emphasis added). We discern no ambiguity in
this statutory language. Because Tradition's settlement with
the Commonwealth did not provide for the extinguishment of the
third-party defendants' liability, its contribution claims are
barred.6
6
Our interpretation of the act's requirements is in accord
with that of other courts interpreting statutes modeled on the
Uniform Contribution Among Tortfeasors Act. See, e.g., G & P
Trucking v. Parks Auto Sales Serv. & Salvage, Inc., 357 S.C. 82,
88 (Ct. App. 2003). There, in response to the same argument now
advanced by Tradition, the court held that, as a prerequisite to
a contribution claim, the extinguishment of a joint tortfeasor's
liability to an underlying plaintiff must have resulted directly
from the settlement agreement itself, rather than merely from
the expiration of the statute of limitations. Last, the court
12
This interpretation is consistent with the underlying
purpose of the act -- a "more equitable distribution of that
burden among those liable in tort for the same injury." Hayon
v. Coca Cola Bottling Co. of New England, 375 Mass. 644, 648
(1978). Tradition had a right to pursue contribution claims
against joint tortfeasors to insure an equitable distribution of
liability. Before doing so, however, Tradition was required by
the act to secure the release and discharge of common liability.
Having elected to negotiate and secure only an individual
release and discharge, Tradition is barred from pursuing
contribution claims against Jampel, Goldberg, and FSA.7
2. The noncontribution claims. The judge determined that
Tradition's noncontribution claims were subject to dismissal on
multiple grounds. We address each of them in turn.
noted that the running of the statute of limitations does not,
in and of itself, "extinguish" a tortfeasor's liability, as the
running of the statute can be subject to waiver, tolling, and
estoppel. Id. at 89. See, e.g., our discussion in part 2.a.,
infra.
7
This result is consonant with the goal of creating a "more
equitable distribution" of liability among joint tortfeasors.
It was presumably open to Tradition to negotiate a settlement
with the Commonwealth that would have released all of the third-
party defendants. That would have "cost[] more, but [would
have] entitle[d] [Tradition] to seek contribution from any
remaining tortfeasor. [Section] 4(b) [of the act] was drafted
to encourage settlements in multiple party tort actions by
clearly delineating the effect settlement will have on
collateral rights and liabilities in future litigation."
Medical Professional Mut. Ins. Co., 966 F. Supp. at 124, quoting
from Barrios v. Viking Seafood, Inc., 6 Mass. L. Rptr. 281
(1996).
13
a. The statutes of limitation. The judge concluded that
all of Tradition's noncontribution claims were time barred
because they were filed after the applicable limitations periods
had expired. In our de novo review, we bear in mind that
"where, as here, the plaintiff has claimed a trial by jury, any
disputed issues relative to the statute of limitations ought to
be decided by the jury." Riley v. Presnell, 409 Mass. 239, 248
(1991). Dismissal pursuant to rule 12(b)(6) based upon the
expiration of a statute of limitations is appropriate where it
is undisputed from the face of the complaint that the action was
commenced beyond the applicable deadline. See, e.g., Epstein v.
Seigel, 396 Mass. 278, 278-279 (1985) (upholding dismissal where
the "allegations of the complaint clearly reveal that the action
was commenced beyond the time constraints of the statute of
limitations"). Compare Harrington, 467 Mass. at 731-733 (court
rejected plaintiff's discovery rule and fraudulent concealment
arguments and affirmed dismissal).
The tort8 and G. L. c. 93A claims against Jampel, Goldberg,
Trinity, and FSA are subject, respectively, to three and four
year statutes of limitation that typically accrue from the date
of injury. See G. L. c. 260, §§ 2A (torts), 5A (c. 93A); Stark
8
Fraud and deceit, intentional and negligent
misrepresentation, civil conspiracy, unjust enrichment, and
tortious interference with contractual relations.
14
v. Advanced Magnetics, Inc., 50 Mass. App. Ct. 226, 232 (2000).9
However, recognizing the unfairness of a rule that allows
statutes of limitation to run even before a plaintiff knew or
reasonably should have known that it may have been harmed, the
Supreme Judicial Court has adopted "a discovery rule for the
purpose of determining when a cause of action accrues, and thus
when the statute of limitations starts to run." Bowen v. Eli
Lilly & Co., 408 Mass. 204, 205 (1990). "This rule prescribes
as crucial the date when a plaintiff discovers, or any earlier
date when [it] should reasonably have discovered, that [it] has
been harmed or may have been harmed by the defendant's conduct."
Id. at 205-206. See Doe v. Creighton, 439 Mass. 281, 283 (2003)
(rule requires proof of "both an actual lack of causal knowledge
and the objective reasonableness of that lack of knowledge");
Szymanski v. Boston Mut. Life Ins. Co., 56 Mass. App. Ct. 367,
371 (2002). Under the discovery rule, the limitation period
accrues when the plaintiff has "sufficient notice of two related
facts: (1) that [it] was harmed; and (2) that [the] harm was
caused by the defendant's conduct." Harrington, 467 Mass. at
725. A plaintiff may be put on "inquiry notice" where it is
9
The claims for breach of contract and breach of the
implied covenant of good faith and fair dealing against Jampel,
which are subject to a six-year limitation period, see G. L.
c. 260, § 2; Patsos v. First Albany Corp., 433 Mass. 323, 327
n.6 (2001), were dismissed on other grounds. See part 2.b.ii.,
infra.
15
informed of facts that would suggest to a reasonably prudent
person in the same position that an injury has been suffered as
a result of the defendant's conduct. See Bowen, supra at 208;
Szymanski, supra. Applying these principles here, we conclude
it was error to dismiss the noncontribution claims based on the
statutes of limitation.
Here, the judge concluded that Tradition was on inquiry
notice on March 7, 2007, when it received the DOJ subpoena.
Because the original third-party complaint was filed on April 4,
2011, more than four years later, the judge ruled that the
noncontribution claims were barred by the statutes of
limitation.
However, there is a factual dispute as to when Tradition
was on inquiry notice of its potential third-party claims based
on bid rigging by its consultants. According to the third-party
complaint, Tradition was first on notice of the potential third-
party claims on May 27, 2008, when DOJ called Tradition and
directly alleged that the consultants had engaged in wrongdoing.
If Tradition was not on inquiry notice until that date, the
claims were brought within the statutes of limitation. The
third-party defendants argue that the judge correctly determined
that Tradition was on inquiry notice at least as early as March
7, 2007, when it received the DOJ subpoena seeking information
related to GIC contracts, and initiated its own investigation.
16
They emphasize that Tradition was a sophisticated broker and
that at the time there was ample public information available
regarding other government investigations in the municipal
derivatives industry to trigger inquiry notice.10
Our focus at this stage must be on the allegations in the
third-party complaint. Tradition asserts that the March 7,
2007, subpoena from DOJ generally sought documents concerning a
wide variety of "municipal contracts" awarded pursuant to
competitive bidding, not just GICs, from across the country.
The subpoena did not identify the two MWPAT GIC auctions now at
issue or even specifically seek documents related to MWPAT or
Massachusetts. Nor did the subpoena identify Tradition, CFP, or
the consultants as subjects or targets of the investigation. In
fact, the only entities and individuals specifically identified
in the subpoena had no connection to Tradition's GIC business.
Accepting these facts as true, as we must, we cannot conclude
that it is undisputed from the face of the complaint that
10
The judge charged Tradition with knowledge of (1) a
November 15, 2006, article in the trade publication "Bond
Buyer," reporting on a Federal Bureau of Investigation raid and
DOJ industry-wide investigation of anticompetitive practices in
the municipal bond industry; and (2) Bank of America's February,
2007, entry into a leniency program due to similar practices.
Neither is referenced in or attached to the third-party
complaint. As consideration of "matters outside the pleading"
can result in conversion of a motion to dismiss to one for
summary judgment, see rule 12(b), the parties dispute whether
this information was properly considered here. Having reviewed
the information and concluded that it does not alter our result,
we do not reach that issue.
17
receipt of the subpoena put Tradition on inquiry notice of its
potential third-party claims.
The judge placed particular emphasis on the fact that
Tradition, upon receiving the DOJ subpoena, hired outside
counsel to conduct an internal investigation. She rejected
Tradition's assertion that the investigation did not uncover any
wrongdoing. Rather, she found that the investigation was
deliberately conducted without sufficient "due diligence," such
that it "border[ed] on willful ignorance." That conclusion may
or may not be borne out by further discovery, but it is not
supported by the third-party complaint. The judge found facts
and drew inferences about what Tradition should have known and
when Tradition should have known it "[b]ased on [her] general
experience before and on the bench." While a jury may
ultimately agree, it was not clear from the face of the third-
party complaint that Tradition's noncontribution claims were
untimely.11 In short, where the date triggering the statutes of
limitation is disputed, as it is in this case, the wiser course
is to present the matter to the fact finder. See, e.g., Kennedy
v. Goffstein, 62 Mass. App. Ct. 230, 235 (2004).
b. Other grounds for dismissal of noncontribution claims.
The judge concluded that even if Tradition's noncontribution
11
Based on our conclusion, we need not reach the question
whether the statutes of limitation were tolled based on
fraudulent concealment. See G. L. c. 260, § 12.
18
claims against Jampel, Goldberg, Trinity, and FSA were timely,
they were subject to dismissal on alternate, independent
grounds.
i. Joinder. First, the judge reasoned that these claims
were dependent on survival of the contribution claims.12 We
disagree.
It is undisputed that Tradition, at the time it filed the
third-party complaint (before it reached a settlement with the
Commonwealth), had the right to assert contribution claims
against Jampel, Goldberg, Trinity, and FSA. See Mass.R.Civ.P.
14(a), as amended, 385 Mass. 1216 (1982) ("At any time after
commencement of the action a defending party, as a third-party
plaintiff, may . . . cause a summons and complaint to be served
upon a person who is or may be liable to him for all or part of
the plaintiff's claim against him"). Tradition also had a right
to assert other, independent claims against the third-party
defendants at the same time. See Mass.R.Civ.P. 18(a), 365 Mass.
764 (1974) ("A party asserting a claim to relief as . . . [a]
third party claim, may join, either as independent or as
alternate claims, as many claims, legal or equitable, or both,
as [it] has against an opposing party"). No one disputes that
12
Although this part of the judge's decision addressed only
the noncontribution claims with respect to Trinity, our
discussion applies equally to those claims as to the remaining
third-party defendants.
19
the Superior Court had subject matter jurisdiction over the
noncontribution claims.13 See Mass.R.Civ.P. 12(b)(1), 365 Mass.
754 (1974).
Even if the noncontribution parties and claims had been
improperly joined in this action, their dismissal on that
ground, upon the dismissal of the contribution claims, is
precluded by our rules. See Mass.R.Civ.P. 21, 365 Mass. 767
(1974) ("Misjoinder of parties is not ground for dismissal of an
action. . . . Any claim against a party may be severed and
proceeded with separately"). See also Smith & Zobel, Rules
Practice § 21.2, at 320 (2d ed. 2006) (rule 21 was "designed to
cover actions . . . where the requirements for permissive
joinder have not been satisfied"). Simply put, we see no legal
basis for the dismissal of the noncontribution claims on the
basis of our rules as to joinder.
In dismissing the noncontribution claims "without
prejudice" the judge recognized that, in effect, the dismissal
was with prejudice because, at the time of dismissal, the claims
were time barred by the statutes of limitation. However, even
under circumstances where a court has the discretion to dismiss
13
This distinguishes the present case from those cited by
Trinity, in which a Federal court, after the dismissal of all
predicate Federal claims, exercised discretion and dismissed
supplemental State law claims over which it did not otherwise
have subject matter jurisdiction. See 28 U.S.C. § 1367(c)(3)
(2012).
20
a claim, such a severe sanction should be imposed only in
extraordinary circumstances and as a matter of last resort.14
See, e.g., Monahan v. Washburn, 400 Mass. 126, 128-129 (1987)
("Involuntary dismissal is a drastic sanction which should be
utilized only in extreme situations. . . . The law strongly
favors a trial on the merits of a claim"). Applying this
principle here, where the noncontribution claims were dismissed
only due to the failure of the predicate contribution claims,
and such dismissal would bar subsequent litigation of the
noncontribution claims because the limitations periods have
expired, we conclude that the drastic sanction of dismissal is
not justified by extraordinary circumstances.
ii. Piercing the corporate veil -- Jampel. As an
alternative ground, the judge also dismissed the noncontribution
claims against Jampel because Tradition failed to sufficiently
allege facts to establish a basis to pierce the corporate veil
of CFP and hold Jampel personally liable. "The corporate veil
'may be pierced where' the corporate principal exercises (1)
'some form of pervasive control' over the activities of the
14
Trinity cites to what it suggests is contrary authority.
Unlike here, however, the cases cited involve the application of
rules that mandate dismissal under specific circumstances. See
Mass.R.Civ.P. 4(j), as appearing in 402 Mass. 1401 (1988)
(action "shall be dismissed" unless plaintiff shows "good cause"
why service was not made within ninety days); Mass.R.Civ.P.
25(a)(1), 365 Mass. 771 (1974) ("[T]he action shall . . . be
dismissed unless the failure of the surviving party to move for
substitution was the result of excusable neglect").
21
corporation, and (2) 'there is some fraudulent or injurious
consequence' as a result." Kraft Power Corp. v. Merrill, 464
Mass. 145, 152 (2013), quoting from Scott v. NG US 1, Inc., 450
Mass. 760, 767 (2008). We agree that the third-party complaint,
even when viewed in a light most favorable to Tradition, fails
to adequately set forth a basis for piercing the corporate veil.
We disagree, however, that this requires dismissal of all
noncontribution claims against Jampel.
The consulting agreement, while signed by Jampel, was
between CFP and Tradition. To the extent that Tradition seeks
to hold Jampel liable for a breach of that contract, therefore,
it would need to pierce the corporate veil. Because Tradition
failed to plead a sufficient basis for doing so, the claims
against Jampel for breach of contract and breach of the implied
covenant of good faith and fair dealing were properly dismissed.
On the other hand, it is not necessary to pierce the
corporate veil to hold Jampel liable on the remaining
noncontribution claims. It is true that "[o]fficers and
employees of a corporation do not incur personal liability for
torts committed by their employer merely by virtue of the
position they hold in the corporation." Lyon v. Morphew, 424
Mass. 828, 831 (1997). However, "[e]mployees are liable for
torts in which they personally participated." Id. at 831-832.
Tradition has sufficiently alleged that Jampel personally
22
participated in the wrongful conduct that gave rise to the tort-
based noncontribution claims.
iii. Damages. The judge also dismissed the
noncontribution claims against FSA for Tradition's failure both
to plead damages with specificity and to establish a causal
connection between those damages and the alleged scheme to
defraud. A plaintiff, however, need only plead special damages
with specificity, see Mass.R.Civ.P. 9(g), 365 Mass. 751 (1974),
and "[r]elief in the alternative or of several different types
may be demanded," Mass.R.Civ.P. 8(a), 365 Mass. 749 (1974).
Tradition has alleged damages in several categories: "swaps
revenue" not shared with Tradition, fraudulent travel and
entertainment reimbursement, and costs associated with its own
investigation. At this stage, we need not decide the scope of
damages to which Tradition may be entitled should it establish
liability at trial. On the narrow question whether the third-
party complaint adequately alleged some damages, we conclude
that, at a minimum, Tradition has adequately pleaded that FSA's
participation in the scheme damaged Tradition in the amount of
Tradition's costs to comply with the DOJ's subpoena and
investigation.15 See, e.g., Siegel v. Berkshire Life Ins. Co.,
15
Trinity suggests that the noncontribution claims asserted
against it were also dismissed on this basis. While that is not
clear from the record, our reasoning as to FSA applies equally
to Trinity, Jampel, and Goldberg.
23
64 Mass. App. Ct. 698, 703 (2005) ("If a c. 93A violation forces
someone to incur . . . expenses that are not simply those
incurred in vindicating that person's rights under the statute,
those fees may be treated as actual damages in the same way as
other losses of money or property").
iv. Additional grounds for dismissal. Tradition's civil
conspiracy claim was dismissed as to all third-party defendants
for failure to state a claim on an underlying independent tort.
Because we reverse the dismissal of the underlying tort claims,
the dismissal of the civil conspiracy claim must also be
reversed.
Tradition's claims against FSA for fraud and tortious
interference with contractual relations were dismissed on the
ground that Tradition was improperly seeking to recover the
fruits of illegal transactions (i.e., compensation and revenue
received by CFP and the consultants as bribes). While we agree
that Tradition is not entitled to recover the fruits of illegal
activity, we cannot conclude at this early stage that the swaps
transactions at issue were illegal.16
Conclusion. So much of the judgment as dismissed the
contribution claims against all the third-party defendants, as
16
The third-party complaint included a claim for common-law
indemnification from Jampel. The indemnification claim was not
addressed by the judge in her memorandum of decision. We see no
basis to dismiss the claim.
24
well as the claims for breach of contract and breach of the
implied covenant of good faith and fair dealing against Jampel,
are affirmed. In all other respects, the judgment is reversed.
So ordered.