CAIN v. ARAGORN LTD (2020)

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

The plaintiffs brought a fraud action against their former financial advisers. A Superior Court judge allowed the defendants' motion to dismiss under Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754 (1974), and judgment entered accordingly. We affirm.

Discussion. “We review the allowance of a motion to dismiss de novo.” Magliacane v. City of Gardner, 483 Mass. 842, 848 (2020), quoting Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 676 (2011). “For purposes of that review, [in addition to] accept[ing] as true the facts alleged in the plaintiffs' complaint and any exhibits attached thereto, [we] draw[ ] all reasonable inferences in the plaintiffs' favor.” Magliacane, 483 Mass. at 848, quoting Revere v. Massachusetts Gaming Comm'n, 476 Mass. 591, 595 (2017).

Here, the amended complaint alleged that, in 2011, the plaintiffs filed suits against the defendants alleging negligence and failure to prudently invest the plaintiffs' funds (the underlying actions). The defendants filed motions to dismiss or in the alternative to compel arbitration. Therein the defendants moved that the “Plaintiff[s'] claims be dismissed ․ and be compelled to arbitration before the Financial Industry Regulatory Authority” (FINRA). In 2012, the underlying actions were referred for arbitration before FINRA. In 2014, the plaintiffs actually filed for arbitration before FINRA. The plaintiffs then received notice from FINRA that FINRA did not have jurisdiction over the underlying actions because the defendants were not FINRA members.

In 2017, the plaintiffs filed the instant amended complaint in which they alleged that the defendants “committed fraud [in the underlying actions] by representing through pleading that [the defendants] w[ere] member[s] of FINRA.” The plaintiffs further alleged that “as a direct result of this fraud the plaintiff[s] ha[ve] been denied an opportunity to recover the damages” sought in the underlying actions.

The plaintiffs' fraud claims fail because the litigation privilege protects statements the defendants made in litigating the underlying actions. “[S]tatements made in the course of a judicial proceeding that pertain to that proceeding are ․ absolutely privileged and cannot support civil liability.” Patriot Group, LLC v. Edmands, 96 Mass. App. Ct. 478, 483-484 (2019), quoting Correllas v. Viveiros, 410 Mass. 314, 319 (1991). “The litigation privilege generally precludes civil liability based on ‘statements by a party, [or] counsel’ ․” Gillette Co. v. Provost, 91 Mass. App. Ct. 133, 140 (2017), quoting Sriberg v. Raymond, 370 Mass. 105, 108-109 (1976). The privilege applies not only to oral statements made in the course of, e.g., a trial, but also to statements made “in the institution or conduct of litigation or in conferences and other communications preliminary to litigation.” Sriberg, 370 Mass. at 109 (privilege protects, e.g., “a communication mailed by an attorney to a person against whom, the communication indicates, the attorney is threatening to bring a lawsuit”).

Here, the defendants made the statements requesting that the “Plaintiff[s'] claims be dismissed ․ and be compelled to arbitration before [FINRA]” in the defendants' motions to dismiss or in the alternative to compel arbitration, in the underlying actions. The statements were made in the course of judicial proceedings, the underlying actions, and pertained to the proposed resolution of those proceedings. See Patriot Group, 96 Mass. App. Ct. at 483-484. Therefore, the statements are absolutely privileged and cannot support civil liability. See id.

Moreover, the plaintiffs failed to meet the pleading requirements for fraud. The elements of fraud are “[1] a false representation [2] of a matter of material fact [3] with knowledge of its falsity [4] for the purpose of inducing [action] thereon, and [5] that the plaintiff relied upon the representation as true and acted upon it to his [or her] damage.” Balles v. Babcock Power Inc., 476 Mass. 565, 573 (2017), quoting Danca v. Taunton Sav. Bank, 385 Mass. 1, 8 (1982). “In all averments of fraud ․ the circumstances constituting fraud ․ [must] be stated with particularity.” Mass. R. Civ. P. 9 (b), 365 Mass. 751 (1974).

The defendants' motions that the “Plaintiff[s'] claims be dismissed ․ and be compelled to arbitration before [FINRA]” are not false representations of material fact. They are formal requests submitted to the Superior Court, presumably based on legal and factual argument. Further, one cannot reasonably infer from the defendants' requests a “represent[ation] through pleading that [the defendants] w[ere] member[s] of FINRA.” See Magliacane, 483 Mass. at 848 (court only draws “reasonable inferences in the plaintiffs' favor” [citation omitted; emphasis added] ). According to the facts alleged in the amended complaint, the defendants made no representations regarding FINRA membership.

The plaintiffs additionally did not allege facts suggesting that they relied on the defendants' statements as true and acted upon them to their detriment. The Superior Court referred the underlying actions for arbitration because in its view the parties had signed a binding arbitration agreement that governed the underlying actions.⁶ Thus, if there was any reliance at all on the defendants' statements, it would appear to be on the part of the Superior Court, rather than the plaintiffs. See Balles, 476 Mass. at 573 (actionable fraud claim requires that plaintiff rely on defendant's representation).

Finally, while the plaintiffs alleged that “as a direct result of [the defendants'] fraud the plaintiff[s] ha[ve] been denied an opportunity to recover the damages” sought in the underlying actions, the plaintiffs do not explain how they were denied any such opportunity. FINRA informed the plaintiffs it would “consider accepting th[eir] claim if the parties sign a post dispute agreement agreeing to arbitrate th[eir] case at FINRA.”⁷ The plaintiffs do not allege that they made any attempts thereafter to arbitrate before FINRA or any other arbitration forum. Thus the plaintiffs have not alleged facts supporting harm.

For the reasons above, the plaintiffs “fail[ed] to state a claim upon which relief can be granted.” Mass. R. Civ. P. 12 (b) (6). Dismissal was proper.

Judgment affirmed.

FOOTNOTES

6.   The plaintiffs submitted the Superior Court's order referring the underlying actions for arbitration as an attachment to the plaintiffs' memorandum in support of their opposition to the defendants' motion to dismiss. Thus, that order is properly before us here. See Magliacane, 483 Mass. at 848 (in reviewing motion to dismiss, we “accept as true the facts alleged in the plaintiffs' complaint and any exhibits attached thereto”); Goodwin v. Lee Public Sch., 475 Mass. 280, 286 (2016) (in reviewing motion to dismiss, court considered plaintiff's statements in her opposition to defendants' motion to dismiss); Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 224 (2011) (in reviewing motion to dismiss, court considered attached documents where plaintiff relied on them in framing complaint).

7.   The plaintiffs also submitted the notice they received from FINRA regarding FINRA's lack of jurisdiction as an attachment to the plaintiffs' memorandum in support of their opposition to the defendants' motion to dismiss. Thus, that notice is also properly before us. See Magliacane, 483 Mass. at 848; Goodwin, 475 Mass. at 286; Golchin, 460 Mass. at 224.