Smith v. Dorchester Real Estate, Inc. , 732 F.3d 51 ( 2013 )

United States Court of Appeals
For the First Circuit
Nos. 11-2349; 11-2378; 11-2389
ROBERT SMITH,
Plaintiff, Appellee/Cross-Appellant,
MARIA DASILVA,
Plaintiff,
v.
DORCHESTER REAL ESTATE, INC.; NEW ENGLAND MERCHANTS CORP.,
Defendants, Appellants/Cross-Appellees,
DWIGHT JENKINS; LOUIS G. BERTUCCI; ROBERT E. KELLEY; RKELLEY-LAW,
P.C.; EB REAL ESTATE GROUP, INC., d/b/a RE/MAX Real Estate
Specialists; UNION CAPITAL MORTGAGE BUSINESS TRUST; SIGNATURE
GROUP HOLDINGS, INC., f/k/a Fremont Investment &Loan, a/k/a
Fremont Reorganization Corporation,
Defendants, Cross-Appellees,
CHERRY JENKINS; DOREA SMITH; MID CITY MORTGAGE, LLC;
MERITAGE MORTGAGE CORPORATION,
Defendants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Howard, Stahl and Thompson,
Circuit Judges.
Michael J. Markoff, on brief for New England Merchants Corp.
Thomas K. McCraw, Jr., with whom Jay S. Gregory and
LeClairRyan, A Professional Corporation, were on brief, for
Dorchester Real Estate, Inc.
James F. McLaughlin, with whom McLaughlin & McLaughlin, P.C.
was on brief, for RKelley-Law, P.C. and Robert E. Kelley.
Jeffrey S. Baker, with whom Baker & Associates., P.C.,
Jonathan D. Plaut, Chardon Law Offices, Patrick M. Groulx and Polis
Legal, were on brief, for appellee/cross-appellant.
October 15, 2013
HOWARD, Circuit Judge. This case arises out of a
fraudulent real estate mortgage scheme that involved inducing a
schizophrenic trash collector into acting as a straw buyer for two
overvalued residential properties in Massachusetts. That person,
Robert Smith, sued various entities and individuals involved in the
transactions, including the mortgage lenders, mortgage brokers,
real estate brokers, and closing agents. A jury returned a verdict
largely favorable to Smith on his claims of fraud and breach of
fiduciary duty, and the district court doubled and trebled certain
damages pursuant to the Massachusetts Consumer Protection Statute.
Two of the defendants, real estate brokerage firm Century 21
Dorchester Real Estate, Inc. ("Century 21") and mortgage broker New
England Merchants Corporation ("NEMCO") appeal the unfavorable
verdict on multiple grounds. Smith cross-appeals the dismissal of
several claims. We affirm in part and reverse or vacate other
rulings.
I.
We recite the relevant facts in the light most favorable
to the jury verdict. Incase Inc. v. Timex Corp., 488 F.3d 46, 50
(1st Cir. 2007).
Evidence was introduced from which the jury could have
concluded that Smith, who was in his mid-forties during the
relevant time period, suffers from schizophrenia, depression,
posttraumatic stress disorder, and mild mental retardation. He is
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functionally illiterate. In January 2005, a woman who introduced
herself as Laurice Taylor approached Smith while he was working as
a trash collector for the Waste Management Corporation in
Dorchester, Massachusetts. Taylor told Smith that she worked at a
nearby RE/MAX real estate office and invited him to participate in
a "special investment program" through RE/MAX. So long as he had
good credit, Smith would receive $10,000 per investment without
contributing any capital. Taylor reassured him that "RE/MAX would
take care of everything," and Smith agreed to participate.
Unbeknownst to Smith, the investment opportunity was an
illicit scheme developed by Dwight Jenkins, a convicted bank
fraudster. In the words of the district court,
Jenkins trolled the margins of society for the gullible
(like Smith) and the greedy . . . whom he recruited as
straw "investors" in shady real estate deals. With the
help of louche mortgage brokers and a complicit attorney,
the "investors" were inveigled into taking out "liar
loans" for the purchase of overvalued residential
properties. The "investors" received a small fee, while
Jenkins and his cohorts (including the brokers) skimmed
fees and commissions from the grossly inflated purchase
prices.
Smith v. Jenkins, 818 F. Supp. 2d 336, 340 (D. Mass. 2011). The
basics of the scheme may be briefly described. With the assistance
of real estate agents, Jenkins would find a residential property
for sale and enter into a purchase and sale agreement with the
seller for the listing price. He would then assign the right to
purchase the property to a straw buyer for a significantly higher
price. At the closing, the straw buyer would borrow the amount of
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the higher purchase price, the seller would receive the lower
listing price, and Jenkins would take the difference as a "contract
release fee." Jenkins characterized this arrangement to the straw
buyers as an "investment," promising to maintain the property,
collect rent, pay operating bills, mortgages, and other expenses,
and eventually sell the property at a profit in which the straw
buyer would share.
Smith's evidence on the specifics of the two transactions
involved in this litigation follow.
A. The Dighton Property
After Smith agreed to participate in the purported
investment program, he provided his accurate financial information
to Taylor. Without his knowledge, Jenkins and Taylor then created
a false financial profile for him that grossly overstated his
income, assets, and work and renting history. This made him
appear, on paper, a more attractive candidate for a mortgage loan.
They forwarded the information to Rachel Noyes, a loan originator
who worked for mortgage broker NEMCO. Noyes completed a loan
application on Smith's behalf (and without his knowledge), falsely
indicating that she had gathered the information in a face-to-face
interview with Smith, and sent the application to mortgage lender
Fremont Investment & Loan. Fremont approved Smith for a "stated
income" loan, which did not require income verification.
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Shortly thereafter, Taylor instructed Smith to attend a
meeting at the law office of RKelley-Law, P.C., to sign documents
for an investment. Unbeknownst to Smith, the meeting was a closing
on a home in Dighton, Massachusetts. At the closing, Taylor
introduced Smith to Jenkins and James Adamos, a real estate agent
who worked for Century 21. Adamos handed Smith his business card
and said that he was a representative of Century 21. Attorney
Louis Bertucci, an associate at RKelley-Law, introduced himself to
Smith as the lawyer in charge of the paperwork and assured him that
the documents were "in order." Smith did not read any of the
documents, including those that he signed, nor did anyone explain
to him that he was in fact borrowing $411,964, secured by two
mortgages issued by Fremont, to purchase a property. Those present
led him to believe that they had his best interests in mind, and he
trusted them to handle the "investment" on his behalf. Smith was
confident that the investment was legitimate because two well-known
companies, RE/MAX and Century 21, were involved in it.
Several days after the Dighton closing, Smith went to
RE/MAX's office and there Taylor gave him $10,000. He subsequently
signed a document giving Jenkins a power of attorney over the
Dighton property. Jenkins received a "contract release fee" of
$42,000. NEMCO received a mortgage broker's commission of $8,800.
According to the closing documents, no real estate broker received
a commission from the sale.
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B. The Boston Property
Approximately a week later, Taylor contacted Smith again
and instructed him to attend a second meeting at RKelley-Law in
order to participate in another investment. In the meantime,
Jenkins, through Adamos, offered to purchase a residential property
in Boston listed through Century 21. Century 21 real estate agent
Ivana Foley relayed the offer to the seller, who accepted it. As
on the previous occasion, the plan was for Jenkins to assign the
purchase and sale agreement to Smith for a price substantially
higher than the listing price and collect the difference.
This time Philip Goodwin, a loan originator who worked
for Union Capital Mortgage Business Trust ("Union Capital") filled
out a loan application on Smith's behalf (without meeting Smith)
and forwarded it to Meritage Mortgage Corporation ("Meritage").
Like the application for the Dighton property, this application
also misrepresented Smith's income, assets, and other pertinent
information. The application did not mention that Smith owned or
had a mortgage on the Dighton property. Meritage approved the
loan.
As on the previous occasion, Smith met Taylor and
Bertucci at the RKelley-Law office on the day of the closing.
Foley was also present. She introduced herself to Smith, gave him
her business card, and assured him that everything would be "all
right." Taylor, Bertucci, and Foley led Smith to believe that he
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was making another good investment, and he trusted them. Bertucci
placed a stack of papers in front of Smith for his signature
without explaining their contents. Smith again signed the
documents without reading them, unwittingly borrowing $437,198.13
for the purchase of the Boston property, secured by two mortgages
from Meritage.
Several days after the second closing, Taylor gave Smith
$9,000 as his share. Jenkins received a "contract release fee" of
$41,500, and Century 21 received a broker's commission of $18,950.
Both Foley and Adamos received a share of Century 21's commission,
Foley as the listing agent and Adamos as the selling agent.
A number of months after the closings, Smith began
receiving calls from the lenders on a daily basis regarding missed
mortgage payments. Taylor at first assured him that this was no
cause for concern, while Jenkins avoided his calls. The two
properties were eventually foreclosed on. In the meantime, Smith's
mental health deteriorated. The severity of the voices in his head
worsened. He became suicidal and withdrew from the company of
those close to him. Because his credit was ruined, he was unable
to rent an apartment or obtain new credit cards.
C. Court Proceedings
Smith filed a complaint in Massachusetts state court
against the various entities and individuals involved in the
scheme. He alleged a host of state claims, including fraud, breach
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of fiduciary duty, and violation of the Massachusetts Consumer
Protection Statute, see Mass. Gen. Laws ch. 93A, and two federal
claims for violations of the Truth in Lending Act ("TILA"), see 15
U.S.C. § 1635(e), and the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), see 18 U.S.C. §§ 1961-1969. The
defendants removed the case to the federal court.
The district court dismissed a number of claims and
disposed of others, including the two federal claims, through
summary judgment.1 The surviving claims of fraud (against RE/MAX,
Century 21, NEMCO, Union Capital, Bertucci, and Jenkins) and breach
of fiduciary duty (against RE/MAX, Century 21, NEMCO, and Union
Capital) were tried before a jury.2 The court reserved ruling on
the Chapter 93A claim until after trial. The jury found for Smith
except as against RE/MAX and awarded damages totaling $260,000,
apportioned among the remaining defendants.
Century 21, NEMCO, and Union Capital moved for judgment
as a matter of law or, in the alternative, for a new trial. The
court denied the motions of Century 21 and NEMCO but granted Union
Capital's motion on sufficiency-of-the-evidence grounds.
1
Although no federal claim remained to be tried, the court
retained supplemental jurisdiction over the state claims. See
Rodriguez v. Doral Mortg. Corp., 57 F.3d 1168, 1177 (1st Cir. 1995)
("In an appropriate situation, a federal court may retain
jurisdiction over state-law claims notwithstanding the early demise
of all foundational federal claims.").
2
Smith's breach of contract claims against Jenkins and RE/MAX
were also before the jury. Neither is pertinent to this appeal.
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The court then issued a split decision on Smith's Chapter
93A claim. It dismissed the claim against Century 21 and Union
Capital, ruling that Smith had failed to comply with the demand
letter requirement, see Mass. Gen. Laws ch. 93A, § 9(3). Finding
that Jenkins, Bertucci, and NEMCO had violated the act, the court
awarded Smith treble damages against Jenkins and Bertucci, double
damages against NEMCO, and attorneys' fees.
Century 21 and NEMCO timely appealed, and Smith cross-
appealed the dismissal of several claims.
II.
A. Century 21
The jury found Century 21 liable to Smith for fraud and
breach of fiduciary duty and awarded $50,000 in damages for those
claims. The district court denied Century 21's post-trial motions
challenging the verdict on sufficiency-of-the-evidence grounds and
assigning error to the court's decision to allow Smith's damages
expert to testify at trial.
1. Sufficiency of the Evidence
We review de novo a district court's denial of a motion
for judgment as a matter of law. Quiles-Quiles v. Henderson, 439
F.3d 1, 4 (1st Cir. 2006). "Our review is weighted toward
preservation of the jury verdict because a verdict should be set
aside only if the jury failed to reach the only result permitted by
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the evidence." Id. (internal quotation marks omitted). In this
case, sufficient evidence supported the verdict against Century 21.
Under Massachusetts law, "fraud is a knowing false
representation of a material fact intended to induce a plaintiff to
act in reliance, where the plaintiff did, in fact, rely on the
misrepresentation to his detriment." Fordyce v. Town of Hanover,
929 N.E.2d 929, 936 (Mass. 2010). Century 21 argues that Smith
failed to prove that Century 21 made a misrepresentation with the
intent of inducing his reliance, or that he in fact relied on any
statements that were made. Century 21 also argues that there was
no evidence that Adamos, its "independent contractor" who operated
several other ventures during the period of his affiliation with
Century 21, acted with its actual or apparent authority. The
record contradicts both positions.
Smith testified that Adamos, who was present at the
Dighton closing, and Foley, who was at the Boston closing,
introduced themselves as Century 21 agents, that they
misrepresented the closings as investment deals that they and their
cohorts would manage on Smith's behalf, and that he relied on those
representations when he unwittingly purchased the two properties
with borrowed funds. As the district court correctly discerned,
the jury could have attributed Adamos's misrepresentations to
Century 21 because he worked as a sales agent for Century 21 at the
time and represented himself as an agent of Century 21. Moreover,
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despite being aware that Adamos was working with Jenkins in various
capacities, the owner of the Century 21 office Karin Cahill did
nothing to correct the impression that Adamos was acting on behalf
of the agency.
Given Adamos's involvement and representations, the mere
fact that there was no evidence that Century 21 received a
commission from the sale of the Dighton property does not preclude
a finding that Adamos was acting on Century 21's behalf. The jury
could have reasonably inferred that Century 21 was nonetheless "in"
on the deal, especially given the commission that it received two
weeks later from the sale of the Boston property. Indeed, Adamos
received a portion of that commission, as it was through him that
Jenkins offered to purchase the property. Moreover, it is
undisputed that Foley was at the Boston closing on behalf of
Century 21 and that she also assured Smith that the investment was
sound. There was sufficient evidence to support the jury verdict
against Century 21 on the fraud claim.
Century 21 also challenges the sufficiency of the
evidence to support its liability for breach of fiduciary duty.
Smith alleged that a fiduciary relationship between him and Century
21 arose from the nature of their interactions. See Doe v. Harbor
Sch., Inc., 843 N.E.2d 1058, 1064 (Mass. 2006) (distinguishing
between a fiduciary relationship created by law and one that arises
from the parties' conduct). Under Massachusetts law, "trust and
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confidence reposed in a party possessing a great disparity of
knowledge or expertise . . . , while ordinarily not enough standing
alone to give rise to fiduciary obligations, may produce such
obligations if the trust and confidence is knowingly betrayed by
that party for the purpose of securing some benefit to itself."
Geo. Knight & Co. v. Watson Wyatt & Co., 170 F.3d 210, 216 (1st
Cir. 1999); see Broomfield v. Kosow, 212 N.E.2d 556, 560 (Mass.
1965). In determining whether a business relationship is fiduciary
in nature, "courts look to the defendant's knowledge of the
plaintiff's reliance and consider the relation of the parties, the
plaintiff's business capacity contrasted with that of the
defendant, and the 'readiness of the plaintiff to follow the
defendant's guidance in complicated transactions wherein the
defendant has specialized knowledge.'" Indus. Gen. Corp. v.
Sequoia Pac. Sys. Corp., 44 F.3d 40, 44 (1st Cir. 1995) (quoting
Broomfield, 212 N.E.2d at 560).
In this case, the evidence was sufficient to support the
jury finding that Smith had a relationship of trust and confidence
with Century 21 and that Century 21 abused his trust. The
circumstances of the case are truly exceptional. First, the
parties had vastly disproportionate knowledge of the scheme.
Unlike Century 21, whose agents were experienced in real estate
transactions and understood the obligations that Smith was
undertaking, Smith did not even know that he was purchasing two
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properties, let alone that he was obligating himself to repay
nearly $850,000. Indeed, Century 21 agents and their cohorts kept
Smith entirely blind as to the nature of the purported investments.
Second, Smith signed the documents because he trusted those who
were present at the closings, including Century 21 agents, when
they repeatedly assured him that they would "take care of
everything." Smith testified that they convinced him that the
investments were legitimate, that the information on the documents
he was asked to sign was correct, and that he need not worry
because they would handle the investments on his behalf. In short,
they told him to trust them and so he did. He readily followed
their guidance by signing where indicated without question, even
though no one explained the documents to him.3 Finally, Century 21
exploited the disparity in the relationship and betrayed Smith's
trust to secure a benefit for itself, raking in commissions from at
least one of the fraudulent transactions and leaving Smith to deal
with the consequences of the inevitable defaults. Accordingly,
there was sufficient evidence for the jury to find Century 21
liable for breach of fiduciary duty.
3
That those present at the closings knew that Smith had
reposed his trust in them also finds support in the considerable
evidence that Smith suffered from many vulnerabilities (including
mental illness and functional illiteracy) that would have been
apparent to those who interacted with him. Indeed, the jury could
have found that Smith became the victim of the scheme precisely
because it was apparent that he would repose trust in the
defendants.
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2. Admission of Expert Testimony on Damages
Century 21 also challenges the district court's denial of
its pre-trial motion to preclude the testimony of Smith's damages
expert, forensic economist Stan V. Smith, Ph.D., and the subsequent
denial of its motion to strike Dr. Smith's testimony. We agree
that portions of Dr. Smith's testimony should have been precluded.
Federal Rule of Evidence 702 assigns to the district
court "the task of ensuring that an expert's testimony both rests
on a reliable foundation and is relevant to the task at hand."
Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993). To
determine whether an expert's testimony is sufficiently reliable,
the district court considers whether "the testimony is based on
sufficient facts or data"; whether "the testimony is the product of
reliable principles and methods"; and whether "the expert has
reliably applied the principles and methods to the facts of the
case." Fed. R. Evid. 702; see Daubert, 509 U.S. 592-94. As to the
relevancy criterion, the court must determine whether the testimony
"will assist the trier of fact to understand or determine a fact in
issue." Daubert, 509 U.S. at 592.
"[T]here is no particular procedure that the trial court
is required to follow in executing its gatekeeping function under
Daubert." United States v. Diaz, 300 F.3d 66, 73 (1st Cir. 2002).
However, the gatekeeper function must be performed. Id. (citing
Daubert, 509 U.S. at 592); see also Kumho Tire Co. v. Carmichael,
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526 U.S. 137, 158-59 (Scalia, J., concurring) (observing that
"trial court discretion in choosing the manner of testing expert
reliability is not discretion to abandon the gatekeeping
function"). Although the court need not make explicit findings on
the admissibility criteria sua sponte, Hoult v. Hoult, 57 F.3d 1,
5 (1st Cir. 1995), "[w]ithout specific findings or discussion on
the record, it is impossible on appeal to determine whether the
district court carefully and meticulously reviewed the proffered
. . . evidence or simply made an off-the-cuff decision to admit the
expert testimony." Goebel v. Denver & Rio Grande W. R.R. Co., 215
F.3d 1083, 1088 (10th Cir. 2000) (internal quotation marks omitted)
(brackets omitted) (emphasis added).
The question of whether the district court actually
performed its gatekeeping function in the first place is subject to
de novo review. United States v. Avitia-Guillen, 680 F.3d 1254,
1256 (10th Cir.), cert. denied, 133 S. Ct. 466 (2012); Naeem v.
McKesson Drug Co., 444 F.3d 593, 607 (7th Cir. 2006). If we are
satisfied that the court did not altogether abdicate its role under
Daubert, we review for abuse of discretion its decision to admit or
exclude expert testimony. Kumho, 526 U.S. at 152; Crowe v.
Marchand, 506 F.3d 13, 16 (1st Cir. 2007). If we determine that
the court abused its discretion, we then must determine whether the
error was harmless. Gay v. Stonebridge Life Ins. Co., 660 F.3d 58,
62 (1st Cir. 2011).
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From the evidence in the record, we are unable to
conclude that the district court sufficiently evaluated the
admissibility of Dr. Smith's testimony. There are no statements on
the record indicating that the court conducted a Daubert analysis.
The judge denied without comment the defendants' motion to preclude
Dr. Smith's testimony as unreliable and unhelpful to the jury. In
denying the motion to strike the trial testimony on the same
grounds, the court stated only that "[a]ny infirmities in the
witness's testimony were exposed during cross-examination. Whether
these undermine the creditability of the witness's ultimate
opinion(s) are for the jury to determine." But a court cannot rely
on the jury to determine the relevance and reliability of the
proffered testimony in the first instance; Daubert and its progeny
place this responsibility in the hands of the district court.
We, of course, are not suggesting that the experienced
trial judge ignored Daubert. Still, given the record-based
limitations under which we are required to operate, the absence of
any findings or discussion on the record leaves us hard-pressed to
conclude that the district court adequately fulfilled its
gatekeeping role in admitting Dr. Smith's testimony.
Alternatively, however, even if the district court
conducted a sub silentio review, the admission of much of Dr.
Smith's testimony cannot be upheld as an exercise of the district
court's discretion. Dr. Smith testified that the plaintiff
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suffered three types of damages: (1) the loss of enjoyment of life
(so-called "hedonic damages");(2) the loss of credit expectancy as
a result of two foreclosures on his record; and (3) the loss of
time expended dealing with the consequences of the fraud scheme.
We find that the first two categories fell short of admissibility
in any event and leave the third to the district court to consider
on remand after performing a Daubert analysis.
a. Hedonic Damages
We begin with the contentious issue of hedonic damages.
Dr. Smith opined that Smith is entitled to $219,900 for his loss of
enjoyment of life. To arrive at that figure, Dr. Smith employed a
method for valuing life known as the "willingness-to-pay" model.
This model measures the monetary worth of life by calculating the
amounts that individuals, government agencies, and businesses are
willing to pay for reductions in health and safety risks. The
model relies on labor market studies reflecting wage risk premiums,
studies reflecting consumer purchases of safety equipment,
questionnaires regarding consumers' willingness to pay for safety
measures, and studies of government regulations requiring
expenditures for certain safety devices. Dr. Smith testified that
the resulting figure is between $5 and $6 million for the value of
a "statistically average" person's life, defined as a 31-year-old
with a 45-year additional life expectancy.
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To be "conservative," Dr. Smith instead used $4.2 million
as the value of life in calculating Smith's damages, without
offering any rationale for the chosen figure. This figure,
according to Dr. Smith, averages out to approximately $130,000 as
the monetary worth of one year of life. Next, Dr. Smith took into
account that Smith had reported losing 90% of his enjoyment of life
as a consequence of the defendants' conduct. But instead of using
that percentage, at the behest of Smith's counsel Dr. Smith used
"arbitrarily conservative" figures of 25% loss of enjoyment in the
early years and 12.5% loss in the later years. Multiplying these
percentages by the per-year value of life yielded the $219,900
figure for Smith's hedonic damages.
Before considering whether Dr. Smith's testimony was
admissible under Daubert, we delineate the limits of our review.
Century 21 only argues that Dr. Smith's opinion about Smith's
hedonic damages failed to satisfy the requirements of Rule 702. It
makes no argument that hedonic damages are not recoverable at all
in this type of suit, and therefore we do not decide that issue.4
4
We note, however, that it is not clear whether Smith is
entitled to hedonic damages under the circumstances of this case.
In re Griffith, 800 N.E.2d 259 (Mass. 2003) discusses hedonic
damages, although we have found no Massachusetts case addressing
the scope of such damages. A number of decisions in other
jurisdictions indicate that hedonic damages are recoverable, if at
all, only for permanent injuries. See Golden Eagle Archery, Inc.
v. Jackson, 116 S.W.3d 757, 771-72 n.62 (Tex. 2003) (collecting
cases).
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Assuming that hedonic damages are compensable in this
case, Dr. Smith's testimony nonetheless should have been excluded
under Rule 702. Dr. Smith has been the subject of numerous
decisions regarding the admissibility of his expert opinions on
this very issue. The overwhelming majority of courts have
concluded that his "willingness-to-pay" methodology is either
unreliable or not likely to assist the jury in valuing hedonic
damages, or both. See, e.g., Allen v. Bank of Am., N.A., CIV.
CCB-11-33, 2013 WL 1164898, at *12 (D. Md. Mar. 19, 2013); Richman
v. Burgeson, No. 98 C 7350, 2008 WL 2567132, at *2-*4 (N.D. Ill.
June 24, 2008); Davis v. ROCOR Int'l, 226 F. Supp. 2d 839, 842
(S.D. Miss. 2002); Saia v. Sears Roebuck & Co., 47 F. Supp. 2d 141,
148-50 (D. Mass. 1999); Brereton v. United States, 973 F. Supp.
752, 758 (E.D. Mich. 1997); Kurncz v. Honda N. Am., Inc., 166
F.R.D. 386, 388-90 (W.D. Mich. 1996); Ayers v. Robinson, 887 F.
Supp. 1049, 1059-64 (N.D. Ill. 1995); Sullivan v. U.S. Gypsum Co.,
862 F. Supp. 317, 321 (D. Kan. 1994); Mercado v. Ahmed, 756 F.
Supp. 1097, 1103 (N.D. Ill. 1991), aff'd, 974 F.2d 863, 868-71 (7th
Cir. 1992); see also Dorn v. Burlington N. Santa Fe R.R. Co., 397
F.3d 1183, 1195 n.5 (9th Cir. 2005) (collecting state cases where
Dr. Smith's testimony was excluded). But see Sherrod v. Berry, 629
F. Supp. 159, 162-64 (N.D. Ill. 1985), aff'd, 827 F.2d 195, 205-06
(7th Cir. 1987), vacated and remanded on other grounds, 856 F.2d
802 (7th Cir. 1988). Indeed, "[t]roubled by the disparity of
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results reached in published value-of-life studies and skeptical of
their underlying methodology, the federal courts which have
considered expert testimony on hedonic damages in the wake of
Daubert have unanimously held quantifications of such damages
inadmissable." Smith v. Ingersoll–Rand Co., 214 F.3d 1235, 1245
(10th Cir. 2000).
We share the concerns of those courts that have excluded
expert testimony based on the "willingness-to-pay" methodology as
lacking in reliability. Like the Seventh Circuit, we have serious
doubts that the underlying studies actually measure the value of
life. Mercado, 974 F.2d at 871. In terms of consumer purchases,
spending on items like air bags and smoke detectors is
probably influenced as much by advertising and marketing
decisions made by profit-seeking manufacturers and by
government-mandated safety requirements as it is by any
consideration by consumers of how much life is worth.
Also, many people may be interested in a whole range of
safety devices and believe they are worthwhile, but are
unable to afford them. More fundamentally, spending on
safety items reflects a consumer's willingness to pay to
reduce risk, perhaps more a measure of how cautious a
person is than how much he or she values life. Few of
us, when confronted with the threat, "Your money or your
life!" would, like Jack Benny, pause and respond, "I'm
thinking, I'm thinking." Most of us would empty our
wallets.
Id. And as for the wage-risk premiums that Dr. Smith purportedly
took into account, "[t]o say that the salary paid to those who hold
risky jobs tells us something significant about how much we value
life ignores the fact that humans are moved by more than monetary
incentives." Id.; see Wilt v. Buracker, 443 S.E.2d 196, 205 (W.
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Va. 1993) ("Anyone who is familiar with the wages of coal miners,
policemen, and firefighters would scoff at the assertion that these
high risk jobs have any meaningful extra wage component for the
risks undertaken by workers in those professions."). Finally, the
cost of government health and safety regulations per life saved
"may suggest a collective policy judgment the government has made,
or may represent a policy selected for reasons other than the
cost-benefit analysis 'hedonic analysis' implies, or even a
mistaken policy." Dorn, 397 F.3d at 1195; see Mercado, 974 F.2d at
871 (identifying a host of issues other than the value of life that
prompt government health and safety measures). In short, Dr.
Smith's method for valuing life is based on assumptions "that
appear to controvert logic and good sense." Wilt, 443 S.E.2d at
205.
But even assuming that Dr. Smith's formula is a reliable
measure of the value of life, it was of no assistance to the jury
in calculating Smith's loss of enjoyment of life. As other courts
have recognized, "[t]he willingness-to-pay studies do not relate in
any way to the actual component of damages, the enjoyment of life."
Id. at 205 n.15; see Sullivan, 862 F. Supp. at 321 ("The studies
relied on by Mr. Smith do not use methodology designed to calculate
the loss of enjoyment of life, yet are nonetheless extrapolated by
Mr. Smith into what he claims to be valid data for calculating
damages for . . . loss of enjoyment of life."). Dr. Smith equated
-22-
the value of life with the value of enjoyment of life, though it is
readily apparent that the two are not the same. A plaintiff who
loses enjoyment of life but is alive is not in the same shoes as a
plaintiff who lost his life. As the court observed in Sullivan:
"Mr. and Mrs. Sullivan suffered totally distinct and different
damages (Mrs. Sullivan died, Mr. Sullivan faces living without the
support and companionship of his wife), yet, under Mr. Smith's
analysis their damages are identical, save only an adjustment for
differing the expectancy." 862 F. Supp. at 321. That Dr. Smith
may equate the value of enjoyment of life with the value of life
itself is not enough to bridge the gap. See Gen. Elec. Co. v.
Joiner, 522 U.S. 136, 146 (1997) ("[N]othing in either Daubert or
the Federal Rules of Evidence requires a district court to admit
opinion evidence that is connected to existing data only by the
ipse dixit of the expert.").
b. Loss of Credit Expectancy
Dr. Smith also testified that Smith suffered "the loss of
credit expectancy" in the amount of $87,850 as a result of the
foreclosures. According to Dr. Smith, a person with a good credit
rating has the ability to borrow twice his annual income at a 12%
rate of interest. This "credit expectancy" represents a "safety
net"--even though a person will "rarely" have to borrow the maximum
available credit, it is valuable, according to Dr. Smith, because
it gives the person "flexibility, an option in life." On the other
-23-
hand, someone with a bad credit rating has an increased cost of
using this available credit because the rate of interest jumps to
at least 25%. The increased cost lasts for seven years, the length
of time that a delinquency remains on a credit report. According
to Dr. Smith, this increased cost of borrowing twice one's income
is the amount of lost credit expectancy. Because Smith had a good
credit rating prior to the foreclosures, which derailed it, Dr.
Smith doubled Smith's reported income of $41,000 and multiplied it
by 13% per year for seven years to arrive at the $87,850 figure for
Smith's loss of credit expectancy.
This testimony was inadmissible under Rule 702. By the
time this case went to trial, more than five years had passed since
Smith's credit troubles began. Even assuming that Smith actually
had the capacity to borrow twice his income at the suggested rates,
a proposition for which Dr. Smith cited no authority but himself,
there was no evidence that Smith tried to or had the intention to
borrow anything close to that amount during those five years.5 The
conclusion that Smith should nonetheless be compensated as if he
had borrowed the maximum amount of "available" credit in year one
at the high cost of 25% per year is unsupportable. The disconnect
between Dr. Smith's methodology and the facts of the case rendered
5
Smith only testified that he "applied for credit cards, and
they wouldn't give it to me."
-24-
the testimony unhelpful to the jury in determining Smith's actual
damages.
Similarly, there was no evidence of the likelihood of
Smith borrowing the stated sum in the remaining two years before
the foreclosures would disappear from his credit report. Nor was
there any evidence of his income at the time, a crucial variable in
Dr. Smith's formula. "With respect to future damages, a plaintiff
is entitled to compensation for all damages that reasonably are to
be expected to follow, but not to those that possibly may follow,
the injury which he has suffered." Donovan v. Philip Morris USA,
Inc., 914 N.E.2d 891, 899 (Mass. 2009) (internal quotation marks
omitted) (brackets omitted). Absent evidence to the contrary,
Smith's loss of future credit expectancy at the rate calculated by
Dr. Smith was merely in the realm of possible harm. As such, it
was speculative and should have been excluded.
None of this is to suggest that the damage to Smith's
credit rating is not compensable. See United States v. Burke, 504
U.S. 229, 239 (1992) (listing "a ruined credit rating" as an
example of consequential damages). Dr. Smith's methodology was
simply not a useful measure, and his testimony should not have been
admitted.
c. Loss of Time
Finally, Dr. Smith testified that Smith was entitled to
$22,729 for the time that he spent dealing with the consequences of
-25-
the fraud. According to Dr. Smith, Smith spent at least half an
hour a day for five years seeking to resolve foreclosure-related
issues. Dr. Smith valued that time by calculating how much Smith
would have expended had he hired an administrative assistant to
handle those issues on his behalf.
Century 21 maintains that Dr. Smith's testimony lacked a
factual foundation because there was no evidence that Smith was
ever employed as an administrative assistant or that he spent half
an hour per day dealing with the consequences of the foreclosures.
We leave this issue for the district court to properly assess under
Daubert.
d. Harmlessness Analysis
Finally, again assuming in the alternative that the
district court performed the Daubert assessment and that the
admission of a portion of Dr. Smith's testimony was nevertheless
erroneous, we find that the error was not harmless. Indeed, the
district court apparently thought so as well. In denying Century
21's post-trial motion, the court candidly observed that "Dr.
Smith's testimony was hardly a model of exactitude, and in
retrospect, it perhaps should have been excluded." Smith v.
Jenkins, 07-CV-12067-RGS, 2011 WL 1660577, at *2 (D. Mass. May 3,
2011). But, according to the district court,
it is equally true that from every appearance, the jury
did not base its damages award on those portions of Dr.
Smith's relatively brief testimony that veered from the
mundane into the purely speculative . . . . It appears
-26-
rather that the jury based its far less ambitious awards
against those defendants it found liable on a
common-sense assessment of the impact that the ruin of
Smith's credit had (and will have) on his emotional
health and future earning prospects.
Id.
It appears to us, however, that the court's jury
instruction on damages must have affected the jury's determination.
The jury was told that Smith was presenting "a unified theory of
damages, as explained in the testimony of his economist, Dr. Smith"
and that any award of damages "should be guided by one or more of
the measures put forward by Dr. Smith." As it is "[a] basic
premise of our jury system . . . that the jury follows the court's
instructions," we presume that the jury acted according to its
charge. Refuse & Envtl. Sys., Inc. v. Indus. Servs. of Am., Inc.,
932 F.2d 37, 40 (1st Cir. 1991). Indeed, while the $260,000 that
was awarded by the jury was lower than Dr. Smith's $330,000
estimate, we can discern no basis in the record other than Dr.
Smith's testimony for an award that was 79% of the amount that he
estimated. Given the instruction and the damages awarded, we
cannot say with any degree of assurance that the award was not
substantially swayed by the erroneous admission of Dr. Smith's
testimony. Accordingly, we remand for a new trial on damages.6
6
Because we are ordering a new trial on damages, we need not
reach Smith's claim that the district court erred by failing to
instruct the jury that, in addition to the measures of damages
testified to by Dr. Smith, Smith could be compensated for: (1)
Jenkins's "contract release fees"; (2) the rents from the two
-27-
B. NEMCO
The jury found NEMCO, the mortgage broker for the Dighton
transaction, liable to Smith for fraud and breach of fiduciary
duty. The district court denied NEMCO's motion for judgment as a
matter of law and doubled the jury's $50,000 award against NEMCO
pursuant to Chapter 93A. NEMCO appeals both the denial of the
motion and the Chapter 93A ruling.
1. Common-Law Claims
NEMCO argues that no evidence was offered at trial that
a representative of NEMCO made any statements to Smith upon which
Smith could have reasonably relied, thus precluding liability on
the fraud claim. See Fordyce, 929 N.E.2d at 936. Similarly, NEMCO
maintains that there was no evidence that Smith had reposed a high
degree of trust and confidence in NEMCO or that NEMCO was aware of
his trust. See Broomfield, 212 N.E.2d at 560. A careful review of
the record persuades us that NEMCO is right.
The record before the jury was devoid of any evidence
that NEMCO made any statement to Smith, let alone one that he
relied upon to his detriment. Smith had no communication with
Noyes, NEMCO's loan originator who filled out Smith's loan
application for the Dighton property, or any other person
properties collected prior to the foreclosures; and (3) Smith's
potential tax liability based on the forgiveness-of-indebtedness
income from the foreclosures.
-28-
associated with NEMCO. Smith makes much of the fact that he signed
the loan application at the closing, but the misrepresentations in
that application were statements made to the lender, not to Smith.
And even if the application could be construed as a statement to
Smith, Smith testified that he never read it or understood its
import, and therefore he could not have relied upon it.
To salvage the claim, Smith argues that Bertucci, as the
closing attorney, spoke on behalf of NEMCO when he assured Smith
that the paperwork was in order. There is no evidence in the
record to support this assertion. Bertucci's uncontroverted
testimony was that he was the attorney for the lender, Fremont.
Undeterred by the lack of evidence, Smith argues that
NEMCO must have authorized Fremont to appoint Bertucci as NEMCO's
agent because, as the mortgage broker, NEMCO was required to
maintain all records of the transaction and to make disclosures to
Smith. Smith cites no authority for this proposition. An
attorney's services as a closing agent are typically relied upon by
all the parties to a real estate transaction. That, in itself, is
insufficient to make the closing agent a representative of the
mortgage broker or anyone else but the lender. Because there was
no evidence that any agent of NEMCO made any statement to Smith
-29-
that he relied upon to his detriment, the jury verdict against
NEMCO on the fraud count cannot stand.7
The same is true for the breach of fiduciary duty claim.
Because Smith was unaware of NEMCO's role in the scheme, he could
not have reposed his trust in the mortgage broker. There is no
evidence, moreover, that NEMCO was aware of Smith's trust such that
a fiduciary duty could attach. Accordingly, NEMCO is entitled to
judgment as a matter of law on this claim as well.8
2. Chapter 93A Claim
After the jury returned its verdict, the district court
held that NEMCO had violated Chapter 93A by engaging in deceptive
conduct and that punitive damages were warranted. NEMCO argues
that the court made clear factual errors and that the evidence did
not support a finding of liability. We agree.
Chapter 93A provides a cause of action for a plaintiff
who "has been injured," Mass. Gen. Laws ch. 93A, § 9(1), by "unfair
or deceptive acts or practices," id. ch. 93A, § 2(a). "The
7
Smith argues that because Jenkins refused to testify at
trial on the basis of the Fifth Amendment, the jury could conclude
that Jenkins was also an agent of NEMCO. As this assertion amounts
to nothing more than speculation, we do not indulge it.
8
For the same reasons, we affirm the grant of Union Capital's
motion for judgment as a matter of law, which Smith challenges in
his cross-appeal. The exact same evidentiary deficiencies existed
in Smith's claims against Union Capital, the mortgage broker for
the Boston transaction. Curiously, the district court correctly
set aside the jury verdict against Union Capital, but did not apply
the same rationale to the verdict against NEMCO.
-30-
determination of whether certain conduct is unfair or deceptive is
a question of fact, but whether that conduct rises to the level of
a chapter 93A violation is a question of law." Fed. Ins. Co. v.
HPSC, Inc., 480 F.3d 26, 34 (1st Cir. 2007). We review the
district court's findings of fact for clear error and its
conclusions of law de novo. Arthur D. Little, Inc. v. Dooyang
Corp., 147 F.3d 47, 54 (1st Cir. 1998). "A finding is 'clearly
erroneous' when although there is evidence to support it, the
reviewing court on the entire evidence is left with the definite
and firm conviction that a mistake has been committed." United
States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948).
The district court ruled that NEMCO had violated Chapter
93A by engaging in deceptive conduct. Specifically, the court
found that "Noyes, the NEMC[O] branch manager with whom Jenkins and
Taylor were in league, made numerous statements that she knew or
should have known were false regarding Smith's creditworthiness in
the loan applications for both properties." Smith, 818 F. Supp. 2d
at 342. The court compared the two applications and concluded that
they contained numerous "glaring inconsistencies" that "could not
have gone unnoticed" by Noyes. Id. at 343. In addition, the court
found that in both applications Noyes falsely stated that she had
gathered the information in a face-to-face interview with Smith.
Id. at 342-43. Based on these findings, the court concluded that
-31-
Noyes's conduct constituted a willing and knowing violation of
Chapter 93A and doubled the jury award against NEMCO.
The key finding -- that Noyes had completed both loan
applications -- was clearly erroneous. The evidence showed that
Noyes was the loan originator only for the Dighton transaction. It
was undisputed that Union Capital was the mortgage broker for the
Boston transaction and that its employee Goodwin completed the
second loan application. There was no evidence that Noyes was
involved in the Boston transaction in any capacity or that NEMCO
and Union Capital were somehow related. Hence, the inconsistencies
in the two applications amount to naught.
Nor was there any evidence that Noyes was "in league"
with Jenkins and Taylor. There was no evidence of any
communication between Noyes and Jenkins, or between Noyes and
Taylor.9 Without more, the record does not support the finding
that Noyes knew or should have known that Smith's financial
information was false.10
All that is left, then, is Noyes's representation in the
application that she had interviewed Smith in person in preparing
9
Neither Noyes nor Taylor was called to testify at trial, and
Jenkins asserted his Fifth Amendment privilege.
10
We cannot independently conclude that Smith's purported
income of $90,000, as stated in the loan application, was so
disproportionate to his stated occupation as a driver for Waste
Management that, based on that alone, Noyes must have known the
information was false.
-32-
the loan application for the Dighton property. As Smith testified
that he never met Noyes, the district court supportably found that
Noyes knew that this statement was false. But when the alleged
basis for Chapter 93A liability is a misrepresentation, as is the
case here, a plaintiff must prove "a causal connection between the
deception and the loss and that the loss was foreseeable as a
result of the deception." Casavant v. Norwegian Cruise Line Ltd.,
952 N.E.2d 908, 912 (Mass. 2011) (internal quotation marks
omitted); see also Hershenow v. Enter. Rent-A-Car Co. of Bos.,
Inc., 840 N.E.2d 526, 528 (Mass. 2006) ("[P]roving a causal
connection between a deceptive act and a loss to the consumer is an
essential predicate for recovery under our consumer protection
statute."). Smith speculates that by misrepresenting how she
acquired his information, Noyes was able to "lend false legitimacy"
to the loan application. As NEMCO points out, however, there was
no evidence as to the effect of the statement on the lender's
decision to make the loan. The lender's representative testified
that Smith's "creditworthiness, his ability to repay, his proven
track record of making payments . . . to other creditors . . . and
his employment" were behind the decision to make the loan.
On this record -- a clearly erroneous finding that Noyes
had prepared the loan application for the Boston transaction, and
a lack of evidence of the effect of Noyes's actions on the Dighton
transaction -- we must vacate the judgment against NEMCO on the
-33-
Chapter 93A claim and remand this issue to the district court.
Although the district court has discretion over any further
proceedings, we note that an evidentiary hearing would allow both
NEMCO and Smith to develop their positions and could help avoid
confusion about the facts of the case in any future appeal.11
C. Smith's Cross-Appeal
In his cross-appeal, Smith assigns error to various
rulings of the district court. We address them in turn.
1. Judgment in favor of Kelley and RKelley-Law
At the close of Smith's evidence, RKelley-Law and Robert
Kelley, its sole shareholder, moved for judgment as a matter of law
on all counts. The district court granted the motion on the basis
that there was no evidence that Kelley knew about or participated
in the fraud. Smith maintains that there was sufficient evidence
of Kelley's direct involvement to allow the question to go to the
jury, and that, in any event, Kelley and the law firm could be held
vicariously liable for Bertucci's fraud.
The first argument need not detain us. According to
Smith, the evidence of Kelley's direct involvement is his signature
11
We do not reach NEMCO's appellate arguments that the
district court erred when it denied its motion in limine to exclude
a cease-and-desist order and when it declined to give a curative
instruction in response to a portion of plaintiff's counsel's
closing argument. With respect to the cease-and-desist order, in
any retrial the district court will need to consider whether the
order is inadmissible as evidence of propensity, see Fed. R. Evid.
404(b), or properly may be admitted for another purpose.
-34-
on several closing documents that also bear Smith's signature.
Smith argues that, based on this alone, the jury could conclude
that Kelley had communicated with Smith at the closing and made the
same false assurances as Bertucci. Smith conveniently fails to
mention his testimony that he did not meet Kelley at either closing
and that Bertucci was the only lawyer present who made
representations to Smith about the documents that Smith was asked
to sign. In this case, Kelley's signature on a couple of forms is
simply not enough to show that Kelley made false statements to
Smith upon which Smith relied to his detriment. The district court
correctly entered judgment in Kelley's favor.
We think, however, that the court was mistaken in
granting the motion of RKelley-Law, the professional corporation
that employed Bertucci. Sufficient evidence was presented to
warrant a finding that the firm was vicariously liable for
Bertucci's fraud. Under Massachusetts law, an employer may be held
vicariously liable for an intentional tort committed by an agent or
employee within the scope of the employment. Worcester Ins. Co. v.
Fells Acres Day Sch., Inc., 558 N.E.2d 958, 967 (Mass. 1990).
"[C]onduct of an agent is within the scope of employment if it is
of the kind he is employed to perform; if it occurs substantially
within the authorized time and space limits; and if it is
motivated, at least in part, by a purpose to serve the employer."
-35-
Wang Labs., Inc. v. Bus. Incentives, Inc., 501 N.E.2d 1163, 1166
(Mass. 1986) (internal citations omitted).
The evidence would have permitted a jury to find that all
three elements were satisfied: that Bertucci's acts as the closing
agent were within the purview of his job, that both closings took
place at the RKelley-Law office during regular business hours, and
that Bertucci's participation in the fraudulent closings was
motivated, at least in part, by a desire to serve RKelley-Law's
interests (the firm received fees as the closing agent on both
transactions). Because the jury found Bertucci liable for fraud,
and because there was evidence that Bertucci acted within the scope
of his employment, we vacate the entry of judgment in favor of
RKelley-Law and remand this issue to the district court. On
remand, RKelley-Law may present a defense to Smith's claims of
vicarious liability for both Bertucci's fraud and his violation of
Chapter 93A. See id. (holding that employer is liable under
Chapter 93A for employee's conduct that falls within the scope of
the employment).12
12
Smith argues, in a footnote, that Kelley is also vicariously
liable for Bertucci's conduct because, although RKelley-Law is a
professional corporation, the Massachusetts Professional
Corporation Law provides that it does not "alter any law applicable
to the relationship between a person rendering professional
services and a person receiving such services, including liability
arising out of such professional services." Mass. Gen. Laws ch.
156A, § 6(b). Given that Smith does not challenge the district
court's determination that there was no attorney-client
relationship between him and Bertucci, the applicability of the
cited provision is unclear. As Smith has failed to develop the
-36-
2. Chapter 93A Demand Letters
Union Capital and Century 21 moved for judgment as a
matter of law on Smith's Chapter 93A claims. The district court
granted the motions, ruling that Smith had failed to properly serve
either defendant with a demand letter as required by the statute.
Smith argues that he complied with the statutory requirement and
that the court erroneously required that the letters be served on
the defendants in compliance with the Massachusetts service of
process rules. We review the grant of the motions de novo, taking
the facts in the light most favorable to Smith. McLane, Graf,
Raulerson & Middleton, P.A. v. Rechberger, 280 F.3d 26, 39 (1st
Cir. 2002).
We begin with the demand letter requirement. As a
prerequisite to suit, Chapter 93A requires that "a written demand
for relief, identifying the claimant and reasonably describing the
unfair or deceptive act or practice relied upon and the injury
suffered, shall be mailed or delivered to any prospective
respondent." Mass. Gen. Laws ch. 93A, § 9(3). The dual purpose of
this requirement is "to encourage negotiation and settlement" and
"to operate as a control on the amount of damages." Slaney v.
Westwood Auto, Inc., 322 N.E.2d 768, 779 (Mass. 1975).
argument, we do not address it. See United States v. Zannino, 895
F.2d 1, 17 (1st Cir. 1990) (holding that "issues adverted to in a
perfunctory manner, unaccompanied by some effort at developed
argumentation, are deemed waived").
-37-
Smith addressed a demand letter to Union Capital and
mailed it via certified mail to the address of Union Capital's
registered agent in Massachusetts, without specifying the
registered agent or any other agent of the company as the
designated recipient. The registered agent was in jail at the time
and his spouse signed the return receipt. The district court found
this deficient, reasoning that under Rule 4(d)(2) of the
Massachusetts Rules of Civil Procedure, "proper service on a
domestic corporation requires delivery to a corporate officer, a
managing or general agent, or the person in charge at its principal
place of business within the Commonwealth." Smith v. Jenkins, 777
F. Supp. 2d 264, 268 (D. Mass. 2011). The court concluded that
Smith failed to comply with the service of process rule and, by
extension, the demand letter requirement, because he failed to
designate Union Capital's registered agent as the letter's
recipient. Id.
No authority has been cited for the proposition that a
Chapter 93A demand letter must be served on a defendant in
compliance with the Massachusetts service of process rules, and we
have found none. In fact, Chapter 93A suggests quite the opposite.
All that the statute requires is that a demand letter be "mailed or
delivered" to a prospective respondent. In contrast, rules
governing service of process are more demanding. See Mass. R. Civ.
P. 4. Distinguishing between mailing or delivering a demand letter
-38-
and service of process accords with the Massachusetts Business
Corporation Law, which specifies that a corporation's registered
agent is its agent for "service of process, notice, or demand
required or permitted by law to be served on the corporation."
Mass. Gen. Laws ch. 156D, § 5.04.
Hence, Smith could serve the demand letter on Union
Capital by mailing it to the company's registered agent. Nothing
suggests that he had to designate the registered agent as the
recipient instead of the corporation. Because Smith complied with
the demand letter requirement in this instance, we remand the claim
to the district court for a determination on the merits.
With respect to Century 21, Smith mailed two copies of
the demand letter via certified mail to "James Adamos c/o Century
21" and to "Ivana Foley c/o Century 21" at Century 21's address.13
Neither sales agent was employed by Century 21 at the time and the
letters were returned unclaimed. Smith followed up by sending the
letter to the same addressees via first-class mail. Those letters
were not returned to Smith. At no point did Smith mail or deliver
a demand letter to Century 21 or to Cahill, its owner, broker, and
registered agent, despite the fact that three months before filing
13
Another copy of the demand letter was sent to "Century 21
of New England, Inc." Smith does not appeal the district court's
ruling that this entity was a separate franchise not affiliated
with the defendant Century 21.
-39-
suit, his counsel learned from Adamos that Cahill was his
supervising broker.
The district court concluded that "the sending of the
demand letter to two persons that [Century 21] no longer employed
. . . does not comply with Chapter 93A." Smith, 777 F. Supp. 2d at
269. We agree. The statute plainly provides that a demand letter
must be sent "to any prospective respondent." Mass. Gen. Laws ch.
93A, § 9(3). The respondent was Century 21, not its former sales
agents.
Smith would have us hold that mailing the demand letter
to former employees ought to be sufficient because "mail addressed
to a former employee will very likely be opened by the company that
receives it and read." Whatever the merits of this assertion, here
there is no evidence that Century 21 opened the letters. On the
contrary, the letters sent via certified mail were returned
unclaimed, and Cahill attested that she never received or reviewed
any demand letter from Smith. Accordingly, the district court
correctly granted Century 21's motion for judgment as a matter of
law on the Chapter 93A claim.
3. Leave to Amend
After the defendants moved for summary judgment, Smith
sought leave to file his second amended complaint to assert claims
of breach of fiduciary duty and breach of contract against Union
Capital and NEMCO. The district court granted the motion with
-40-
respect to the breach of fiduciary duty claim but denied it as to
the breach of contract claim. Smith assigns error to the denial,
asserting that he had viable breach-of-contract claims against the
two mortgage brokers. This challenge lacks merit.
We review denials of motions to amend pleadings for abuse
of discretion "and will defer to the district court's hands-on
judgment so long as the record evinces an adequate reason for the
denial." Aponte-Torres v. Univ. of P.R., 445 F.3d 50, 58 (1st Cir.
2006). "Futility of the amendment constitutes an adequate reason
to deny the motion to amend." Todisco v. Verizon Commc'ns, Inc.,
497 F.3d 95, 98 (1st Cir. 2007).
Smith's amendment was futile because he failed to allege
that he entered into a valid contract with either mortgage broker.
See Adorno v. Crowley Towing & Transp. Co., 443 F.3d 122, 126 (1st
Cir. 2006) (a proffered amendment is futile if it fails to state a
claim upon which relief may be granted). What spurred Smith to
seek leave to assert the breach-of-contract claims was the
discovery of loan origination agreements bearing his signature.
The agreements provide that the brokers would "apply for a
residential mortgage loan from a lender" on Smith's behalf. Smith
alleged that they breached this obligation by entering false
information on the loan applications. Assuming that this would
constitute a breach, Smith failed to allege "the most elemental
prerequisite to the formation of an enforceable contract--the
-41-
meeting of the minds." Nash v. Trs. of Bos. Univ., 946 F.2d 960,
966 (1st Cir. 1991).
Not only did Smith fail to allege the existence of valid
contracts, but he alleged quite the contrary in his complaint. The
substance of his tort claims (and his unequivocal testimony) was
that he signed all the documents because the defendants represented
them as paperwork for an "investment" and at no point disclosed to
him that he was taking part in mortgage loan transactions. He
thereby alleged "fraud in the factum"--that is, "fraudulent
procurement of a party's signature to an instrument without
knowledge of its true nature," rendering void any documents he
signed. Fed. Deposit Ins. Corp. v. Caporale, 931 F.2d 1, 2 n.1
(1st Cir. 1991); see Federico v. Brockton Credit Union, 653 N.E.2d
607, 611 (Mass. App. Ct. 1995) (describing fraud in the factum as
occurring in "the rare case when there has been fraud as to the
essential nature of the instrument or an essential element of it,"
such as "the case of someone tricked into signing a note in the
belief that the paper is a receipt").
At its core, fraud in the factum signifies "the absence
of that degree of mutual assent prerequisite to formation of a
binding contract; absent the proverbial 'meeting of the minds' one
cannot be said to have obligated himself in law and the purported
transaction is regarded as void." 26 Williston on Contracts § 69:4
(4th ed. 2003) (quoting Bancredit, Inc. v. Bethea, 172 A.2d 10, 12
-42-
(N.J. Super. Ct. App. Div. 1961)). Because Smith alleged that the
defendants coaxed him into signing the loan agreements by
representing them as "investment" documents, he effectively alleged
that the contracts were void. It was therefore well within the
district court's discretion to deny leave to amend.14
4. Emotional Distress Claim
Finally, Smith contends that the district court erred in
granting summary judgment to the defendants on his claim of
intentional infliction of emotional distress. We review the entry
of summary judgment de novo, "drawing all reasonable inferences in
favor of the non-moving party while ignoring conclusory
allegations, improbable inferences, and unsupported speculation."
Shafmaster v. United States, 707 F.3d 130, 135 (1st Cir. 2013)
(internal quotation marks omitted).
Under Massachusetts law, to prevail on a claim of
intentional infliction of emotional distress, the plaintiff must
prove, among other elements, that "the actor intended to inflict
emotional distress or that he knew or should have known that
emotional distress was the likely result of his conduct." Howell
v. Enter. Publ'g Co., 920 N.E.2d 1, 28 (Mass. 2010). Smith alleged
14
A plaintiff may, of course, plead inconsistent theories of
relief in the alternative. See Fed. R. Civ. P. 8(d). But even if
he adequately pleaded the contract claims, Smith prevailed on his
tort claims because the jury believed his version of the events--
that he unwittingly borrowed money to purchase the two properties
because the defendants defrauded him. Accordingly, he could not
have prevailed on his breach of contract claims as well.
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that the defendants knew or should have known that he would suffer
emotional distress as a result of their fraud. The district court
concluded that no evidence supported this allegation.
In mounting his challenge, Smith does not cite any record
evidence that would bring into question the district court's
ruling. Instead, he cites two studies for the proposition that
"there is a significant link between depression and one's financial
status." Even if these studies could show that Smith's emotional
distress was foreseeable to the defendants, they were not in the
record before the district court. Save for certain exceptions not
applicable here, we do not consider arguments or evidence not
presented to the district court. United States v. Font-Ramirez,
944 F.2d 42, 46 n.2 (1st Cir. 1991). "Unlike the Emperor Nero,
litigants cannot fiddle as Rome burns. A party who sits in silence
[and] withholds potentially relevant information . . . does so at
his peril." Vasapolli v. Rostoff, 39 F.3d 27, 36 (1st Cir. 1994).
Accordingly, we affirm the grant of summary judgment.
III.
For the aforementioned reasons, we: (1) vacate the
damages award against Century 21 and remand for a new trial on
damages; (2) reverse the judgment against NEMCO on Smith's common-
law claims; (3) vacate the judgment against NEMCO on Smith's
Chapter 93A claim and remand for determination on the merits
consistent with this opinion; (4) vacate the judgment in favor of
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RKelley-Law and remand for further proceedings; and (5) reverse the
dismissal of the Chapter 93A claim against Union Capital and remand
for a determination of the claim on the merits. We affirm in all
other respects.
The parties shall bear their own costs of appeal.
So ordered.
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