SurTan Manufacturing Co. v. Flagship Insurance Agency, Inc.

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21-P-1144 Appeals Court
SURTAN MANUFACTURING CO. & others1 vs. FLAGSHIP INSURANCE
AGENCY, INC., & another.2
No. 21-P-1144.
Barnstable. December 6, 2022. – February 27, 2023.
Present: Sullivan, Hand, & Walsh, JJ.
Practice, Civil, Motion to amend. Res Judicata. Insurance
Company. Insurance, Fire. Fire.
Civil action commenced in the Superior Court Department on
March 27, 2020.
A motion to dismiss was heard by Gregg J. Pasquale, J.
Raymond H. Tomlinson, Jr., for the plaintiffs.
Timothy O. Egan for the defendants.
HAND, J. Plaintiffs Richard Surabian, individually, and
Steven Surabian, individually and as trustee of the Richard
1 Richard Surabian, individually, and Steven Surabian,
individually and as trustee of the Richard Surabian Irrevocable
Trust.
2 Brian J. Breton.
2
Surabian Irrevocable Trust, appeal from a judgment dismissing
their complaint against defendants Flagship Insurance Agency,
Inc. (Flagship), and Brian J. Breton as barred under the
doctrine of claim preclusion. The dismissal was based on the
fact that the Surabians, in a prior related action, were denied
leave to amend to add Flagship and Breton as defendants. We
conclude that the denial of the Surabians' motion to amend in
the prior related action did not constitute res judicata under
the doctrine of claim preclusion, and that the Surabians'
complaint was improperly dismissed on that basis.
We summarize the facts alleged in the complaint, which we
accept as true in reviewing the allowance of the motion to
dismiss, and supplement those facts with the procedural history
of the Surabians' motion to amend. See Baby Furniture Warehouse
Store, Inc. v. Meubles D&F Ltée, 75 Mass. App. Ct. 27, 28 n.1
(2009). See also Jarosz v. Palmer, 436 Mass. 526, 530 (2002).
The Surabians operated SurTan Manufacturing Co. (SurTan),3 a
wholesale manufacturer and retailer of leather goods and
apparel, in a building owned by the Richard Surabian Irrevocable
Trust. On February 23, 2016, a fire of nonsuspicious origin
3 SurTan was a plaintiff in both actions, and also joined
the Surabians' motion to amend, but SurTan did not file a notice
of appeal from the judgment dismissing the complaint in this
action.
3
caused extensive damage to the building and its contents. At
the time of the loss, the building and its contents were insured
by a commercial property and casualty policy that American
European Insurance Company (AEIC) had issued to SurTan. SurTan
purchased the policy through Flagship, an insurance agency, and
Breton, an executive vice-president of Flagship.
On February 20, 2018, the Surabians brought an action
against AEIC, Flagship, and others (original action) for damages
related to the insurance claims handling of the fire loss.4
Flagship responded to the complaint with a motion to dismiss,
and in June 2018 the Surabians agreed to a voluntary dismissal
of Flagship, without prejudice, pursuant to Mass. R. Civ. P. 41
(a) (1), 365 Mass. 803 (1974).
The original tracking deadlines in that action required the
Surabians to file any motions to amend the pleadings by July 23,
2018. An August 2019 scheduling order extended several of the
case's tracking deadlines, but not the deadline for filing
motions to amend the pleadings. On February 4, 2020, the
Surabians filed a motion to amend to add Flagship and Breton as
defendants, asserting the discovery of new evidence. That
motion was denied. The order denying the motion to amend
explained that permitting the Surabians to amend would "result[]
4 The original action did not name Breton as a defendant.
4
in undue delay and negate[] the [August 2019] scheduling
order. . . . Having considered the lateness, delay, prior
opportunity to name Flagship and . . . Breton, as well as the
unfair prejudice, the motion is denied." On March 27, 2020, the
Surabians brought this action (present action), asserting
substantially the same claims against Flagship and Breton as the
Surabians had sought to assert through their motion to amend.
The present action was dismissed in March 2021 before any
judgment entered in the original action.5
As noted, the focus of this appeal is whether the denial of
the Surabians' motion to amend in the original action resulted
in claim preclusion as to the present action. Although there is
no traditional "final judgment on the merits" in the original
action, Flagship and Breton argue that some Federal courts have
held that the denial of a motion to amend can nonetheless give
rise to res judicata on a claim preclusion theory, and they urge
us to adopt the same rule. The Surabians offer several reasons
to distinguish the Federal cases on which Flagship and Breton
rely, including that in those cases, "the parties to the second
action were identical to that of the first action, and the
denial of the motion to amend in the prior action [occurred
5 Indeed, it does not appear from the record that judgment
had entered in the original action at the time this appeal was
briefed.
5
after] a 'final' judgment on the merits." We need not decide
whether we would follow the Federal cases as a matter of State
law because, for the reasons that follow, we agree with the
Surabians that the Federal cases on which Flagship and Breton
rely do not apply in the present circumstances.
As the Surabians suggest, claim preclusion in its classic
formulation applies where "(1) there was a final judgment on the
merits in the prior adjudication; (2) the party against whom
preclusion is asserted was a party (or in privity with a party)
to the prior adjudication; and (3) the issue in the prior
adjudication was identical to the issue in the current
adjudication." Kobrin v. Board of Registration in Med., 444
Mass. 837, 843 (2005), quoting Tuper v. North Adams Ambulance
Serv., Inc., 428 Mass. 132, 134 (1998). As we have noted, the
record does not reflect an entry of final judgment in the
original action.
Although it is true that some Federal courts have held
"that denial of leave to amend constitutes res judicata on the
merits of the claims which were the subject of the proposed
amended pleading," Korn v. Paul Revere Life Ins. Co., 83 Mass.
App. Ct. 432, 437 (2013), quoting Hatch v. Trail King Indus.,
Inc., 699 F.3d 38, 45-46 (1st Cir. 2012), the defendants
misunderstand the applicable "rule." Those cases typically
involve the following circumstances: a plaintiff seeks leave to
6
amend to assert new claims against a defendant already in the
case,6 leave is denied, and the plaintiff brings a second action
against the same defendant.7 See Northern Assur. Co. of Am. v.
Square D Co., 201 F.3d 84, 87-88 (2d Cir. 2000) (collecting
cases). See also Hatch, supra at 41-43. Accord Korn, supra at
433-434, 435-438 (applying Federal law). Under Federal law,
claim preclusion bars the second action in those cases because
it bars not only "claims that were brought and decided in a
prior litigation," but also "all other claims relating to the
same transaction against the same defendant that could have been
brought at that time" (emphasis added). Northern Assur. Co. of
Am., supra at 87.
In these Federal cases, the denial of leave to amend, even
when based on procedural grounds, functions as "a proxy" for a
final judgment because it signifies the moment the plaintiffs
6 At the times relevant to this appeal -- when the Surabians
moved to amend their complaint in the original action and during
the pendency of the present action -- neither Breton nor
Flagship was a party to the original action. Breton had never
been named as a party, and the Surabians had voluntarily
dismissed Flagship without prejudice from the original action.
7 Each of the cases on which the judge relied, and each case
on which the defendants rely on appeal, follow this pattern.
See Korn, 83 Mass. App. Ct. at 433-434; Shahidi v. Michael, 2005
Mass. App. Div. 152. See also Hatch, 699 F.3d at 41-43;
Professional Mgt. Assocs., Inc. v. KPMG LLP, 345 F.3d 1030, 1032
(8th Cir. 2003), cert. denied, 540 U.S. 1162 (2004); EFCO Corp.
v. U.W. Marx, Inc., 124 F.3d 394, 397 (2d Cir 1997); Qualicare-
Walsh, Inc. v. Ward, 947 F.2d 823, 826 (6th Cir. 1991). Accord
Gonsalves v. Bingel, 194 Md. App. 695, 697 (2010).
7
have foregone the ability to bring additional claims against a
given defendant related to the same transaction or occurrence
that gave rise to the claims against that defendant in the
initial action. Northern Assur. Co. of Am., 201 F.3d at 88.
"[T]he bar is based on the requirement that the plaintiff must
bring all claims at once against the same defendant relating to
the same transaction or event." Id. Thus, in these cases, the
denial of leave to amend in the initial action has been given
preclusive effect under Federal law even before the entry of
final judgment in that action. See Arrigo v. Link, 836 F.3d
787, 799 (7th Cir. 2016) (endorsing trial court's conclusion
that failing to give claim preclusive effect to denial of leave
to amend initial complaint to bring additional claims against
existing defendant and allowing plaintiff to bring same claims
in second action "would serve no purpose" as dismissal of second
action would inevitably follow entry of judgment in initial
action).
Here, there was no "final judgment on the merits" in the
original case. Accordingly, the classic formulation of the
Federal approach, claim preclusion based on the denial of a
motion to amend, does not apply. See Northern Assur. Co. of
Am., 201 F.3d at 87 ("While denial of leave to amend a complaint
may have preclusive effect in some cases, claim preclusion is
unavailable here because the claims sought to be added to the
8
first suit were against an independent party and were not
required to be brought in that suit"). The Federal cases on
which Flagship and Breton rely likewise fail to support their
argument because those cases are factually distinguishable from
this one. Unlike the circumstances described in the Federal
cases, in the present action, the Surabians sought leave to
assert new claims against defendants who were not parties to the
original action.
As counsel for Flagship and Breton acknowledged at oral
argument, rather than seeking leave to amend their complaint in
the original action, the Surabians could have brought a new and
separate action against Flagship and Breton.8 As we have
explained, denial of the Surabians' motion to amend did not
preclude a second action.9 See Northern Assur. Co. of Am., 201
8 Had they done so while the original action was pending,
they could then have moved to consolidate the two suits, thereby
avoiding the claim preclusion issue raised in this appeal. A
holding that the denial of the Surabians' motion to amend
constituted res judicata on a theory of claim preclusion would
therefore amount to a trap for the unwary.
9 In their appellate brief, Flagship and Breton did argue
that Breton, as an officer of Flagship, had a close and
significant relationship with Flagship warranting the
application of nonmutual claim preclusion under Federal law.
See, e.g., Silva v. New Bedford, 677 F. Supp. 2d 367, 372-373
(D. Mass. 2009), aff'd, 660 F.3d 76 (1st Cir. 2011), cert.
denied, 566 U.S. 906 (2012). Without deciding whether such a
doctrine even exists under Massachusetts law, a question we do
not reach, even under the defendants' formulation the issue
would be whether Flagship and Breton had a close and significant
relationship with AEIC or the other defendants in the original
9
F.3d at 88-89 (plaintiffs have "as many causes of action as
there are defendants to pursue" [citation omitted]). See also
Silva v. New Bedford, 677 F. Supp. 2d 367, 371 (D. Mass. 2009),
aff'd, 660 F.3d 76 (1st Cir. 2011), cert. denied, 566 U.S. 906(2012) ("Courts have . . . distinguished cases where amendment
was sought to add a new defendant rather than simply new
claims").10
Flagship and Breton also contend that we should affirm on
the alternative basis that the Surabians failed to state
"plausible" claims for relief.11 These arguments were raised
below, and the Surabians also sought leave to amend if the
motion judge found their claims deficient in any manner.
However, the motion judge did not rule on whether the Surabians
action, not whether Flagship and Breton had a close and
significant relationship with each other.
10It is of no consequence that the Surabians named Flagship
as a defendant in the original action, as Flagship had been
dismissed, without prejudice, well before the Surabians sought
leave to amend and was thus not a party to the original action
at that time. See Mass. R. Civ. P. 41 (a) (1) (voluntary
dismissal filed before service by adverse party of answer or
motion for summary judgment acts as adjudication on merits only
"when filed by a plaintiff who has once dismissed in any court
of the United States or of this or any other state an action
based on or including the same claim").
11To the extent that the defendants' formulation of the
threshold showing required under Mass. R. Civ. P. 12 (b) (6),
365 Mass. 754 (1974), differs from that articulated in
Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008),
nothing turns on the distinction.
10
stated plausible claims for relief, having instead ruled that
the complaint was barred by claim preclusion. Given the
parties' emphasis on the claim preclusion issue in their briefs
on appeal and at oral argument, and the unresolved request to
amend, we decline to reach whether the Surabians' "'allegations
plausibly suggest[ed]' . . . an entitlement to relief."
Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008),
quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007).
These arguments may be considered by the motion judge on remand.
See, e.g., Szymanski v. Boston Mut. Life Ins. Co., 56 Mass. App.
Ct. 367, 382 (2002), citing Middleborough v. Middleborough Gas &
Elec. Dep't, 422 Mass. 583, 588 (1996).
The judgment is vacated, and the case is remanded for
further proceedings consistent with this opinion.12
So ordered.
12The Surabians' request for appellate attorney's fees and
costs is denied.