Smith v. Kelley

484 Mass 111 (2020)

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Nature of the Case

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Facts

P is a United States Marine Corps veteran. He suffers from schizophrenia, posttraumatic stress disorder, and depression, and he is functionally illiterate. In 2005, P was living out of his car and working as a trash collector. P became the victim of a mortgage fraud scheme. P was approached about a “special investment program” that would not require him to invest any money. P agreed, and two real estate purchases were subsequently orchestrated in P's name using a false financial profile of his income, assets, and work and renting history. Louis Bertucci, a real estate attorney, and then-associate at the P.C., acted as the closing attorney for both properties. Bertucci was acting as the lender's attorney in these transactions. He directed P to sign the loan documents. Bertucci also instructed D to sign contradictory and false owner-occupancy affidavits. Several months after the closings, P began receiving telephone calls from lenders about missed mortgage payments. Both properties went into foreclosure. P was prevented from being able to rent an apartment. His mental health also deteriorated precipitously; his schizophrenia worsened, he became suicidal, and he withdrew from others. In 2007, P brought suit in State court against Bertucci, the P.C., D (the sole shareholder of the P.C.), and others. The case was removed and D and the P.C. sought a directed verdict on the claims asserted against them for fraud and vicarious liability. The District Court judge entered a directed verdict in favor of D and the P.C. On appeal, the court held that there was “sufficient evidence was presented to warrant a finding that the [P.C.] was vicariously liable for Bertucci's fraud” and remanded the case to the District Court. The judge found the P.C. vicariously liable. The judge entered a final judgment against the P.C. in excess of $200,000. The P.C. had been formed by D in or around 2003. The practice primarily involved real estate conveyances. It employed twelve to fifteen employees. D was the sole shareholder, president, treasurer, secretary, and director of the P.C. D served as the P.C.'s registered agent in Massachusetts. During the pendency of the litigation in Federal court, D laid off everyone who worked at the P.C. other than himself. The day after final judgment was entered against the P.C. on P's claims, D resigned from his officer positions and voted to wind up the corporation. D sought to file bankruptcy for the P.C. At the same time, D opened a sole proprietorship called the Law Office of R. Emmett Kelley. D had existing clients of the P.C. amend their fee agreements to bill all future work to the sole proprietorship, instead of the P.C. The sole proprietorship operated out of the same office as the P.C., used the same e-mail address, and utilized very similar letterhead. Three months after the final judgment was entered against the P.C., on April 4, 2016, the Federal District Court judge issued an execution against the P.C. for $255,728 plus interest. P brought the instant suit against D seeking a declaratory judgment that D was personally liable for the P.C.'s liabilities as a successor in interest. The bankruptcy trustee determined that the P.C. had direct claims against D because D had taken equipment, inventory, and supplies without paying for them. Receivables owed to the P.C. had been deposited into D's account. D offered to purchase the claims from the bankruptcy estate for $85,000. The sale was to comprise “all of the claims … that the bankruptcy estate has or could have against D.” The trustee also indicated that he believed the probability of success on the indirect liability claims “to be uncertain at best.” The trustee explained that he was “not aware of any instance in which an individual attorney has been found liable as a successor to his previous professional corporation.” The court approved the sale but left open alter ego and veil-piercing claims. The parties filed cross-motions for summary judgment in the State court litigation. D's motion for summary judgment was granted in that the doctrine of successor liability was only applicable to successor corporations, and could not be applied where the successor in interest was a natural person, rather than a corporate entity. P appealed, and the case was transferred to this court on our own motion.