# Petition for Writ of Certiorari — Benistar Ltd. v. Cahaly (No. 08-397)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2008

## Text

Supreme Court, U.S.
TLE D

\OX No.og. 087 397 SEP 24 2008
OFFICE OF THE CLERK
IN THE
Supreme Court of the United States

BENISTAR LTD., BENISTAR EMPLOYER SERVICES

TRUST CORPORATION, BENISTAR ADMIN SERVICES,

INC., DANIEL CARPENTER, MOLLY CARPENTER,
and CARPENTER FINANCIAL GROUP LLC,

Petitioners,
v.

GAIL A. CAHALY, JEFFREY M. JOHNSTON,
BELLEMORE ASSOCIATES, LLC, MASSACHUSETTS
LUMBER COMPANY, INC., JOSEPH IANTOSCA,
INDIVIDUALLY AND AS TRUSTEE OF THE FAXON
HEIGHTS APARTMENTS REALTY TRUST AND FERN
REALTY TRUST, and BELRIDGE CORPORATION,

Respondents.

On PETITION FOR A Writ oF CERTIORARI TO THE
SUPREME JUDICIAL COURT OF MASSACHUSETTS

PETITION FOR A WRIT OF CERTIORARI

JACK E. ROBINSON
Counsel of Record

Of Counsel: RENISTAR
2187 Atlantic Street
ARTHUR R. MILLER Stamford, CT 06902
1525 Massachusetts Avenue .
: (203) 969-6000
Cambridge, MA 02138
(617) 495-4111 Counsel for Petitioners

218317 g

i
QUESTION PRESENTED

For over 60 years, this Court’s decision in
International Shoe Co. v. Washington, 326 U.S. 310
(1945), requiring certain “minimum contacts” with the
forum State, has been an unwavering limitation on the
power of courts to exercise personal jurisdiction over
nonresident defendants consistent with the Due Process
Clause. An alarming trend has emerged in courts across
the country whereby personal jurisdiction is exerted
over nonresident defendants solely through the use of
the state law concept of jurisdictional veil piercing, in
place of undertaking the federal constitutional
“minimum contacts” analysis required by /nternational
Shoe and its progeny. The Supreme Judicial Court of
Massachusetts has now stretched this practice far
beyond its constitutiona] breaking point. The question
presented is:

Whether jurisdictional veil piercing, which depends
upon the vagaries and vicissitudes of state law, can be
the sole basis to exert personal jurisdiction over
nonresident defendants consistent with the Due Process
Clause?

ii
LIST OF PARTIES AND RULE 29.6 STATEMENT

1. The following are parties to the proceeding in the
court below:

Gail A. Cahaly, Jeffrey M. Johnston, Bellemore
Associates, LLC, Massachusetts Lumber Company, Inc.,
Joseph Iantosca, individually and as trustee of the Faxon
Heights Apartments Realty Trust and the Fern Realty
Trust, and Belridge Corporation, Plaintiffs-Appellants.

Benistar Ltd., Benistar Employer Services Trust
Corporation, Benistar Admin Services, Inc., Daniel
Carpenter, Molly Carpenter, Carpenter Financial
Group, LLC, and Benistar Property Exchange Trust
Company, Inc., Defendants-Appellees and Cross-
Appellants.'

Merrill Lynch Pierce Fenner & Smith, Inc.,
Defendant-Appellee.*

UBS Financial Services Inc. f/k/a PaineWebber Inc.,
Defendant-A ppellee.®

' Only Benistar Property Exchange Trust Co., Inc. did not
contest personal jurisdiction and, therefore, is not a party to
this proceeding.

* On September 15, 2008, Bank of America Corporation
announced that it had agreed to acquire Merrill Lynch. The
transaction is expected to close early in the first quarter of 2009.

* PaineWebber, although a defendant-appellee in the
Appeals Court of Massachusetts (“Appeals Court”), was not a
party to the appeal in the Supreme Judicial Court of
Massachusetts (“SJC”).

100

2. Benistar Ltd., Benistar Employer Services Trust
Corporation, Benistar Admin Services, Inc., and
Carpenter Financial Group, LLC, have no parent
corporations, and no publicly held company owns 10%
or more of their stock or membership interests.

iv

TABLE OF CONTENTS
Page
QUESTION PRESENTED .................. i
LIST OF PARTIES AND
RULE 29.6 STATEMENT ................ ii
TABLE OF CONTENTS ............cceeeees iv
TABLE OF APPENDICES .................. vi
TABLE OF CITED AUTHORITIES ......... Vii
PUD cc ccescccccascescesetecse 1
Ne cee pees wee ee vas 1
RELEVANT CONSTITUTIONAL AND
STATUTORY PROVISIONS .............. 2
cass onc owe he deeawees kus 3

EE Sine enweessccecuseveeveewecest 4

Contents

REASONS FOR GRANTING THE PETITION

I. The Minimum Contacts Analysis of
International Shoe is Constitutionally
Required for all Determinations of
Personal Jurisdiction. ...............-. 16

II. The Substantial Confusion Among
Federal and State Courts Warrants
UE See GIs ote seeveceeseces 25

PET sees ucuvscedesveccteeankianss 29

vi

TABLE OF APPENDICES

Appendix A — Amended Order And
Memorandum Of The Commonwealth Of

Massachusetts, Supreme Judicial Court
ee ccc rccevececere

Appendix B — Opinion Of The Supreme Judicial
Court Of Massachusetts, Suffolk Dated May
SEE ee ee eee

Appendix C — Opinion Of The Appeals Court
Of Massachusetts, Suffolk Dated April 17,
tlc wtedebduwenwe eenddecnesee ss

Appendix E — Judgment Of The Supreme Court
Of The State Of New York, County Of New
York, Commercial Division Dated And Filed
ee ek ob uae 6 6hen eee nee

Appendix F — Joint Stipulation Regarding
Personal Jurisdiction Dated March 4, 2003 ...

Page

87a

vii

TABLE OF CITED AUTHORITIES

Page
Cases:
“Automatic” Sprinkler Corp. of America v.
Seneca Foods Corp., 280 N.E.2d 423 (1972) ... 17
Burger King Corp. v. Rudzewicz, 471 U.S. 462
ict hGiae dp kenrumeliian te wbid odes anes 17, 21
Cahaly v. Benistar Property Exchange Trust
Co., Inc., 842 A.2d 1113 (Conn. 2004) ........ 7
Calder v. Jones, 465 U.S. 783 (1984) ...... 13, 20, 21
Cannon Mfg. Co. v. Cudahy Packing Co., 267
ED. eebntcddscnwescsovadan kh 18, 19, 26
Dakota Indus., Inc. v. Ever Best Ltd., 28 F.3d
IES. nc ncevugecds secsanandeds 27
Epps v. Stewart Info. Svcs. Corp., 327 F3d 642
EE Sa ce elo. auvendaee de oiucke wee 27
Erie Railroad Co. v. Tompkins, 304 U.S. 64
Di dhs én06skhecuhadsaseweondadkkdanenes 19
Hannon v. Beard, 524 F.3d 275 (1st Cir. 2008) ... 17
Hanson v. Denckla, 357 U.S. 235 (1958) ....... 17

Harlow v. Children’s Hospital, 432 F.3d 50 (1st
DET: Ri eccuvendndeutdices eceakewwenes 18

Vill

Cited Authorities
Page
Helicopteros Nacionales de Colombia, S.A. v.
Bs Se es ED ck weeccnndacccecees 17
Intech, Inc. v. Triple “C” Marine Salvage, Inc.,
826 N.E.2d 194 (Mass. 2005) ............... 24
International Shoe Co. v. Washington, 326 U.S.
ie it ea ea ieee el ee beet passim
Keeton v. Hustler Magazine, Inc., 465 U.S. 770
I i hai ta ale Te ee 13, 21

Miller v. Miller, 861 N.E.2d 393 (Mass. 2007) .. 24

Milliken v. Meyer, 311 U.S. 457 (1940) ........ 17
PHC-Minden, L.P. v. Kimberly-Clark Corp. 235
ee Is ok cu dddeawekeeeenes 28
Phillips v. Prairie Eye Center, 580 F.3d 22
it te ee a oe 18
Rush v. Savchuck, 444 U.S. 320 (1980) ....... 13, 21
Shaffer v. Heitner, 433 U.S. 186 (1977) ........ 16

United States v. Scophony Corp., 333 U.S. 795
EN i knkinnckedansedeceevensanisaseneous 20

ix

Cited Authorities
Page
Wells Fargo & Co. v. Wells Fargo Express Co.,
566 F.2d 406 (9th Cir. 1977) .......ccccccces 28
World-Wide Volkswagen Corp. v. Woodson, 444
rk kd kv eondenad ena ddeks 13,17
Statutes:
MASS. GEN. LAWS ANN. ch. 223A, § 3 (2000) .. 3

NEV. REV. STAT. ANN. § 645G.300(2) (2008) .. 6

KR Ee ee ere 1
Rules:

Pes Be. CR TB BRIG anne cc cccccccscncccce 9
ae I GA BBE TID ow cc ccccccccccccsens 13

United States Constitution:

Fourteenth Amendment ..................05. 2

x

Cited Authorities
Page
Other Authorities:
IN 5 on oc cccccwsnebecesoees 7
SB C.ER. § 1.1GB1GR)-1NM|]) 2... ccccccccccccs 5
26 C.E-R. § 1.1031(k)-1(k)(2) «2.2... 2. eee eens 9
ech eck nes ib achindeouhe’ 5
SE vn icn spivanwabventecenenbace 4,7
ere Te eT ree 5
Phillip I. Blumberg, The Law of Corporate
Groups: Procedural Problems in the Law of
Parent and Subsidiary Corporations (1983) ... 25
Daniel G. Brown, Comment, Jurisdiction Over
a Corporation on the Basis of the Contacts of
an Affiliated Corporation: Do You Have to
Pierce the Corporate Veil?,61 U. CIN. L. REV.
EE tteiute ens kaneud tkeuseeeduenes 15, 16
Frank H. Easterbrook & Daniel R. Fischel,
Limited Liability and the Corporation, 52
Cl. CEE. Bis HU PORES ccc ccescvcccccese 14

Lonnie S. Hoffman, The Case Against Vicarious
Jurisdiction, 152 U. PA. L. REV. 1023 (2004)

xi

Cited Authorities

Joseph Iantosca, et al. v. Merrill Lynch Pierce
Fenner & Smith, Inc., Civil Action No. 08-
0775-D, Suffolk Superior Court (filed Feb. 15,
DES Lebicies sevnse ves neeskdhaebeeddees

Press Release, Commission Denies Petition for
Rulemaking Related to “Qualified
Intermediaries” Under Internal Revenue
Code Section 1031, FTC (Aug. 26, 2008),
available at http://www.ftc.gov/opa/2008/08/
qis.shtm (last visited Sep. 23, 2008) .........

Jennifer A. Schwartz, Piercing the Corporate
Veil of an Alien Parent for Jurisdictional
Purposes: A Proposal for a Standard that
Comports With Due Process, 96 CAL. L. REV.

Page

WOE ED he be esenccecesscckéeduetes 15-16, 25, 26

John A. Swain & Edwin E. Aguilar, Piercing the
Veil to Assert Personal Jurisdiction Over
Corporate Affiliates: An Empirical Study of
the Cannon Doctrine, 84 B.U. L. REV. 445
ESC ne eee ee ee ee

TREASURY INSPECTOR GENERAL FOR
TAX ADMINISTRATION, U.S. DEP’T OF
TREASURY, PUBLN NO. 2007-30-172, Like-
kind Exchanges Require Oversight to Ensure
Taxpayer Compliance 7 n. 14 (Sep. 17, 2007)
(“2007 Treasury Report”) ..................

xu

Cited Authorities

Page
William A. Voxman, Jurisdiction Over a Parent
Corporation in it’s Subsidiary’s State of
Incorporation, 141 U. PA. L. REV. 327 (1992)
(en EEE ARs eke aks eh ea ene ae weeweea se 16

4A Wright & Miller, Federal Practice and
Procedure § 1069.4 (3d ed. 2002) ........... 22

1
PETITION FOR A WRIT OF CERTIORARI

Petitioners Benistar Ltd., Benistar Employer
Services Trust Corporation, Benistar Admin Services,
Inc., Daniel Carpenter, Molly Carpenter, and Carpenter
Financial Group, LLC (collectively, “Benistar” or the
“Benistar defendants”), respectfully petition for a writ
of certiorari to the Supreme Judicial Court of
Massachusetts (“SJC”).

OPINIONS BELOW

The opinion of the SJC (App. 11la-52a) is reported
at 885 N.E.2d 800. The amended order and
memorandum cf the SJC, dealing solely with Benistar’s
personal jurisdiction arguments (App. 1la-10a), is
unreported. The opinion of the Appeals Court (App. 53a-
76a) is reported at 864 N.E.2d 548. The relevant trial
court orders are unreported.

JURISDICTION

The opinion of the SJC was issued on May 8, 2008.
App. lla. The SJC issued an amended order and
memorandum, dealing solely with Benistar’s personal
jurisdiction arguments, denying Benistar’s timely
petition for rehearing on June 26, 2008. App. 10a. This
Court’s jurisdiction is invoked under 28 U.S.C. § 1257(a).

2

RELEVANT CONSTITUTIONAL
AND STATUTORY PROVISIONS

The Due Process Clause of the Fourteenth
Amendment to the United States Constitution provides,
in relevant part: “No State shall * * * deprive any
person of life, liberty, or property, without due process
of law * * *.” U.S CONST, amend. XIV, § 1.

The Massachusetts long-arm statute provides, in
relevant part:

§ 3. Personal Jurisdiction Based Upon Acts
or Conduct Within Commonwealth.

A court may exercise personal jurisdiction
over a person, who acts directly or by an agent,
as to a cause of action in law or equity arising
from the person’s

(a) transacting any business in this
commonwealth;

(b) contracting to supply services or things
in this commonwealth;

(c) causing tortious injury by an act or
omission in this commonwealth;

(d) causing tortious injury in this
commonwealth by an act or omission outside
this commonwealth if he regularly does or
solicits business, or engages in any other

3

persistent course of conduct, or derives
substantial revenue from goods used or
consumed or services rendered, in this
commonwealth * * *.

MASS. GEN. LAWS ANN. ch. 223A, § 3 (2000).
INTRODUCTION

This case raises important issues of constitutional
law that are litigated with great frequency in federal
and state courts across the country. It also presents a
valuable and ripe opportunity for this Court to provide
much-needed clarity concerning the limits imposed by
the Due Process Clause on the power of a court to
exercise personal jurisdiction over nonresident
defendants.

The Supreme Judicial Court of Massachusetts
(“SJC”) held that Massachusetts may hale Delaware
and Connecticut citizens into court to defend a contract
and tort action, even though they had no contacts in
their own right with Massachusetts. Plaintiffs even
stipulated in writing that none of the elements of the
Massachusetts long-arm statute were satisfied as to
certain of the defendants. The SJC was able to reach
this flawed result only by relying on the Massachusetts
contacts of Benistar Property Exchange Trust Co., Inc.
(“BPE”), a corporate affiliate of petitioners, applying
Massachusetts law to pierce the corporate veil of BPE,
and then attributing BPE’s Massachusetts contacts to
petitioners. At no time, however, did the SJC conduct
the federal constitutional “minimum contacts” analysis
required by /nternational Shoe and its progeny.

4

The SJC’s far-reaching and misguided decision
presents an important issue concerning the
administration of justice across the country: whether
there exists an exception to this Court’s “minimum
contacts” requirement for personal jurisdiction under
the Due Process Clause, in cases where the corporate
veil can be pierced as a matter of state law? This Court
has never addressed the issue, but “jurisdictional veil
piercing” is used with increasing frequency in the federal
and state courts to circumvent this Court’s repeated
holdings that personal jurisdiction over a nonresident
defendant requires proof of that defendant’s “minimum
contacts” with the forum State. Whether and when such
jurisdictional veil piercing is appropriate presents
fundamental questions of civil procedure and due
process, over which the federal and state courts are
hopelessly confused, and about which commentators
have been calling for this Court’s guidance for decades.
It is time for this Court to decide the matter once and
for all.

STATEMENT

1. Factual Background. The relevant facts are
undisputed. From 1998 until the end of 2000, BPE acted
as a “qualified intermediary” for like-kind property
exchanges under I.R.C. § 1031(a) (App. 54a), and
successfully completed over $100 million of exchanges.
SJC App. 1495-98; 6912; 6979-7036; 7101-7526; 7533-91;
7602-79; 7823-7973; 8347-96; 8440-42; 10291-10605
(Merrill Lynch and PaineWebber account statements).
Under normal circumstances, when a taxpayer sells an
investment property, tax must be paid on the gain. An
I.R.C. § 1031 Tax Deferred Exchange allows an

5

exception to payment of the capital gains tax. When a
taxpayer (called an “exchangor”) sells investment real
estate and replaces it with different investment real
estate using an exchange, the payment of capital gains
tax normally required on such a sale can be deferred.
As long as a property used for investment is replaced
with similar property within 180 days, no gain is
recognized at that time; rather, the gain is deferred until
the eventual sale of the replacement property. I.R.C. §
1031(a)(3). However, upon the sale of the relinquished
property, “Lif taxpayers take possession of the cash, they
are disallowed the tax advantages of the like-kind
exchange provisions.” TREASURY INSPECTOR
GENERAL FOR TAX ADMINISTRATION, U.S.
DEP’T OF TREASURY, PUBLN NO. 2007-30-172,
Like-kind Exchanges Require Oversight to Ensure
Taxpayer Compliance 7 n. 14 (Sep. 17, 2007) (“2007
Treasury Report”). In order to avoid taking possession
of the cash from the sale of the relinquished property,
exchangors normally rely on the “safe harbor” provided
by 26 C.F-R. § 1.1031(k)-1(g)(4), in which the exchangor
utilizes the services of a “qualified intermediary” (such
as BPE) to invest the cash until the purchase of the
replacement property. “(1 |f taxpayers do not specifically
follow the rules for like-kind exchanges, they could be
held liable for taxes, penalties, and interest on their
transactions.” 2007 Treasury Report at 1.

2. In its written agreements with the exchangors,
BPE promised to invest the cash during the 180-day
holding period with Merrill Lynch and later
PaineWebber, and to return the principal plus either
3% or 6% interest based on the exchangor’s selection.
App. 55a. BPE’s agreements with the exchangors did

6

not limit the kinds of investments that BPE could make
in order to generate the necessary 3% or 6% return.
SJC App. 6508; 6284 (BPE agreements). Nor is there
any statute or regulation that governs how § 1031
proceeds can be invested.*

3. Petitioner Daniel Carpenter (BPE’s chairman)
caused BPE to invest all client funds in stock options
and other securities offered through Merrill Lynch and
later PaineWebber. App. 55a. During the historic stock
market collapse of December 2000, PaineWebber
mishandled BPE’s investment accounts and caused
BPE to sustain losses of approximately $9 million of the
funds of seven clients, as well as over $2.4 million of
Carpenter’s own funds that he had invested in BPE.
App. 55a; 79a. In January 2001, the seven clients whose
funds were lost (respondents herein) sued BPE, BPE
president Martin L. Paley, Merrill Lynch, PaineWebber,
and the Benistar defendants in Massachusetts state
court on contract and tort claims. One of the clients also
sought to obtain prejudgment remedies against
Benistar in Connecticut, where Benistar is located.
However, Benistar prevailed in the Connecticut

‘ In August 2008, the Federal Trade Commission (“FTC”)
denied a petition to adopt reguiutions that would have imposed
restrictions on how § 1031 funds can be invested. See Press
Release, Commission Denies Petition for Rulemaking Related
to “Qualified Intermediaries” Under Internal Revenue Code
Section 1031, FTC (Aug. 26, 2008), available at http://
www.ftc.gov/opa/2008/08/qis.shtm (last visited Sep. 23, 2008).
The § 1031 industry remains unregulated at the federal level,
and only one State—Nevada—has (just recently) enacted laws
on the state level. See NEV. REV. STAT. ANN. § 645G.300(2)
(2008).

7

Supreme Court with a unanimous decision in its favor.
Cahaly v. Benistar Property Exchange Trust Co., Inc.,
842 A.2d 1113 (Conn. 2004).

4. In the Massachusetts action, the plaintiffs blamed
BPE’s investment strategy for the losses,
notwithstanding that investing in stock options is not
prohibited by I.R.C. § 1031(a), 26 C.FR. § 1.1031(k)-1,
case law, regulation, or—most importantly—BPE’s
written contracts with the plaintiffs. BPE, however,
attributed the losses to PaineWebber’s mishandling of
BPE’s investment accounts. As a result, BPE filed an
arbitration claim against PaineWebber. In December
2005, the arbitrators unanimously awarded BPE $12.6
million against PaineWebber. App. 77a-84a. In April
2007, the arbitration award was upheld on appeal and
final judgment was entered against PaineWebber. App.
85a-86a. In May 2008, after PaineWebber abandoned
further appeals of the award, BPE voluntarily assigned
the entire $12.5 million settled judgment to the plaintiffs,
thereby making them whole (and then some) on their
$9 million in losses.°

5. BPE president Martin Paley resided in
Massachusetts and BPE is a Delaware corporation that
maintained its offices in Paley’s home. SJC App. 1622.
From those offices, Paley solicited and obtained clients

® In February 2008, the plaintiffs filed a new action in
Massachusetts state court solely against Merrill Lynch arising
out of the same events. In their new complaint, the plaintiffs
make no allegations of wrongdoing against Benistar. See Joseph
lantosca, et al. v. Merrill Lynch Pierce Fenner & Smith, Inc.,
Civil Action No. 08-0775-D, Suffolk Superior Court (filed Feb.
15, 2008).

8

for BPE. SJC App. 1623. Paley handled all of BPE’s
marketing, had the exclusive interactions and
communications with the clients, solicited the clients,
and executed all of the transaction documents with the
clients. Jd. It is undisputed that both Paley and BPE
have sufficient minimum contacts with Massachusetts
to permit suit against them. By contrast, petitioners
Daniel and Molly Carpenter (Daniel’s spouse and an
officer of BPE) resided and worked in Connecticut. SJC
App. 8559; 8866. Daniel had no contact with the clients
and simply invested the clients’ funds after they had
been forwarded to BPE’s accounts, first at Merrill
Lynch (in New York) and later at PaineWebber (also in
New York). SJC App. 1625. Molly Carpenter was an
officer of BPE in name only—merely to allow BPE to
establish its Merrill Lynch and Paine Webber investment
accounts (which required the signatures of at least two
officers), lived and worked in Connecticut, and had no
contact with the clients or Massachusetts. SJC App.
3762; 3931; 4026; 4092-93 (plaintiffs’ testimony that they
never met with, spoke to, or communicated with Molly).
All of the remaining Benistar defendants are entities
that are organized under the laws of the State of
Delaware and maintain their principal places of business
in Connecticut. SJC App. 1630; 1632; 3140-41; 3148.
None of the petitioners were domiciled in
Massachusetts, maintained offices in Massachusetts,
transacted any business in Massachusetts, had any
contacts with Massachusetts, or otherwise engaged in

any acts enumerated in the Massachusetts long-arm
statute. App. 87a-90a; SJC App. 5819.

Ay eal
Dod

9

6. Procedural Background. On March 29, 2001,
Benistar Ltd., Daniel Carpenter and Molly Carpenter
filed in the trial court a motion to dismiss for lack of
personal jurisdiction pursuant to Mass. R. Civ. P.
12(b)(2).° Dkt. 29. By order dated April 30, 2001, the trial
court deferred decision on the motion pending
jurisdictional discovery. Dkt. 33. In a memorandum and
order dated November 21, 2001, the trial court denied
these Benistar defendants’ motion to dismiss. Dkt. 105.

On February 7, 2002, the remaining petitioners filed
in the trial court a motion to dismiss for lack of personal
jurisdiction pursuant to Mass. R. Civ. P. 12(b)(2).
Dkt. 149. By memorandum and order dated March 12,
2002, the trial court denied the motion. On August 29,
September 3, and September 10, 2002, all petitioners
filed in the trial court motions for reconsideration of the
denial of their motions to dismiss for lack of personal
jurisdiction, and all such motions for reconsideration
were denied. Dkts. 219-21, 224.

The trial began in November 2002 and was divided
into three phases. During the first phase (jury), the trial
court directed a verdict in favor of Molly Carpenter on
all but one cause of action. The sole remaining claim
against her, breach of fiduciary duty, was allowed to go
to the jury, notwithstanding that no fiduciary
relationship existed as a matter of. federal law.
See 26 C.F-R. § 1.1031(k)-1(k)(2) (disqualifying fiduciaries
from acting as qualified intermediaries). In December

° “(TJhe following defenses may at the option of the pleader
be made by motion: (2) Lack of jurisdiction over the person.”
Mass. R. Civ. P 12(b)(2).

10

2002, the jury returned a verdict against BPE, Daniel
Carpenter, Molly Carpenter, Paley, and Merrill Lynch
on all remaining claims in the amount of $8.6 million.
App. 13a.’

In March 2003, the plaintiffs stipulated in writing
that they had no dealings with most of the Benistar
defendants, and that none of the elements of the
Massachusetts long-arm statute were satisfied as to
these defendants. App. 87a-90a. Notwithstanding this
stipulation, the trial court refused to dismiss all claims
against these Benistar defendants for lack of personal
jurisdiction.

In September 2003, at the conclusion of the second
(non-jury) phase of the trial, the trial court awarded
plaintiffs double damages and attorneys’ fees against
BPE, Daniel Carpenter, and Paley, but significantly
found that Molly Carpenter was not liable for double
damages because there was “no evidence that [Molly’s]

? Within an hour after the verdict, in a story reported in
the Massachusetts Lawyers Weekly, two jurors telephoned
plaintiffs’ counsel, informed counsel that the entire jury was
having “some beers” at a bar in downtown Boston, and invited
all of the plaintiffs’ attorneys to join them. App. 67a. Despite
this shocking development, the trial court denied Benistar’s
motion te conduct an evidentiary hearing into possible jury
misconduct, and also denied Benistar’s motion for a new trial.
Id. The Appeals Court found that the jurors’ actions were
merely “inappropriate,” id., and held that “({t]here was no error
or abuse of discretion,” id., in the trial court’s failure to
investigate this outrageous and obviously prejudicial conduct.
The trial court did, however, grant Merrill Lynch’s motion for
judgment notwithstanding the verdict on different grounds.

11

conduct occurred primarily or substantially in
Massachusetts, .. . and no evidence connected Molly
with the plaintiffs or with Massachusetts in any but the
most desultory way.” Trial Ct. Order at 9 (Sep. 24, 2003).
Yet, in light of this finding, the trial court refused to
grant Molly Carpenter’s renewed motion to dismiss for
lack of personal jurisdiction. Dkt. 323. The trial court
then found in the third phase of the trial (also non-jury)
that the corporate veil of BPE should be pierced in order
to hold the remaining Benistar defendants substantively
liable on the jury’s verdict.

7. On appeal to the Appeals Court, all petitioners
challenged the trial court’s exercise of personal
jurisdiction over them. Benistar App. Ct. Br. 18-30;
Benistar App. Ct. Reply Br. 4-11. In its opinion, the
Appeals Court rejected Benistar’s arguments regarding
personal jurisdiction, holding that “(t]he plaintiffs’
theory of personal jurisdiction was necessarily
intertwined with the merits of their claim that corporate
disregard was appropriate in this case.” App. 66a.

On further appeal to the SJC, all petitioners once
again challenged the trial court’s exercise of personal
jurisdiction over them. Benistar SJC Br. 20-36; Benistar
SJC Reply Br. 16-19. In its initial 22-page opinion, which
focused almost exclusively on Merrill Lynch’s claims, the
SJC did not analyze Benistar’s jurisdictional arguments
at all, and rather dismissively devoted only one
paragraph to the remainder of Benistar’s claims.
App. 5la-52a. As a result, Benistar filed a timely petition
for rehearing in the SJC, which was denied on June 26,

12

2008, in an amended order and memorandum that dealt
solely with Benistar’s personal jurisdiction arguments.
App. la-10a. The SJC held:

The fundamental argument of the Benistar
defendants in their petition is that the
determination of personal jurisdiction should
be made before and not in light of the trial
judge’s findings on piercing the corporate
veil. This is not the law under either the
Massachusetts long-arm statute or the Due
Process [C]lause.

App. 7a.

The SJC did not hold that the Benistar defendants
have “minimum contacts” with Massachusetts sufficient
to render the assertion of jurisdiction over them fair,
just, and reasonable. Instead, the SJC simply
determined that because personal jurisdiction existed
over BPE, and the corporate veil between BPE and the
Benistar defendants could be pierced as a matter of
Massachusetts state law, that BPE’s forum contacts with
Massachusetts could simply be attributed to the
Benistar defendants.

8. Preservation of Federal Questions. Benistar has
consistently raised the federal questions sought to be
reviewed in this matter numerous times in the trial court
(Dkt. 29; 149; 219-21), the Appeals Court (Benistar App.
Ct. Br. 18-30; Benistar App. Ct. Reply Br. 4-11), and the
SJC (Benistar SJC Br. 20-36; Benistar SJC Reply Br.
16-19). As a result, the federal questions raised herein

13

were timely and properly raised below, and this Court
has jurisdiction to review the judgment of the SJC on a
writ of certiorari. Rule 14.1(g)(i).

REASONS FOR GRANTING THE PETITION

This Court has repeatedly held that personal
jurisdiction cannot be asserted unless the nonresident
defendant has minimum contacts with the forum State
“such that he should reasonably anticipate being haled
into court there,” World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 297 (1980), and that “[eJach
defendant’s contacts with the forum State must be
assessed individually.” Calder v. Jones, 465 U.S. 783, 790
(1984). See also Keeton v. Hustler Magazine, Inc., 465
U.S. 770, 781 n.13 (1984) (“Each defendant’s contacts
with the forum State must be assessed individually.”);
Rush v. Savchuk, 444 U.S. 320, 332 (1980) (“The
requirements of Jnternational Shoe, however, must be
met as to each defendant over whom a state court
exercises jurisdiction.”). Notwithstanding this Court’s
clear and repeated holdings, however, federal and state
courts frequently permit the assertion of personal
jurisdiction in circumstances where such contacts are
not present, on the basis of the metaphysical concept of
“jurisdictional veil piercing” that this Court has never
endorsed.

“{T he use of veil piercing for jurisdictional purposes
is unwarranted as a matter of precedent and unwise as
a matter of policy.” Lonnie S. Hoffman, The Case Against
Vicarious Jurisdiction, 152 U. PA. L. REV. 1023, 1032
(2004). When this Court’s precedents are properly
understood, the doctrine of jurisdictional veil piercing

14

is both unnecessary and pernicious in its application. In
cases where it produces appropriate results, jurisdiction
might have been founded directly on the defendant’s
own contacts with the forum State. When, for example,
officers, employees, or shareholders of a corporate
enterprise deliberately conspire to cause harm in
another State, personal jurisdiction will generally be
appropriate on the basis of their individual activities
directed at that State. If, however, a rogue employee
commits harm in some distant State, that State cannot
exert personal jurisdiction over a shareholder in the
company unless he “purposefully availed” himself of the
privilege of doing business there. Jurisdiction over that
shareholder is plainly inappropriate under this Court’s
precedents. And the fact that the corporate veil might
be pierced for unrelated state law reasons does not
increase or decrease his relevant forum contacts one
iota. Jurisdictional veil piercing improperly makes
personal jurisdiction turn on state law merits doctrines
that are irrelevant to the purposes animating the Due
Process law of personal jurisdiction—and are
notoriously vague and arbitrary to boot. As Judge
Easterbrook has noted: “‘Piercing’ seems to happen
freakishly. Like lightning, it is rare, severe, and
unprincipled.” Frank H. Easterbrook & Daniel R.
Fischel, Limited Liability and the Corporation, 52 U.
CHI. L. REV. 89, 89 (1985).

In this case, the plaintiffs never attempted to show
that the Benistar defendants have any genuine personal
connection to Massachusetts. Indeed, the plaintiffs
affirmed in writing that they had no evidence of such
contacts and no intention of introducing any. App. 87a-
90a. Petitioners’ motions to dismiss for lack of personal]

15

jurisdiction should have been granted by the
Massachusetts trial court, and the decisions of the
Appeals Court and the SJC to affirm the denial of those
motions should be reversed and vacated by this Court.
Instead, the Massachusetts courts exerted authority
over the Benistar defendants on the basis of the
Massachusetts contacts of BPE, without any genuine
inquiry into whether (by joint action with BPE or
otherwise) they purposefully directed their actions at
Massachusetts in a manner sufficient to support
jurisdiction there.*

Federal and state courts, as well as legal
commentators, are hopelessly confused about whether,
and when, the forum contacts of one defendant can be
attributed to another on the basis of veil piercing.
“When the haze of state jurisdictional law collides with
the metaphor-filled fog of the ‘piercing the corporate
veil’ doctrine, the result is, predictably, a smog of the
thickest variety.” Daniel G. Brown, Comment,
Jurisdiction Over a Corporation on the Basis of the
Contacts of an Affiliated Corporation: Do You Have to
Pierce the Corporate Veil?, 61 U. CIN. L. REV. 595, 595
(1992). This Court should seize this opportunity to clear
the jurisprudential smog in this area because “[n]Jeither
state nor federal courts have made clear the situations
in which they will exercise jurisdiction over an out-of-
state corporation based on the presence of an affiliated
corporation within the forum.” /d.; see also, e.g., Jennifer
A. Schwartz, Piercing the Corporate Veil of an Alien

* In fact, one of the plaintiffs (Bellemore Associates, LLC)
is located in New Hampshire (SJC App. 6314), so it did not even
feel the effects of the investment losses in Massachusetts.

16

Parent for Jurisdictional Purposes: A Proposal for a
Standard that Comports With Due Process, 96 CAL. L.
REV. 731, 744 (2008) (“Unfortunately, the Supreme
Court has not yet considered the problem of veil-piercing
for jurisdictional purposes in light of its ruling in Asahi
[Metal Indus. Co., Ltd. v. Sr: perior Court, 480 U.S. 102
(1987)}.”); William A. Voxman, Jurisdiction Over a
Parent Corporation in it’s Subsidiary’s State of
Incorporation, 141 U. PA. L. REV. 327, 370 (1992) (“Part
of the confusion surrounding the question of when the
exercise of jurisdiction over a parent corporation based
on its ownership of a subsidiary is constitutionally valid
is due to the lack of specific United States Supreme
Court guidance in this area.”). National uniformity and
clarity are sorely needed in this area of the law. “In light
of the confusion among the courts concerning the
authority of states to exercise jurisdiction over
corporations on the basis of the activities of affiliated
corporations, the United States Supreme Court should
resolve the issue.” Brown, 61 U. CIN. L. REV. at 618.

I. The Minimum Contacts Analysis of International
Shoe is Constitutionally Required for all
Determinations of Personal Jurisdiction.

This Court has never held that jurisdiction can be
predicated on piercing the corporate veil. Instead, it has
articulated a simple, universal, two-part test for
determining personal jurisdiction. First, the exercise of
jurisdiction over nonresident defendants must be
authorized by the forum State’s long-arm statute.
Shaffer v. Heitner, 433 U.S. 186, 216 (1977). Second, the
defendant must have “certain minimum contacts with
[the forum State] such that the maintenance of the suit

17

does not offend ‘traditional notions of fair play and
substantial justice.’” International Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945) (quoting Milliken
v. Meyer, 311 U.S. 457, 463 (1940)). Minimum contacts
generally require “‘some act by which the defendant
purposefully avails itself of the privilege of conducting
activities within the forum State, thus invoking the
benefits and protections of its laws,”” Burger King Corp.
v. Rudzewicz, 471 U.S. 462, 475 (1985) (quoting Hanson
v. Denckla, 357 U.S. 235, 253 (1958)), “‘such that he
should reasonably anticipate being haled into court
there.’” Jd. at 474 (quoting World-Wide Volkswagen
Corp., 444 U.S. at 297). When a forum State’s long-arm
statute is co-extensive with the outer limits of due
process, a court may sidestep the statutory inquiry and
proceed directly to the constitutional analysis. Hannon
v. Beard, 524 F.3d 275, 280 (1st Cir. 2008). The SJC has
interpreted the Massachusetts long-arm statute,
enacted in 1968, “as an assertion of jurisdiction over the
person to the limits allowed by the Constitution of the
United States.” “Automatic” Sprinkler Corp. of
America v. Seneca Foods Corp., 280 N.E.2d 423, 424
(1972).

This Court has recognized different thresholds for
minimum contacts, depending on whether the
jurisdiction asserted is “specific” or “general” in nature.
Specific jurisdiction permits the adjudication of only
those claims that relate to or arise out of a defendant’s
contacts with the forum. Helicopteros Nacionales
de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984)
(“It has been said that when a State exercises personal
jurisdiction over a defendant in a suit arising out of or
related to the defendant’s contacts with the forum, the

18

State is exercising ‘specific jurisdiction’ over the
defendant.”). In contrast, “[w]hen a State exercises
personal jurisdiction over a defendant in a suit not
arising out of or related to the defendant’s contacts with
the forum, the State has been said to be exercising
‘general jurisdiction’ over the defendant.” Jd. at 415 n.9.
“For specific jurisdiction, the constitutional analysis is
divided into three categories: relatedness, purposeful
availment, and reasonableness.” Phillips v. Prairie Eye
Center, 530 F:3d 22, 27 (1st Cir. 2008). On the other hand,
“(t]he standard for evaluating whether . . . contacts
satisfy the constitutional general jurisdiction test is
considerably more stringent than that applied to
specific jurisdiction questions.” Harlow v. Children’s
Hospital, 482 F.3d 50, 64 (1st Cir. 2005).

Despite the routine and pervasive importance of the
issue in civil litigation, this Court has said remarkably
little about how the “minimum contacts” analysis should
proceed in cases involving corporations. The seminal
case is Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S.
333 (1925), in which a Maine corporation was sued in
North Carolina on the basis of activities conducted by a
wholly-owned subsidiary that “[t]hrough ownership of
the entire capital stock and otherwise, the defendant
dominates the Alabama corporation, immediately and
completely; and exerts its control both commercially and
financially in substantially the same way .. . as it does
over those selling branches or departments of its
business not separately incorporated .. .” Jd. at 335.
However, “(t]he existence of the Alabama company as a
distinct corporate entity is, however, in all respects
observed. Its books are kept separate. All transactions
between the two corporations are represented by

19

appropriate entries in their respective books in the same
way as if the two were wholly independent corporations.”
Id. This Court held that because [t]he corporate
separation, though perhaps merely formal, was real” and
“was not pure fiction,” the North Carolina contacts of
the subsidiary could not be attributed to the parent
corporation. /d.

Cannon strongly suggests that the corporate form
cannot be disregarded for purposes of asserting
jurisdiction, even under circumstances of complete
domination that might justify veil piercing under the
law of many States, so long as the separate corporate
existence is “not pure fiction.” Cannon fits uneasily at
best, however, into this Court’s modern jurisprudence
of personal jurisdiction. Cannon expressly disavows any
constitutional holding. It was decided under the now-
discredited “presence” theory of personal jurisdiction.
Id. at 334-35. It was decided before Erie Railroad Co.
v. Tompkins, 304 U.S. 64 (1938), and International Shoe.
And one commentator argues persuasively that it was
decided purely under the North Carolina long-arm
statute and, therefore, actually suggests nothing about
whether the constitutional limits on personal
jurisdiction could ever be satisfied through a veil
piercing theory. See Hoffman, supra, at 1067-74. Justice
Brandeis’s opinion for the Court in Cannon expressly
disavows any constitutional holding. 267 U.S. at 336 (“No
question of constitutional powers of the State, or of the
federal Government, is directly presented.”).
Nonetheless, Cannon is still frequently cited as the
leading case on personal jurisdiction in cases involving
the corporate form, and the separate contacts of parent
and subsidiary corporations, as well as shareholders.

20

See generally John A. Swain & Edwin E. Aguilar,
Piercing the Veil to Assert Persona! Jurisdiction Over
Corporate Affiliates: An Empirical Study of the
Cannon Doctrine, 84 B.U. L. REV. 445, 455-56 (2004);
compare United States v. Scophony Corp., 333 U.S. 795
(1948).

The only truly useful modern guidance this Court
has provided on these issues comes from a pair of cases
decided in 1984. In Calder v. Jones, 465 U.S. 783 (1984),
this Court considered a libel claim brought by a
California resident against the National Enquirer and
the author and editor of an article about him. All the
defendants were residents of Florida. Although personal
jurisdiction over the Enquirer itself in California was
clear, the editor and author “liken[ed] themselves to a
welder employed in Florida who works on a boiler which
subsequently explodes in California,” and urged that
they were not responsible for their employer’s California
contacts for jurisdictional purposes. 465 U.S. at 789.
This Court rejected that argument, focusing squarely
on the petitioners’ own conduct. This Court emphasized
that their actions were “expressly aimed at California,”
and that they knew their article would have a “potentially
devastating impact on respondent” and that “the brunt
of that injury would be felt by respondent in the State
in which she lives and works and in which the National
Enquirer has its largest circulation.” Jd. at 789-90. This
Court explained that “[p]etitioners are correct that their
contacts with California are not to be judged according
to their employers’ activities there,” but “[oJjn the other
hand, their status as employees does not somehow
insulate them from jurisdiction.” /d. at 790. Rather,
“Celach defendant’s contacts with the forum State must
be assessed individually.” /d.

21

In Keeton v. Hustler Magazine, Inc., 465 U.S. 770
(1984), this Court briefly applied the reasoning of Calder
to hold that personal jurisdiction over Hustler
Magazine did not necessarily establish personal
jurisdiction over its publisher, editor, and owner, Larry
Flynt. This Court explained again that “jurisdiction over
an employee does not automatically follow from
jurisdiction over the corporation which employs him; nor
does jurisdiction over a parent corporation
automatically establish jurisdiction over a wholly owned
subsidiary.” 465 U.S. at 781 n. 13. Instead, “[eJach
defendant’s contacts with the forum State must be
assessed individually.” /d. This Court cited Rush v.
Savchuck, 444 U.S. 320, 332 (1980), for the proposition
that “(t]he requirements of Jnternational Shoe ...must
be met as to each defendant over whom a state court
exercises jurisdiction.” Jd.

In 1985, this Court was presented with a question
about whether the forum contacts of one business
partner could be attributed to another. The issue was
whether personal jurisdiction might be asserted over
one co-owner of a restaurant franchise because of his
business partner’s trip to Florida. This Court stated
that “[w]Je have previously noted that when commercial
activities are ‘carried on in behalf of’ an out-of-state
party those activities may sometimes be ascribed to the
party ... at least where he is a ‘primary participan([t]”
in the enterprise and has acted purposefully in directing
those activities.” Burger King, 471 U.S. at 479 n.22
(citing /nternational Shoe, 326 U.S. at 320, and Calder,
465 U.S. at 790). This Court ultimately held that personal
jurisdiction was proper on other grounds, and that it
therefore “need not resolve the permissible bounds of

oo

22

such attribution.” Jd. at 22. This Court’s dictum
essentially reinforces its earlier holding in Calder,
however, by stressing that personal jurisdiction over the
business partner would require proof that he personally
“acted purposefully in directing [the] activities” in the
forum State.

This Court’s personal jurisdiction precedents
endorse the simple principle that each defendant’s
contacts with the forum State must be analyzed
individually. As a matter of Due Process, a defendant
who has personally directed his own actions at the forum
cannot escape personal jurisdiction just because those
actions were performed on behalf of an employer or
corporation.’ On the other hand, a corporation’s own
contacts with a State do not subject every employee or
shareholder or affiliated corporation to jurisdiction
there, if the particular defendant played no sufficient
persona! role in those contacts. Those principles provide
a coherent and comprehensive resolution to the due
process issues posed by personal jurisdiction in the
corporate context, without the need for any confusing
and theoretically indefensible incorporation of state-law
veil piercing principles. As Professor Hoffman cogently
explains:

If a defendant has been involved in
committing some act of mischief in the forum,
modern doctrine already permits the exercise

® The state law “fiduciary shield” doctrine may nonetheless
bar personal jurisdiction in circumstances where the
defendant's contacts were entirely in a representative capacity.
See, e.g., 4A Wright & Miller, Federal Practice and Procedure §
1069.4, at 191-96 (3d ed. 2002).

23

of jurisdiction in the forum court over her,
regardless of whether she is present in the
state or not or whether she personally
committed the mischief or played a role in
directing such mischief from behind the
scenes. .. . [T]he only relevance of a close
relationship between otherwise separate
persons or entities in a specific jurisdiction
case should be part of the analysis of whether
the defendant’s degree of involvement with
the underlying controversy is sufficient to
bring it within the statutory and constitutional
ambit of judicial authority.

152 U. Pa. L. Rev. at 1097-98.

The state law of veil piercing, by contrast,
“is fundamentally ill-conceived as a doctrinal tool for
measuring state court power.” Jd. at 1102. “What does
a failure to follow corporate formalities, for instance, tell
us about the regulatory interests a state may have in
allowing suit to be maintained against a nonresident
defendant?” Jd. at 1085-86. “What possible significance
can there be in a finding that regular shareholder
meetings were not conducted to the jurisdictional
assessment of the defendant’s relationship to, and
interest in, avoiding suit in the forum or of the plaintiff’s
interest in maintaining suit there?” Jd. at 1086.

The veil piercing analysis conducted by the SJC in
this case is entirely inconsistent with assessing the
contacts of each Benistar defendant individually, as
required by this Court’s precedents. It substitutes
vague and notoriously arbitrary state law doctrines for

24

a close analysis of individual “minimum contacts” under
federal law. This Court should grant review to clarify
that /nternational Shoe and its progeny state the test
for personal jurisdiction in all cases, and not merely
those that do not involve corporate relationships.

There has been no showing here that personal
jurisdiction over Benistar exists in Massachusetts under
the minimum contacts test of International Shoe.
The plaintiffs and the SJC instead relied solely on state
law jurisdictional veil piercing. Indeed, plaintiffs have
essentially conceded that they were unable to satisfy
International Shoe as to several of the Benistar
defendants because they stipulated in writing that the
relevant elements of the Massachusetts long-arm
statute were not satisfied. App. 87a-90a. It is axiomatic
that “[t]he burden is on the party asserting jurisdiction
to prove jurisdictional facts.” Miller v. Miller, 861
N.E.2d 393, 398 (Mass. 2007). See also Intech, Inc. v.
Triple “C” Marine Salvage, Inc., 826 N.E.2d 194, 197
(Mass. 2005) (“A plaintiff has the burden of establishing
facts to show that the ground relied on under § 3 [of the
long-arm statute] is present.”). Thus, plaintiffs have
necessarily stipulated in writing that they could not
satisfy their burden of proving the requisite
jurisdictional] facts as to these defendants.

25

II. The Substantial Confusion Among Federal and
State Courts Warrants Review By This Court.

Despite the fact that this Court has consistently
framed the due process inquiry as a question of each
defendant’s individual “minimum contacts” with the
forum, and has never held that personal jurisdiction ©
could be based merely on veil piercing notions, the use
of veil piercing for jurisdictional purposes in the lower
courts is extremely common. As Professor Hoffman
explains, “Dean Phillip Blumberg’s masterful
multivolume treatise, The Law of Corporate Groups,
devotes an entire volume in excess of 450 pages (and a
supplement of nearly equal length) to cataloging judicial
decisions in which the substantive law is invoked as the
sought-after predicate for a vicarious jurisdictional
determination.” 152 U. Pa. L. Rev. at 1029 (citing Phillip
I. Blumberg, The Law of Corporate Groups: Procedural
Problems in the Law of Parent and Subsidiary
Corporations (1983)). “Virtually without dissent during
the better part of this century, the lower courts have
approved jurisdictional veil-piercing arguments to
satisfy the statutory and constitutional requirements
for amenability to suit.” Jd. at 1030.

Several distinct approaches have emerged, but
“{ojutcomes in [jurisdictional] veil piercing cases are
fraught with inconsistency and clear trends are difficult
to deduce even within individual jurisdictions.”
Schwartz, 96 CAL. L. REV. at 752. Schwartz categorizes
the cases into three general approaches: the corporate
formalities approach, the control approach, and a hybrid
approach combining the other two approaches.
Id. at 746-751. Courts taking the corporate formalities

26

approach seem to have adopted this Court’s invitation
in Cannon that courts should respect the corporate form
for jurisdictional purposes so long as it is not a complete
“fiction.” See id. at 747 (Cannon “continues to be cited
frequently to support decisions where courts refrain
from piercing the corporate veil to assert jurisdiction
over a foreign parent.”). “Indeed, because the Court
maintained the separate identity of the two
notwithstanding the complete dominion and control of
the parent over the subsidiary, some courts have viewed
Cannon as imposing an even higher standard than
traditional veil piercing doctrine.” Swain & Aguilar, 84
B.U. L. REV. at 455-56.'° The control and hybrid
approaches borrow more heavily from ordinary state veil
piercing doctrines. And, of course, many courts (like the
SJC here) simply rely on state veil piercing law directly.
Whichever approach a court adopts, “the court’s inquiry
will be fact dependent, discretionary, and difficult to
predict.” Schwartz, 96 CAL. L. REV. at 751. Whether a
State has violated the Due Process Clause by exerting
personal jurisdiction over nonresident defendants
cannot rest on such hazy, uncertain, and fact-specific
analyses.

Occasionally, a court will recognize that the federal
due process analysis and the state law veil piercing test
are not the same, and will attempt to draw distinctions.

Swain and Aguilar’s empirical analysis led them to
conclude that “the Cannon doctrine is as strong a precedent
today as it was the day after it was decided,” id. at 483, and that
“courts show a bias against foreign defendants, [and] that state
courts favor local plaintiffs.” Jd. Given Benistar’s harrowing
experience in the Massachusetts state courts, these conclusions
are not surprising.

27

The results remain inconsistent, however, both within
and across jurisdictions. For example, in Dakota Indus.,
Inc. v. Ever Best Ltd., 28 F.3d 910 (8th Cir. 1994), the
Eighth Circuit stated:

A determination to pierce the corporate veil
does not necessarily answer the question of a
court’s jurisdiction over the individuals
behind the veil . . . Whether an individual is
subject to the jurisdiction of a federal court is
a separate threshold issue, which the district
court conflated with the issue of the
individuals’ liability for corporate actions. The
district court should have undertaken a
minimum contacts/due process analysis
instead of merely piercing the corporate veil.

Id. at 915 (emphasis added). However, in E'pps v. Stewart
Info. Svcs. Corp., 327 F.3d 642 (8th Cir. 2003), a different
Eighth Circuit panel simply asserted that:

If the resident subsidiary corporation is the
alter ego of the nonresident corporate
defendant, the subsidiary’s contacts are those
of the parent corporation’s, and due process
is satisfied. .. . Personal jurisdiction can be
properly asserted over a corporation if
another is acting as its alter ego, even if that
alter ego is another corporation. .. . In view
of these principles, a court’s assertion of
jurisdiction is contingent on the ability of the
plaintiffs to pierce the corporate veil.

Id. at 649 (citations omitted).

28

A few decisions have held that veil-piercing is a
legitimate basis for jurisdiction, but nonetheless have
recognized that certain aspects of state veil-piercing law
are not relevant to the jurisdictional inquiry. In Wells
Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406,
425 (9th Cir. 1977), for example, the court noted that
undercapitalization,

which is important to deciding whether to
pierce the veil raised by a subsidiary
corporation in order to hold the parent
corporation liable for failure of the subsidiary
to meet its debts, may not be relevant to a
showiug that the two corporations are in fact
one so as to establish that the out-of-state
corporation—be it parent or subsidiary—is
present within the forum for jurisdictional
purposes.

The Texas Supreme Court has explained that “veil-
piercing for purposes of liability (‘substantive veil-
piercing’) is distinct from imputing one entity’s contacts
to another for jurisdictional purposes (‘jurisdictional
veil-piercing’),” and that “[clourts have acknowledged
that jurisdictional veil-piercing and substantive veil-
piercing involve different elements of proof.” PHC-
Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163,
174-75 (Tex. 2007) (collecting authorities). The Texas
Supreme Court ultimately concluded that “fraud—which
is vital to piercing the corporate veil under section 21.223
of the Business Organizations Code—has no place in
assessing contacts to determine jurisdiction,” and that
“some of the factors courts look to in determining
whether an entity may be held liable as a ‘single business

29

999

enterprise,” such as the use of a common name, “are
irrelevant to an analysis of jurisdictional contacts.”
Id. at 175. “Whether two related entities share a
common name, however, does not affect whether each
has sufficient ccntacts with the forum for jurisdictional
purposes.” /d.

As the commentators discussed supra explain, the
case law in both state and federal courts is deeply
confused and inconsistent, and merits review by this
Court.

CONCLUSION

For the reasons explained above, the petition for a
writ of certiorari should be granted.

Respectfully submitted,

JACK E. RoBINSON
Counsel of Record
BENISTAR

2187 Atlantic Street
Stamford, CT 06902
(203) 969-6000

Counsel for Petitioners

Of Counsel:

ARTHUR R. MILLER

1525 Massachusetts Avenue
Cambridge, MA 02138

(617) 495-4111

la

APPENDIX A — AMENDED ORDER AND

MEMORANDUM OF THE COMMONWEALTH OF

MASSACHUSETTS, SUPREME JUDICIAL COURT
ENTERED JUNE 26, 2008

COMMONWEALTH OF MASSACHUSETTS

SUFFOLK, ss. SUPREME JUDICIAL COURT
No. SJC-10041

GAIL A. CAHALY
vs.

BENISTAR PROPERTY EXCHANGE TRUST
COMPANY, INC. & others! (and six companion cases’).

1. Benistar Ltd.; Benistar Employer Services Trust
Corporation (BESTCO); Benistar Admin. Services, Inc. (BAS]);
Carpenter Financial Group, LLC (CFG); Molly Carpenter;
Daniel E. Carpenter; Merrill Lynch, Pierce, Fenner & Smith,
Inc.; and U.S. Property Exchange.

2. Jeffrey M. Johnston vs. Benistar Property Exchange
Trust Company, Inc., & others. Massachusetts Lumber Company,
Inc. vs. Benistar Property Exchange Trust Company, Inc., &
others. Bellemore Associates, LLC vs. Benistar Property
Exchange Trust Company, Inc., & others. Joseph Iantosca &
others vs. Benistar Property Exchange Trust Company, Inc., &
others. R & B Enterprises, Inc. vs. Benistar Property Exchange
Trust Company, Inc., & others. Byron Darling vs. Benisiar
Property Exchange Trust Company, Inc., & others.

2a

Appendix A
AMENDED ORDER AND MEMORANDUM

In Cahaly v. Benistar Property Exchange Trust
Company (and six companion cases), 451 Mass. 343
(2008), (Cahaly) we affirmed a judgment against the
defendants Benistar Properties Exchange Trust
(Benistar Trust); Benistar Ltd.; Benistar Employer
Services Trust Corporation (BESTCO); Benistar Admin.
Services, Inc. (BASI); Carpenter Financial Group, LLC
(CFG); Molly Carpenter; Daniel E. Carpenter; and U.S.
Property Exchange (collectively the Benistar
defendants).

The Benistar defendants have filed a petition for
rehearing in which they argue, inter alia, that the
assertion of personal jurisdiction over certain of them®
meets neither the requirements of the Massachusetts
long-arm statute, G. L. c. 223A, § 3, nor the requirements
of the Due Process clause of the Fourteenth Amendment
of the United States Constitution.

The petition is denied in all respects. This amended
order and memorandum addresses the issue of
jurisdiction only.

In Cahaly, supra, we affirmed that it was
appropriate to pierce the corporate veil (disregard the

3. The defendants who claim that there is no jurisdiction
over them are Benistar Ltd.; Benistar Employer Services Trust
Corporation (BESTCO); Benistar Admin. Services, Inc. (BASD);
Carpenter Financial Group, LLC (CFG); Molly Carpenter; and
Daniel E. Carpenter.

3a

Appendix A

corporate form) of Benistar Trust. In their petition the
Benistar defendants do not challenge that
Massachusetts courts have jurisdiction over Benistar
Trust. Contrary to their claim, under both the
Massachusetts long-arm statute and Federal law, the
doctrine of piercing the corporate veil (appropriately
disregarding the corporate form) may properly play a
role in determining whether a defendant is subject to
personal jurisdiction. This case is one in which piercing
the corporate veil was so obviously appropriate that
imputing the conduct of Benistar Trust to the other
Benistar defendants is well within the range of what the
law of personal jurisdiction permits.

The facts found by the trial judge supporting
disregarding the corporate form (piercing the corporate
veil), all of which are supported by the evidence and none
of which are challenged by the Benistar defendants in
their petition, include the following: There was common
ownership of the various corporate entities where Daniel
Carpenter owned Benistar Limited, of which BASI was
a wholly owned subsidiary, and also owned CFG; either
alone or with Molly Carpenter he owned BESTCO; and
either Daniel, Daniel and Molly, or Benistar Ltd. owned
Benistar Trust.‘ Daniel Carpenter exercised pervasive
control over all of the entities, with participation from
Molly Carpenter as to the activities of Benistar Trust

4. As to U.S. Property, the trial judge found, and the
evidence supported, that U.S. Property was “clearly the
successor” to Benistar Trust, operating the same business out
of the same Newton, Massachusetts office with the same
computers and software and the same president, Martin Paley.

4a

Appendix A

and substantial participation by Molly Carpenter as to
BASI. There was substantial evidence of a confused
intermingling of assets and activities in the form of “a
significant number of large fund transfers between and
among” all the entities; and “all of these entities had a
common principal place or places of business” at two
Connecticut addresses. Daniel Carpenter presented the
companies “as one group, with a common set of 28
employees and assets of $50 million, and for all of which
he, as ‘chairman,’ was the only person with check-signing
authority” for purposes of applying for insurance; the
companies’ services were advertised together on the
Benistar website; and clients of Benistar Trust “were
specifically assured that their money was safe with that
company because it was part of Benistar.” As to
capitalization, “none of the defendant companies was
adequately capitalized for the conduct of legitimate
business.” There was a near-total lack of observance of
corporate formalities: While each of the entities was
organized as a Delaware cor, ation, and some
appeared to have (form) bylaws, there was no evidence
of stockholder or director meetings, the keeping of
corporate minutes or other corporate records.
Corporate records were entirely absent. There was no
evidence of payment of dividends.

Benistar Trust was insolvent as of January 2001. The
judge found that “[t]he only officers or directors of any
of these corporations, Benistar [Trust] included, who
functioned as such, were Daniel and Molly.” Benistar
Trust was used as “a source of funds to support Daniel’s
personal penchant for risky option trading on the stock

ed

Sa

Appendix A

market,” and that Benistar Trust was used to promote
fraud. In light of these factual findings, all supported
by the evidence, the conclusion to pierce the corporate
veil was more than amply supported.°®

The efforts of the Benistar defendants to insulate
themselves from liability on grounds of corporate form,
when all the corporate forms were created and
controlled by Daniel Carpenter with assistance from
Molly Carpenter, are unavailing under Massachusetts
law,® a conclusion strengthened by the adverse

5. The petition does not press various additional arguments
asserted in the defendants’ briefs as to the exercise of personal
jurisdiction over Molly Carpenter, and we need not address
them here. We note, however, the trial judge properly drew
adverse inferences from Molly Carpenter’s decision to invoke
her Fifth Amendment privilege against self-incrimination in
response to questions regarding her own contacts with
Massachusetts and her involvement with trading, and
converting, the plaintiffs’ funds. In addition there was
affirmative evidence that Molly Carpenter, a director and officer
of Benistar Trust, was involved with the scheme at issue in this
case to the extent that she “gave diree*ions to Merrill Lynch
and PaineWebber personnel on a few occasions with respect to
the handling or disposition of certain funds that Benistar
Property either was sending to, or had previously deposited
with, the brokerage firms,” and may have also directed brokers
to buy or sell stocks or options with the Benistar Trust funds.

6. The defendants claim that Delaware law should contro]
this issue. Massachusetts and other authority support the
decision of the trial judge to apply the law of the jurisdiction
where the underlying conduct took place (Massachusetts),

(Cont'd)

6a

Appendix A

inferences correctly drawn from these defendants’
assertion of their Fifth Amendment privileges and
refusal to submit to questioning on issues relevant to
personal jurisdiction.

(Cont'd)

rather than the place of incorporation (Delaware). See, e.g.,
Evans v. Multicon Constr. Corp., 30 Mass. App. Ct. 728, 737 n.7
(1991) (applying Massachusetts law to issue of piercing
corporate veil because “the place of contracting, the place of
negotiation of the contract, the place of performance of the
contract, and the place of the subject matter of the contract
were in Massachusetts”). Even were we to agree that Delaware
law should govern, it would make no difference because there
was more than ample justification for disregarding the
corporate form under either Massachusetts or Delaware law.

In Massachusetts, the law of piercing the corporate veil
“differs in no material respect from the description in United
States v. Bestfoods, 524 U.S. 51, 62-63 (1998),” Scott v. NG US 1,
450 Mass. 760, 768 (2008). Delaware law similarly permits a
court to pierce the corporate veil of an entity “where there is
fraud or where [the entity] is in fact a mere instrumentality or
alter ego of its owner.” Geyer v. Ingersoll Publications Co., 621
A.2d 784, 793 (Del. Ch. 1992). “A subsidiary corporation may be
deemed the alter ego of its corporate parent where there is a
lack of attention to corporate formalities, such as where the
assets of two entities are commingled, and their operations
intertwined. . . [or] where a corporate parent exercises complete
domination and control over its subsidiary.” Mobil Oil Corp. v.
Linear Films, Inc., 718 F. Supp. 260, 266 (D. Del. 1989); see also
Fletcher v. Atex, Inc., 68 F.3d 1451, 1457 (2d Cir. 1995). As the
facts in this case well illustrate, under either Massachusetts or
Delaware law, this case is almost a paradigm for piercing the
corporate veil.

Ta
Appendix A

The fundamental argument of the Benistar
defendants in their petition is that the determination of
personal jurisdiction should be made before and not in
light of the trial judge’s findings on piercing the
corporate veil. This is not the law under either the
Massachusetts long-arm statute’ or the Due Process
clause. Under Massachusetts law, ownership of a
Massachusetts subsidiary does not, of course,
automatically confer jurisdiction over a parent
corporation, Escude Cruz v. Ortho Pharmaceutical
Corp., 619 F.2d 902, 905 (ist Cir. 1980), nor does
jurisdiction over a corporation automatically secure
jurisdiction over its officers. Kleinerman v. Morse, 26
Mass. App. Ct. 819, 824 (1989). However, the combination
of intermingling of officers and directors, and controlling
the operations of a Massachusetts subsidiary, is
sufficient to satisfy the long-arm statute. As the Appeals
Court held in Kleinerman v. Morse, supra at 823:

“Significant exercise of control by an out-
of-State parent corporation over a subsidiary
and significant intermingling of officers and
directors between parent and subsidiary have
served to establish jurisdiction in the State
where the subsidiary is conducting its
business operations. Willis v. American
Permac, Inc., 541 F. Supp. 118, 122 (D. Mass.

7. For purposes of this inquiry we apply Massachusetts,
not Delaware, law, regardless of what law applied to the veil-
piercing question. See, e.g., Good Hope Indus., Inc. v. Ryder
Scott Co., 378 Mass. 1, 5-6 (1979) (explaining Massachusetts law
of personal jurisdiction).

8a
Appendix A

1982). Cf. My Bread Baking Co. v. Cumberland
Farms, Inc., 353 Mass. 614, 618-619 (1968).
Running the operations of a subsidiary in
Massachusetts constitutes a breadth of
business activity that necessarily involves
exercise of the privilege of conducting
business here. Hanson v. Denckla, 357 U.S.
235, 253 (1958). Compare Good Hope Indus.
v. Ryder Scott Co., 378 Mass. 1, 6-12 (1979);
Balloon Bouquets, Inc. v. Balloon Telegram
Delivery, Inc., 18 Mass. App. Ct. 935, 935-936
(1984); Gunner v. Elmwood Dodge, Inc., 24
Mass. App. Ct. 96, 100-101 (1987). By contrast,
ownership alone of the controlling stock of a
subsidiary does not confer jurisdiction over
an out-of-State parent corporation if the
parent does not exercise control over the
activities of the subsidiary. Escude Cruz v.
Ortho Pharmaceutical Corp., 619 F.2d 902,
905 (1st Cir. 1980).” ®

Despite the efforts of the Benistar defendants to
argue otherwise, Federal due process requirements,
which form the second prong of the personal jurisdiction
inquiry, are not to the contrary. Here too jurisdiction
over a parent corporation does not “automatically
establish jurisdiction over a wholly owned subsidiary.”

8. Although Kleinerman v. Morse, 26 Mass. App. Ct. 819
(1989), does not state its holding in terms of piercing the
corporate veil, piercing the corporate veil requires, if anything,
a higher degree of control and elements of fraudulent conduct,
than does the test in Kleinerman.

9a

Appendix A
\
Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781 n.13

(1984). However, where the corporate form may be
disregarded, as it was appropriately done in this case,
imputing the contacts of the subsidiary with the forum
state to the parent comports with due process. See Epps
v. Stewart Info. Servs. Corp., 327 F.3d 642, 648-649 (8th
Cir. 2003); Lakota Girl Scout Council, Inc. v. Havey
Fund-Raising Mgt., Inc., 519 F.2d 634, 637 (8th Cir.
1975).

“Although [the parent], in its own right,
lacked sufficient minimum contacts with
Massachusetts to permit the assertion of
jurisdiction over its corporate person, [the
subsidiary] was unarguably subject to the
jurisdiction of the Massachusetts courts. Hence,
if [the subsidiary]’s contacts can be attributed
to [the parent], then the jurisdictional hurdle
can be vaulted.”

United Elec., Radio and Mach. Workers of Am. v. 163
Pleasant St. Corp., 960 F:2d 1080, 1091 (1st Cir. 1992).

Not every case dealing with the question of personal
jurisdiction over nonresident parent corporations
invokes the doctrine of piercing the corporate veil by
name. The underlying principle, however, is clear. “Since
the essence of personal jurisdiction is to bring
responsible parties before the court, a corporation which
is actually responsible for its subsidiary’s decision to
undertake instate activities should, in all fairness, be
within the state courts’ jurisdictional reach.” Donatelli

10a

Appendix A

v. National Hockey League, 893 F.2d 459, 466 (1st Cir.
1990). The defendants’ attempt to circumvent this
authority through an analogy to the purportedly
“similar” theory that was rejected in Rush v. Savchuk,
444 U.S. 320 (1980), is unavailing. That case did not
involve in any respect piercing the corporate veil, parent
corporations, or subsidiaries.

The relief granted in this case was appropriate
where Massachusetts had personal jurisdiction over
corporate entities and individuals to whom actions
establishing personal jurisdiction in Massachusetts
have been attributed.

The petition for rehearing is denied.

By the Court
(Cowin, Botsford, JJ., recused),

s/ Susan Mellen
Susan Mellen, Clerk

ENTERED: June 26, 2008

lla

APPENDIX B — OPINION OF THE SUPREME
JUDICIAL COURT OF MASSACHUSETTS,
SUFFOLK DATED MAY 8, 2008

SUPREME JUDICIAL COURT OF
MASSACHUSETTS, SUFFOLK

Suffolk, January 7, 2008—May 8, 2008.
GAIL A. CAHALY
vs.
BENISTAR PROPERTY EXCHANGE
TRUST COMPANY, INC., & others!

(and six companion cases’).

Present: MARSHALL, C.J., GREANEY, IRELAND,
SPINA, & CORDY, JJ.

1. Benistar Ltd.; Benistar Employer Services Trust
Corporation; Benistar Admin. Services, Inc.; Carpenter
Financial Group, LLC; Molly Carpenter; Daniel E. Carpenter;
Merrill Lynch, Pierce, Fenner & Smith, Inc.; and U.S. Property
Exchange.

2. Jeffrey M. Johnston vs. Benistar Property Exchange
Trust Company, Inc., & others. Massachusetts Lumber Company,
Inc. vs. Benistar Property Exchange Trust Company, Inc., &
others. Bellemore Associates, LLC vs . Benistar Property
Exchange Trust Company, Inc., & others. Joseph Iantosca &
others vs. Benistar Property Exchange Trust Company, Inc., &
others. R & B Enterprises, Inc. vs. Benistar Property Exchange
Trust Company, Inc., & others. Byron Darling vs. Benistar
Property Exchange Trust Company, Inc., & others.

12a

Appendix B

Practice, Civil, Relief from judgment, Judgment
notwithstanding verdict, New trial, Discovery.
Evidence, Disclosure of evidence. Judgment, Relief
from judgment. Fiduciary. Conversion.
Fraud. Jurisdiction, Personal.

MARSHALL, C.J. In this appeal we principally
consider two questions: first, whether a Superior Court
judge properly granted judgment notwithstanding the
verdict (judgment n.o.v.) to a defendant on the ground
of an “evidentiary gap” in the plaintiffs’ claims, and
second, whether she then properly vacated the
judgment n.o.v. and allowed the plaintiffs’ motions for a
new trial based on “newly discovered evidence” that
might close that gap. See Mass. R. Civ. P 50(a), 365 Mass.
814 (1974) (judgment n.o.v.), and Mass. R. Civ. P. 60(b)(2),
365 Mass. 828 (1974) (postjudgment relief on ground of
newly discovered evidence).* We affirm.

1. Procedural background. The plaintiffs in these
consolidated actions contracted with the defendant
Benistar Property Exchange Trust Company, Inc.
(Benistar Trust) to hold their funds in escrow while they
engaged in tax-advantaged “like-kind” property
exchanges in accordance with Internal Revenue Code,
26 U.S.C. § 1031 (2006) (§ 1031).‘ Rather than

3. The trial judge treated the plaintiffs’ motion, which was
styled as a motion for reinstatement of the jury verdict, as a
motion for a new trial, allowed the motion, and granted that
relief.

4. Title 26 U.S.C. § 1031 (2006) allows a seller of property
to defer recognition of a capital gain on certain real estate
(Cont'd)

l3a

Appendix B

safeguarding the plaintiffs’ funds in escrow accounts—
as its fiduciary and contractual duties to the plaintiffs
required—Benistar Trust deposited the funds in margin
accounts at Merrill Lynch, Pierce, Fenner & Smith, Inc.
(Merrill Lynch), and later at UBS PaineWebber Inc.
(PaineWebber), and used the funds to engage in high-
risk uncovered option trading. Benistar Trust ultimately
lost more than $8 million of the plaintiffs’ funds.®

Beginning in January, 2001, the plaintiffs filed
actions against Benistar Trust, Daniel Carpenter (its
owner), Molly Carpenter (its managing director and
treasurer; Daniel is her husband), Martin Paley (its
president), a series of entities affiliated with Benistar
Trust that were also controlled by Daniel and Molly
Carpenter,’ Merrill Lynch, and PaineWebber. The

(Cont’d)

transactions by using the proceeds of the sale to purchase “like-
kind” property within 180 days. 26 U.S.C. § 1031(a)(3). In order
to take advantage of this rule, the funds must be transferred to
an escrow account, qualified trust, or qualified intermediary
pending the purchase of replacement property. Benistar Trust
advertised itself as a “qualified intermediary” under § 1031.

5. The jury awarded $8,644,150 in compensatory damages
to the plaintiffs, divided in the following way to reflect each
plaintiff’s losses: Gail Cahaly, $992,230; Jeffrey Johnston,
$541,930; Massachusetts Lumber, $3,237,190; Joseph Iantosca,
$2,913,306.86; Belridge Corporation, $514,834.14; and
Bellemore Associates, $444,659.

6. Benistar Admin. Services, Inc.; Benistar Employer
Services Trust Corporation; Benistar Ltd.; Carpenter Financial
(Cont’d)

l4a

Appendix B

plaintiffs asserted claims against all of the defendants,
including breach of contract, conversion, breach of
fiduciary duty, intentional misrepresentation, and
violation of G.L. c. 93A. In addition, the plaintiffs alleged
that Merrill Lynch and PaineWebber aided and abetted
Benistar Trust’s conversion and breach of fiduciary duty
and violated the Connecticut Unfair Trade Practices Act
and the New York Consumer Protection Act.’

In March, 2002, the trial judge, who presided over
nearly the entirety of this litigation in the business
litigation session of the Superior Court, allowed the
plaintiffs’ motion for summary judgment on their claims
against Benistar Trust for breach of contract and
conversion. In July, 2002, the judge allowed
PaineWebber’s motion for summary judgment on the
plaintiffs’ claims against it. See note 11, infra. After
fourteen days of trial on the remaining claims, during
November and December, 2002, and having heard
testimony from more than a dozen witnesses, a jury

(Cont'd)
Group, LLC; and U.S. Property Exchange. For simplicity, we

shall sometimes refer collectively to Benistar Trust, Daniel —

Carpenter, Molly Carpenter, Martin Paley, and the named
affiliated entities as the “Benistar defendants.” We shall refer
to Daniel Carpenter as “Carpenter.”

7. The plaintiffs’ various complaints list additional causes
of action against Merrill Lynch, Pierce, Fenner & Smith, Inc.
(Merrill Lynch), and some of the other defendants that were
dismissed during the litigation, do not appear to have been
litigated, or otherwise have no bearing on this appeal.

|Sa

Appendix B

found Benistar Trust, Carpenter, Molly Carpenter,’ and
Paley liable on all of the plaintiffs’ common-law claims.
They found Merrill Lynch liable for aiding and abetting
conversion, aiding and abetting breach of fiduciary duty,
and for violating the New York and Connecticut
consumer protection statutes.°

However, in February, 2003, the judge allowed
Merrill Lynch’s motion for judgment n.o.v. on the
ground that the plaintiffs had failed, as a matter of law,
to present sufficient evidence that Merrill Lynch either
had “actual knowledge” of the Benistar defendants’
wrongful acts or provided “substantial assistance” to
Benistar’s wrongdoing, as required under New York law,
which controlled the claims." See, e.g., S & K Sales Co.

8. The only claim before the jury with respect to Molly
Carpenter was breach of fiduciary duty as to three of the
plaintiffs: Joseph lantosca, Belridge Corporation, and
Bellemore Associates. The jury found her liable to all three.
Not every cause of action was asserted against each of the other
Benistar defendants, a fact that has no bearing on this appeal.

9. After a separate bench trial in March, 2003, the judge
found the Benistar defendants, with the exception of Molly
Carpenter, liable under G.L. c. 938A, and awarded attorney’s fees
to the plaintiffs. In September, 2003, after a further separate
bench trial, the judge found that it was necessary and
appropriate to pierce the corporate veil and extend liability to
the remaining Benistar defendants, five corporations controlled
by Daniel and Molly Carpenter. See note 6, supra.

10. The judge also granted judgment n.o.v. on the New York
and Connecticut statutory claims for reasons derivative of her
setting aside the jury’s verdicts on the aiding and abetting
claims.

16a

Appendix B

v. Nike, Inc., 816 F.2d 8438, 847-848 (2d Cir.1987) (defining
elements of aiding and abetting claim under New York
law). See also infra.

In a posttrial motion, the plaintiffs brought forward
evidence that they asserted was “newly discovered” and
would address the deficiencies the judge had identified
in granting judgment n.o.v. to Merrill Lynch. The judge
allowed the plaintiffs’ motion for a new trial under rule
60(b)(2), based on the new evidence. She reported her
decision, along with her previous decision to grant
judgment n.o.v. to Merrill Lynch, to the Appeals Court,
under Mass. R. Civ. P. 64, as amended, 423 Mass. 1410
(1996), see Lyons v. Globe Newspaper Co., 415 Mass.
258, 261 n. 4, 612 N.E.2d 1158 (1993). She also entered
a final judgment against the Benistar defendants under
Mass. R. Civ. PR. 54(b), 365 Mass. 820 (1974), from which
the Benistar defendants appealed. The Appeals Court
considered all issues together, and affirmed. Cahaly v.
Benistar Property Exch. Trust Co., 68 Mass.App.Ct. 668,
864 N.E.2d 548 (2007). Merrill Lynch and the Benistar
defendants each filed an application for further appellate
review; the plaintiffs filed an opposition. We granted
further appellate review."

11. The plaintiffs’ claims against UBS PaineWebber, Inc.
(PaineWebber), are not before us. PaineWebber prevailed on
those claims in the Superior Court and in the Appeals Court.
The plaintiffs neither sought further appellate review of their
claims against PaineWebber nor requested, in their opposition
to the applications for further appellate review filed by the other
defendants, that this court also review their claims against

(Cont'd)

17a

Appendix B

2. Factual background.” The jury could have found
the following: Benistar Trust was a registered Delaware
corporation with a principal place of business in
Massachusetts. It was one of a number of business
entities set up and controlled by Carpenter, a tax
attorney and Connecticut resident. Carpenter was the
chairman and sole shareholder of Benistar Trust. His
wife, Molly Carpenter, was its managing director and
treasurer, and Paley, a Massachusetts resident, was its
president.'®

$$$ re ne —

PaineWebber in the event that one or both of the other
defendants’ applications was allowed. The applications filed by
the other defendants (Merrill Lynch and the Benistar
defendants) did not seek relief against PaineWebber. See
Bradford v. Baystate Med. Ctr., 415 Mass. 202, 204, 613 N.E.2d
82 (1993) (“as to a multiple party, multiple issue case . . . a party
successful in the Appeals Court [such as PaineWebber] as to
whom an application for further appellate review does not seek
relief need not be concerned with the proceedings before us
involving other parties”); Ford v. Flaherty, 364 Mass. 382, 386-
387, 305 N.E.2d 112 (1973) (plaintiff’s claims against third-party
defendant not before the court because no further appellate
review of any claim against it was sought).

12. We recite only such facts as are pertinent to our inquiry,
reserving recitation of certain facts for later discussion.

13. At their depositions, the Benistar Trust principals,
Carpenter, Paley, and Molly Carpenter invoked their right to
remain silent under the Fifth Amendment to the United States
Constitution in answer to every question put to them. At her

(Cont'd)

18a

Appendix B

The plaintiffs are individuals and entities who in 2000
entered into written agreements with Benistar Trust in
order to secure for themselves the tax benefits of § 1031
in connection with sales and purchases of real estate."
See note 4, supra. These agreements, in essence,
obligated Benistar Trust (1) to hold the funds that each
plaintiff derived from the sale of real property in a
Merrill Lynch “escrow custodial account” in the form of
either a six per cent “investment account” or a three
per cent money market account, at each plaintiff’s
election; (2) to transfer a plaintiff’s escrow funds to any
seller of “replacement property,” designated by the
plaintiff at such time and in such manner as the plaintiff
specified, see note 4, supra; and (3) if the plaintiff failed
to locate a suitable replacement property within the
time permitted under § 1031, to return the escrow funds,
with the applicable interest, to the plaintiff.

In October, 1998, Carpenter opened accounts at
Merrill Lynch for various of his enterprises, including
four accounts for Benistar Trust. These were corporate

(Cont'd)

deposition, Molly Carpenter invoked both the “spousal
privilege” and “all other applicable privileges”; the judge
determined that only the Fifth Amendment protectior. against
self-incrimination applied. At trial, Paley again responded to
every question by invoking his Fifth Amendment rights.
Carpenter and Molly Carpenter did not appear at trial.

14. Benistar Trust charged the plaintiffs a flat fee for its
services as a § 1031 qualified intermediary.

19a

Appendix B

working capital accounts, and not custodial, depository,
or escrow accounts. His account advisors for all of the
Benistar accounts were Gary Stern and Gerald Levine,
financial advisors with Merrill Lynch’s private client
group. In setting up the accounts, Carpenter forwarded
to Merrill Lynch Benistar Trust’s certificate and articles
of incorporation, bylaws, and corporate resolutions
authorizing the opening of the accounts. None of these
documents identified the nature of Benistar Trust’s
business as a § 1031 qualified intermediary.’* Carpenter
signed written representations that the money in the
*349 Benistar Trust accounts belonged to Benistar
Trust. Additionally, Carpenter identified his investment
objective as “income” and his “account risk factor” as
“aggressive.” He requested and received permission
from Merrill Lynch to engage in uncovered option
trading’® in one of the Benistar Trust accounts, after

15. The Merrill Lynch account opening documents,
prepared by Gerald Levine and signed by Carpenter and (in
some cases) Molly Carpenter, identified the business of Benistar
Trust as “real estate transactions” and “real estate,” information
that Levine testified came directly from Carpenter.

16. An “uncovered” option strategy involves contracting
to buy or sell a particular security, which one does not own, on a
date in the future, for an agreed price. Because the actual price
of the security on the date when the uption expires may be much
higher or lower than the agreed price, large gains or losses may
result. For uncovered calls, in which one contracts to sell at an
agreed price, the potential losses are unlimited.

20a

Appendix B

signing a document acknowledging his understanding
that uncovered options posed “special risks . . . [for]
potentially significant losses.”"”

Carpenter was, as he stated on the account form,
an “aggressive” investor. As soon as the accounts were
opened, he engaged in high-volume, high-risk uncovered
trading in puts and calls, concentrating almost
exclusively in the then-booming technology sector.
Carpenter often spent one hour or more each day on
the telephone with Levine or Stern discussing possible
trades, consuming far more of their time than their
other clients. However, Benistar’s trades were “totally
unsolicited,” meaning that Carpenter himself controlled
all investment decisions."* He paid little heed to Stern’s
and Levine’s repeated admonitions to temper his trading
style by broadening his portfolio into other sectors and
choosing some safer investments.

17. Although Merrill Lynch authorized Carpenter to
engage in uncovered option trading in several Benistar ‘Trust
accounts, most of the option trading was done through one
Benistar Trust account identified at trial as the “B10 account.”
For the sake of convenience, we shall refer hereafter to the
Benistar Trust “account,” in the singular.

18. As the judge stated in her memorandum of decision
and order on the plaintiffs’ claims pursuant to G.L. c. 93A, the
evidence showed that Carpenter “was unquestionably the
person entirely or virtually entirely responsible for authorizing
and directing the uncovered option trading with the plaintiffs’
funds” at Merrill Lynch.

2la

Appendix B

Carpenter’s investment strategy at first yielded
profitable returns, but by the spring of 2000, as the “dot-
com boom” of the late 1990’s began to flatten out, his
accounts sustained heavy losses.'? Merrill Lynch
administrative manager Thomas Rasmussen, branch
manager Hassan Tabbah, and members of Merrill
Lynch’s compliance department were concerned about
these losses. On September 20, 2000, Rasmussen
directed Levine to inform Carpenter that Merrill Lynch
would no longer permit Carpenter to open uncovered
positions in the Benistar Trust account. On Stern’s
recommendation, Carpenter moved his accounts to
PaineWebber in October, 2000, where, in less than three
weeks, Benistar Trust lost between $1.2 and $1.3 million.
By the end of December, 2000, PaineWebber began
closing out positions in the Benistar account.

We turn now to the decision of the judge to grant
Merrill Lynch’s motion for judgment n.0o.v.

3. Judgment notwithstanding the verdict.
a. Standard of review. Because the jury are a pillar of
our justice system, nullifying a jury verdict is a matter
for the utmost judicial circumspection. The touchstone
is reasonableness. We ask whether, construing the
evidence most favorably to the plaintiff, and “without
weighing the credibility of the witnesses or otherwise

19. A Merrill Lynch memorandum introduced in evidence
notes that Carpenter “was up approximately $200,000 near the
end of March 2000 and dropped about $1,000,000 over the option
expiration period of April and May.”

22a

Appendix B

considering the weight of the evidence, the jury
reasonably could have returned a verdict for the
plaintiff. .. . To be reasonable, the inference [or
conclusion] ‘must be based on probabilities rather than
possibilities and cannot be the result of mere speculation
and conjecture.’ ” Phelan v. May Dep't Stores Co., 443
Mass. 52, 55, 819 N.E.2d 550 (2004), quoting Tosti v.
Ayik, 394 Mass. 482, 494, 476 N.E.2d 928 (1985), and
McEvoy Travel Bur, Inc. v. Norton Co., 408 Mass. 704,
706 n. 3, 563 N.E.2d 188 (1990). See Tennant v. Peoria
& PU. Ry., 321 U.S. 29, 35, 64 S.Ct. 409, 88 L.Ed. 520
(1944). “[We] consider whether ‘anywhere in the
evidence, from whatever source derived, any
combination of circumstances could be found from which
a reasonable inference could be drawn’ in favor of the
nonmoving party.” Phelan v. May Dep’t Stores Co.,
supra, quoting McEvoy Travel Bur. Inc. v. Norton Co.,
supra. With these principles in mind, we turn now to
the merits.

b. Aiding and abetting liability. The claims
against Merrill Lynch for aiding and abetting breach of
fiduciary duty and aiding and abetting conversion arise
under New York common law, where it is well settled
that the plaintiff must show “(i) the existence of a
violation by the primary wrongdoer; (ii) knowledge of
this violation by the aider and abettor; and (iii) proof
that the aider and abettor substantially assisted in the
primary wrong.” Ryan v. Hunton & Williams, U.S.
Dist. Ct., No. 99-CV-5938 (JG), 2000 WL 1375265
(E.D.N.Y. Sept. 20, 2000). See S & K Sales Co. v. Nike,
Inc., 816 F.2d 848, 847-848 (2d Cir.1987); Mazzaro de

23a

Appendix B

Abreu v. Bank of Am. Corp., 525 F.Supp.2d 381, 387
(S.D.N.Y.2007); A.I.A. Holdings, S.A. v. Lehman Bros.,
U.S. Dist. Ct., No. 97 Civ. 4978(LMM), 2002 WL 88226
(S.D.N.Y. Jan. 23, 2002); Cromer Fin. Ltd. v. Berger, 137
F.Supp.2d 452, 470 (S.D.N.Y.2001); Nigerian Nat’l
Petroleum Corp. v. Citibank, N.A., U.S. Dist. Ct., No.
98 Civ. 4960(MBM), 1999 WL 558141 (S.D.N.Y. July 30,
1999); Williams v. Bank Leumi Trust Co., U.S. Dist.
Ct., No. 96 Civ. 6695(LMM), 1997 WL 289865 (S.D.N_Y.
May 30, 1997); Kolbeck v. LIT Am., Inc., 939 F.Supp.
240, 245 (S.D.N.Y.1996), aff’d, 152 F.3d 918 (2d Cir.1998).
See also Restatement (Second) of Torts § 876(b) (1977)
(“For harm resulting to a third person from the tortious
conduct of another, one is subject to liability if he...
knows that the other’s conduct constitutes a breach of
duty and gives substantial assistance or encouragement
to the other . . .”). The plaintiffs have cleared the first
hurdle of the evidentiary requirements: establishing
that the Benistar defendants both breached their
fiduciary duties to them and wrongfully converted their
funds. The question is whether they provided evidence
sufficient for the jury reasonably to conclude that Merrill
Lynch had “knowledge of” and “substantially assisted”
the Benistar defendants. Ryan v. Hunton & Williams,
supra. The plaintiffs concede that the lengthy trial did
not yield direct evidence of knowledge or substantial
assistance. They argue, however, that the “indirect,
circumstantial evidence” of these two elements was
“overwhelming.” No jury reasoning from the evidence,
however, would have been overwhelmed.

24a

Appendix B

c. Knowledge of a violation. We first consider
whether, viewing the evidence in its light most favorable
to the plaintiffs, the jury reasonably could have inferred
that Merrill Lynch “knew” of the primary wrongs
committed by the Benistar defendants. The knowledge
requirement of a New York aiding and abetting claim
demands a showing of “actual knowledge” of the
underlying wrongdoing. See Kolbeck v. LIT Am., Inc.,
supra at 246, and cases cited. That the aiding and
abetting defendant has been proven to have had notice
or “constructive knowledge” of the underlying wrong
will not suffice. See, e.g., Ryan v. Hunton & Williams,
supra (on motion to dismiss, allegations that defendant
suspected underlying fraud insufficient to aver “actual
knowledge”). See also Kolbeck v. LIT Am., Inc., supra
at 248 (absent fiduciary duty to plaintiff, defendants’
knowledge of accusations of fraud against primary
wrongdoer insufficient to impute requisite “actual
knowledge” for purposes of aiding and abetting
liability). The plaintiffs are not required to produce a
“smoking gun,” however. Actual knowledge “may be
implied from a strong inference of fraudulent intent,”
Mazzaro de Abreu v. Bank of Am. Corp., supra at 388.

On appeal the plaintiffs set out six “categories of
evidence” that they argue form the basis of a reasonable

20. It is uncontested that Merrill Lynch did not owe a
fiduciary duty to the plaintiffs. See Morin v. Trupin, 823 F.Supp.
201, 207 (S.D.N.Y.1993) (broker of packaged real estate deals
does not owe fiduciary duty to plaintiffs where he had “no
control” over materials forming basis of primary tortfeasor’s
fraud).

25a

Appendix B

inference that Merrill Lynch had “actual knowledge” of
the Benistar defendants’ underlying wrongdoing. They
also argue that the jury could reasonably have inferred
actual knowledge from disbelief of the Merrill Lynch
defendants’ testimony. On both points, we disagree.

As to evidence, the plaintiffs rely strongly on a
September 22, 2000, letter Carpenter wrote to
Rasmussen, protesting Merrill Lynch’s decision to
prohibit opening new positions in the Benistar Trust
account.”' In the letter Carpenter stated, among other
things: “We have chosen Merrill [Lynch] as our
depository for our clients so we cannot move the funds
elsewhere. If we cannot trade at Merrill [Lynch], we

21. In the September 22, 2000, letter, Carpenter stated that
he was writing “to lodge an official complaint” about Merrill
Lynch’s prohibiting Benistar Trust from opening new positions.
There was considerable testimony at trial about whether the
letter constituted the type of complaint that was required to be
reported to the Securities and Exchange Commission (SEC).
Robert Lau, an expert testifying on behalf of Merrill Lynch,
Rasmussen, and Duffy, and the Merrill Lynch attorney to whom
he referred the letter all testified that the letter was not the
type of complaint required to be reported to the SEC. The judge,
correctly in our view, rejected the plaintiffs’ argument that the
Merrill Lynch defendants’ testimony on this matter was false
and therefore probative evidence of liability, see Boston v.
Santosuosso, 307 Mass. 302, 349, 30 N.E.2d 278 (1940), on the
ground that testimony about whether the letter constituted a
reportable complaint was “confusing” and that, in any event,
had Merrill Lynch reported the letter as a “complaint,” the form
in which it was required to do so would not have triggered
further investigation by any regulatory authority “or anyone
else.”

26a
‘ppendix B

cannot trade anywhere, and you will have doomed us to
our losses in a volatile market that we were perfectly
positioned to profit from.” To the plaintiffs, the words
“depository” and “clients” were sufficient to inform
Merrill Lynch that the Benistar Trust account contained
third-party funds and that Carpenter was appropriating
those funds for his own use in violation of his fiduciary
duty to the third parties.”:** The link posited by the
plaintiffs requires many intermediate conclusions for

22. In further support of this assertion, the plaintiffs point
to evidence from a section of the Merrill Lynch “Compliance
Outline” (an internal document distributed to brokers in its
private client division) on “Money Laundering, Con Games and
Trading Abuses” that advises brokers to avoid schemes using
“intermediate” or “depository” accounts. The reference does
not define “depository” but does indicate that such accounts
are held for the benefit of third parties. In any event, it is
insufficiently revelatory of the tortious conduct at issue
reasonably to lead to an inference that Merrill Lynch had “actual
knowledge” of the Benistar defendants’ wrongs.

23. It is undisputed that, based on the trial evidence, no
one at Benistar Trust directly informed anyone at Merrill Lynch
that the funds in the Benistar Trust account belonged to third
parties and that Carpenter was misusing those funds in violation
of his agreements with those third parties. Levine, Rasmussen,
Stern, and Duffy testified that Carpenter had told them that
the money in the accounts was all his. Moreover, Rasmussen,
Levine, and Merrill Lynch attortiey Kewin Duffy all testified,
without contradiction, that they considered the reference to
“clients” to mean Carpenter’s or Benistar's ether companies.
Stern and Levine also testified that they considered Benistar
Trust and Carpenter to be one and the same for purposes of the
Merrill Lynch accounts.

27a

Appendix B

which there was no evidence: for instance, that the funds
in the Benistar Property account were third-party funds
contractually required to be held in escrow and that
Benistar Trust’s agreements with the third parties did
not permit using the funds for speculative trading. Even
assuming, arguendo, that the letter signified that
Benistar Trust had some unspecified fiduciary duty to
third-party clients relevant to the corporate accounts,
the “relevant ‘knowledge’ for liability to attach in a
fiduciary’s breach of duty is knowledge as to the primary
violator’s status as a fiduciary and knowledge that the
primary’s conduct contravenes a fiduciary duty”
(emphasis added). A./.A. Holdings, S.A. v. Lehman
Bros., supra, quoting Diduck v. Kaszycki & Sons
Contrs., 974 F.2d 270, 282-283 (2d Cir.1992). It takes a
leap in speculation, an impermissible leap for a jury, to
tie the September 22 letter to Merrill Lynch’s “actual
knowledge” of the underlying tortious behavior. See
Sheehan v. Goriansky, 317 Mass. 10, 17, 56 N.E.2d 883
(1944), quoting Davis v. Boston Elevated Ry., 222 Mass.
475, 479, 111 N.E. 174 (1916) (Gjury’s conclusion must be
“the result of logical reasoning from established facts”).

The plaintiffs’ second category of evidence is
similarly unpersuasive. This category of evidence is
comprised of Rule 405 of the Rules of the New York
Stock Exchange, Rule 3210 of the Rules of the National
Association of Securities Dealers, and Merriil Lynch
compliance policies that, in summary, require a broker
or financial adviser to use “due diligence” to “know the
client” when opening and managing the client’s
investment accounts. The plaintiffs argue that, because

28a

Appendix B

Stern and Levine both testified that they complied with
the “know your client” rules, the jury reasonably could
conclude that Stern and Levine, and thus Merrill Lynch,
knew about the nature of Benistar Trust’s business**
and also the nature of its wrongdoing.” The jury might
have believed Stern’s and Levine’s testimony that they
followed the “know your client” rules, in which case the
jury reasonably could infer that Stern and Levine knew
the nature of Benistar Trust’s services. Or the jury
might have disbelieved the brokers, in which case they
reasonably could infer that Stern and Levine failed to
follow the “know your client” rules. Neither alternative
translates to affirmative evidence that Merrill Lynch had
actual knowledge that the Benistar Trust account
contained third-party funds, and that Carpenter’s high-
risk options trading in the Benistar Trust account was
in breach of its fiduciary duties.

Third, the plaintiffs laid before the jury voluminous
documentary evidence of wire transfer authorizations

24. Several witnesses for Merrill Lynch testified that not
only did they not know the actual nature of Benistar Trust’s
business as a “qualified intermediary” under § 1031, but they
also had no understanding of § 1031 or its requirements until
the first of the plaintiffs’ lawsuits was filed in January, 2001.

25. The plaintiffs also argue that the words “property
exchange” and “trust” in Benistar Trust’s corporate name was
a loud, clear announcement to Merrill Lynch of the nature of
Carpenter’s business and of the underlying tortious conduct.
The references in Benistar Trust’s corporate name are
insufficient under New York law to support the scienter
requirement of an aiding and abetting claim.

29a

Appendix B

and wire transfer confirmations for the Benistar Trust
account that indicated that substantial sums flowed
constantly between Benistar Trust and various third-
party bank accounts, attorney trust accounts, and other
accounts of an evidently custodial nature.** A jury may
well have agreed with the plaintiffs that Merrill Lynch’s
apparent indifference to the large volume of wire
transfers was in derogation of its own written policies
for detecting “con games” and “scams””’ (although, as
the judge noted, the heavy traffic in wire transfers in
the Benistar Trust account was consistent with
Carpenter’s alleged representations to Merrill Lynch
that Benistar Trust bought and sold real estate). At
most, this conclusion leads reasonably to the inference
that Merrill Lynch “should have been aware” of possible
wrongdoings in the account. However, constructive
knowledge is not “actual knowledge.” See, e.g., Mazzaro
de Abreu v. Bank of Am. Corp., 525 F.Supp.2d 381, 388
(S.D.N.Y.2007) (knowledge of nature of transfers from
bank account and large sums of money in account do
not imply “actual knowledge of the underlying fraud”);

26. The plaintiffs also introduced evidence that Merrill
Lynch brokers were instructed that large volumes of wire
transfer activity in an account may signal a fraudulent scheme
and should be reported to the office of the general counsel.

27. In addition, a jury may well have agreed that such
indifference violated Merrill Lynch’s obligations under
Rule 405 of the Rules of the New York Stock Exchange to “[uJse
due diligence to learn the essential facts relative to every
customer, every order, every cash or margin account accepted
or carried... .”

30a

Appendix B

Ryan v. Hunton & Williams, U.S. Dist. Ct., No. 99-CV-
5938 (JG), 2000 WL 1375265 (E.D.N.Y. Sept. 20, 2000)
(bank officer’s authorization of large volume of transfers
between primary defendant’s account and subaccounts
does “not create an inference of knowledge of”
fraudulent scheme). See also Nigerian Nat'l Petroleum
Corp. v. Citibank, N.A., U.S. Dist. Ct., No. 98 Civ.
4960(MBM), 1999 WL 558141 (S.D.N.Y. July 30, 1999)
(allegations of knowing or reckless disregard of
irregularities in wire transfers and other “badges of
fraud” do not give rise to inference, “let alone a ‘strong
inference’ ” of underlying fraud).

Fourth, the jury heard testimony concerning a
telephone conference call on December 19, 2000, among
Stern, PaineWebber compliance manager Lori Enright,
Mitchell Rock (Stern’s close friend and Benistar’s
broker at PaineWebber),*® and Steven Feit (the
PaineWebber branch manager) in response to
PaineWebber’s concern about losses in the Benistar
account. Enright took notes of the conference. Both
Feit’s testimony (in deposition) and Enright’s testimony
and notes reflect that Stern told them that Benistar
Trust acted “as a third party liaison for real estate
transactions.”” From what we have said above, it is clear
that Stern’s information is insufficient to prove actual
knowledge of Benistar Trust’s fraudulent schemes.

28. Rock’s participation in the conference call was confined
to making introductions.

29. Enright and Feit also testified that they did not ask
Carpenter to elaborate on this description.

3la

Appendix B

We need not discuss at length the plaintiffs’ two
remaining categories of evidence. Testimony from
several Merrill Lynch employees that they viewed the
Benistar Web site homepage (which did not contain a
description of Benistar Trust’s business) and a linked
page that had nothing to do with § 1031 like-kind
exchanges has no probative value in establishing Merrill
Lynch’s knowledge of the primary wrongdoing.* That
Levine and Stern chose to respond to a memorandum
from their compliance department requesting more
information about Benistar Trust by ignoring the
request and praising Carpenter as an individual cannot
be converted into affirmative evidence of the underlying
fraud, even if, as the plaintiffs maintain, Levine and
Stern responded obliquely in order to continue reaping
substantial commissions from Benistar. See Mazzaro
de Abreu v. Bank of Am. Corp., supra at 388-389
(allegations of “profit motive”—garnering of
“substantial” transaction fees-insufficient of itself to
support inference of actual knowledge of underlying
fraud generating fees).

The indirect, circumstaitial evidence amassed at
trial may suggest that Merrill Lynch knew the nature

30. Referring to Benistar’s Web site, Hassan Tabbah
testified without elaboration that he “hit the website,” perhaps
in Stern’s presence. Stern testified that he merely glanced at
the Web site once when he was in Tabbah’s office, and Levine
testified that the only link on the Benistar Web site that he
visited concerned an unrelated tax strategy. These witnesses
denied seeing any information on the Web site concerning
Benistar Trust’s role as a qualified intermediary for § 1031
pans.

32a

Appendix B

of Benistar Trust’s business. But it does not erase the
evidentiary lacunae between Merrill Lynch’s knowledge
of Benistar Trust’s services and knowledge that
Benistar Trust was violating its fiduciary agreements
to clients and converting client funds by trading in the
Benistar Trust corporate account. Crucially, no evidence
of Merrill Lynch’s actual knowledge of Benistar’s
agreements with its clients was presented at trial.
Cf. Cronin v. Executive House Realty, U.S. Dist. Ct.,
No. 80 Civ. 7254, 1982 WL 1303 (S.D.N.Y. May 5, 1982)
(judgment n.o.v. not appropriate on claim for aiding and
abetting under New York law where bank official was
‘-fermed by one business partner that offering
siemorandum on which “loan write-up” was based
misrepresented another partner’s financial status).

Because the six categories of evidence do not
support a permissible inference of actual knowledge, the
plaintiffs gain nothing by claiming that their evidence
acquires “independent, confirmatory force” when
considered in light of the jury’s presumed disbelief of
the “implausible,” “self-serving” and “after-the-fact”
testimony of Merrill Lynch witnesses on key points. Nor
can a jury’s disbelief of the Merrill Lynch testimony
reasonably be viewed as independent affirmative
evidence supporting a conclusion that Merrill Lynch had
the requisite actual knowledge of the Benistar

33a

Appendix B

defendants’ wrongful actions. None of the cases the
plaintiffs rely on helps their cause.*! There was no error.

31. See Janigan v. Taylor, 344 F.2d 781, 784-785 (1st
Cir.1965) (evidence that, among other things, defendant was in
charge of corporation and had detailed knowledge of its
operations permitted jury to infer defendant’s full knowledge
of company’s affairs from disbelief of his testimony of
ignorance). See aiso Sheehan v. Goriansky, 317 Mass. 10, 16-17,
56 N.E.2d 883 (1944) (“The defendant urges that disbelief of
testimony was not evidence to the contrary. . . . There was,
however, more than mere disbelief of the defendant,” including
evidence of bloody glove on the deceased’s chest); Boston v.
Santosuosso, 307 Mass. 302, 349, 30 N.E.2d 278 (1940) (“disbelief
of evidence is not the equivalent of affirmative evidence to the
contrary. But where a material fact is established by evidence
and it is shown that a defendant’s testimony as to that fact was
wilfully untrue, this cireumstance not only furnishes a ground
for disbelieving other testimony of this defendant . . . but also
tends to show consciousness of guilt or liability on his part and
has probative force in connection with other evidence on the
issue of such guilt or liability” [emphases added});
Commonwealth v. Geisler, 14 Mass.App.Ct. 268, 274, 438 N.E.2d
375 (1982), quoting Commonwealth v. Porter, 384 Mass. 647, 653,
429 N.E.2d 14 (1981) (jury could fairly infer evidence of guilt
from disbelief of automobile accident defendant’s testimony
where physical evidence such as location and condition of
automobile, among other things, supported probable inference
of liability; “[w)hile proof of mere consciousness of guilt alone
may be insufficient to convict of crime . . . evidence of such a
state of mind when coupled with other probable inferences,
may be sufficient to amass the quantum of proof necessary to
prove guilt”). See Cronin v. Executive House Realty,
U.S.Dist.Ct., No. 80 Civ. 7254, 1982 WL 1303 (S.D.N.Y. May 5,
1982) (evidence of direct communication to aiding and abetting

(Cont'd)

34a

Appendix B

d. Substantial assistance of the wrongful conduct.
The judge also concluded that the plaintiffs had failed
to prove the third prong of a New York aiding and
abetting claim: that Merrill Lynch substantially assisted
in furthering the Benistar defendants’ wrongful
conduct. See Ryan v. Hunton & Williams, supra. Our
conclusion that the plaintiffs have not met their burden
of showing that Merrill Lynch had actual knowledge of
the Benistar defendants’ underlying tortious conduct
on the evidence adduced at trial, and our affirmance of
the judge’s order allowing a motion for a new trial on
the claims against Merrill Lynch, make it unnecessary
to address the issue of substantial assistance.”

We consider now whether the judge properly
ordered a new trial on the claims against Merrill Lynch.

(Cont'd)

defendant of concerns about primary defendant’s solvency and
authority leads to inference that aiding and abetting
defendant’s actions in failing to conduct normal credit checks
~and accepting certain promissory notes furthered wrongdoing).
Here, as described above, the plaintiffs failed at trial to produce
the affirmative evidence that would have allowed a reasonable
inference of actual knowledge to be drawn.

32. Our decision on the aiding and abetting claim makes it
unnecessary to address the plaintiffs’ parenthetical argument
that the jury’s verdicts in favor of the plaintiffs on the New
York Consumer Protection Act and the Connecticut Unfair
Trade Practices Act should be reinstated on the evidence
presented concerning aiding and abetting.

35a

Appendix B

4. New trial under Mass. R. Civ. PR 60(b)(2). Ina
posttrial motion, the plaintiffs brought forward evidence
that they argued addressed the specific deficiencies in
their case that led the judge to allow Merrill Lynch’s
motion for judgment n.o.v. We conclude that the judge
did not abuse her discretion in granting the plaintiffs a
new trial based on this evidence.

a. Discovery. The plaintiffs’ request for posttrial
relief must be situated in the context of the contentious
discovery disputes which marred this litigation, and in
which Merrill Lynch repeatedly and over a considerable
period before, right up to and during the trial failed to
meet its discovery obligations despite multiple and
focused discovery requests of the plaintiffs.

Merrill Lynch produced a limited, initial set of
documents in March, 2001, in response to two subpoenas
duces tecum from the plaintiffs.** However, Merrill
Lynch then refused to answer the plaintiffs’
interrogatories and document requests for the six
months from October, 2001, until a motion to compel was
allowed in March, 2002, first arguing that it was not

33. At the time of this initial document production, which
Merrill Lynch’s counsel later stated in an affidavit “was handled
by a paralegal employed by Merrill Lynch,” Merrill Lynch was
not yet named as a defendant in the case. Merrill Lynch was
initially a reach and apply defendant and a trustee process
defendant in two of the consolidated actions. The plaintiffs
moved to amend their complaint to add Merrill Lynch as a party
defendant in September, 2001; the motion was allowed in
January, 2002.

36a

Appendix B

subject to interrogatories or document requests
because it was not yet a party defendant, and later
arguing that it was not subject to such requests because
“by the time Merrill Lynch was made a party . . . the
deadline for discovery had already clearly passed.”™

The judge allowed the plaintiffs’ motion to compel
Merrill Lynch to respond to written discovery in March,
2002.* This was not the end of the matter, however.
Merrill Lynch’s refusal to produce certain other
documents, in particular its policy and procedure
manuals, led to additional rounds of increasingly specific
motions to compel production.** Numerous documents

34. Merrill Lynch’s position was that the plaintiffs should
be afforded no opportunity to serve Merrill Lynch with
interrogatories or document requests because Merrill Lynch
was not named as a party until after the expiration of a deadline
set by a scheduling order that predated Merrill Lynch’s
involvement as a party defendant in the case.

35. The judge required that the plaintiffs, if they in fact
chose to seek written discovery from Merrill Lynch, submit to
any written discovery requests by Merrill Lynch as well.

36. The plaintiffs filed an emergency motion to compel
production of, inter alia, Merrill Lynch’s policy and procedure
manuals, in June, 2002; this motion was allowed in part over
Merrill Lynch’s opposition. Other parts of the order allowing
this motion were modified after an emergency motion for
reconsideration by Merrill Lynch was granted in part and
denied in part, but Merrill Lynch specifically was required to
produce “any such manuals, or portions of manuals, that are

(Cont'd)

37a

Appendix B

responsive to the plaintiffs’ requests for Merrill Lynch’s
records concerning the Benistar account were not
produced by Merrill Lynch until much later-in some
cases, until the middle of the trial. Meanwhile, Merrill
Lynch fought a separate battle on the issue of
depositions.”

On the eve of trial in late November, 2002, Merrill
Lynch produced additional relevant documents
concerning its internal review of the Benistar account.*

(Cont'd)

responsive to [specifically numbered] requests.” In October,
2002, the plaintiffs filed yet another motion to compel Merrill
Lynch to produce its policy and procedure manuals for
inspection and copying, whick Merrill Lynch again opposed on
the ground that it already had responded adequately by making
available some portions of its manuals. This resulted in yet
another order from the judge, less than one month before trial,
specifically orde* ing that the plaintiffs’ counsel be permitted
to inspect, and copy relevant portions of, two particular manuals.

37. Merril! Lynch allowed the plaintiffs to depose its
employee Stern in October, 2001, but fought the plaintiffs’
attempts te depose other witnesses whom the plaintiffs learned
were involved in Merrill Lynch’s supervision of the Benistar
account. Merrill Lynch unsuccessfully opposed the plaintiffs’
motion to compel depositions from two key employees, Levine
and Tabbah; this motion to compel was allowed and the
depositions taken in February, 2002. The plaintiffs’ motion to
compel the deposition of an additional employee, Rasmussen,
who proved to be an important witness at trial, was denied.

38. The plaintiffs characterized these documents as “new”
computer printouts showing Merrill Lynch’s reviews of the
(Cont'd)

38a

Appendix B

On the second day of trial, Merrill Lynch disclosed
information about the expected testimony of one of its
witnesses, Rasmussen, the Merrill Lynch employee who
had made the decision to shut down the Benistar
account, and whom the plaintiffs had unsuccessfully
attempted to depose in advance of trial. This information
led the plaintiffs to suspect that Rasmussen’s files, which
should have included documents concerning Merrill
Lynch’s supervision of the Benistar account, had not
been produced to the plaintiffs. The plaintiffs therefore
moved for the immediate production of those documents,
along with those of another witness.

On Sunday, December 1, 2002, at around 8 PM., after
pretrial motions and the first five days of trial, and with
testimony set to resume the next morning after a
Thanksgiving hiatus, Merrill Lynch transmitted
additional documents by facsimile to the plaintiffs. These
documents, and more that Merrill Lynch produced the
next morning as the trial resumed, included documents
related to Merrill Lynch’s supervision of the Benistar
account that Merrill Lynch admitted it previously had
not produced.** “ The plaintiffs argued that these

(Cont'd)

Benistar account, naming new individuals at Merrill Lynch not
previously known to the plaintiffs who were involved in those
reviews. Merrill Lynch argued that these documents previously
had been made available to the plaintiffs at a witness deposition.
Resolving this dispute would require additional documents that
are not part of the record on this appeal.

39. An affidavit of plaintiffs’ counsel avers that there were

approximately 140 pages of documents not previously produced
(Cont'd)

39a

Appendix B

documents, which contained “many new names” the
plaintiffs previously had not seen, and some of which
concerned Merrill Lynch’s internal compliance review
of the Benistar account, fell within not only the plaintiffs’
discovery requests dating back to 2001, but also multiple
motions to compel production that the judge had
allowed.

It is undisputed that even after this additional
extraordinarily late round of document production,
Merrill Lynch at no time produced the documents
described below, which became the subject of the
plaintiffs’ rule 60(b)(2) motion for a new trial.

b. Mass. R. Civ. P 60(b)(2). The purpose of rule
60, which governs posttrial relief, is “to strike a proper
balance between the conflicting principles that litigation
must be brought to an end and that justice should be
done.” 11 C.A. Wright, A.R. Miller, & M.K. Kane,
Federal Practice and Procedure § 2851 (2d ed.1995).

(Cont’d)
by Merrill Lynch. The judge called for an affidavit from Merrill
Lynch to explain why the document production was so late.

40. Among the new documents, the plaintiffs found
particularly significant a facsimile cover sheet from Benistar
to Merrill Lynch stating, “Here’s the account selection,” which
the plaintiffs argued was referring to, and would have enclosed,
an account selection form from a Benistar client, in which the
client specified its choice of the type of “account” in which
Benistar was to hold its funds at Merrill Lynch. Merrill Lynch
disputes that there was any account selection “form” associated
with this document.

40a

Appendix B

A party seeking postjudgment relief on grounds of
“newly discovered evidence” invokes rule 60(b)(2), and
must satisfy four requirements: “(1) the evidence has
been discovered since the trial; (2) the evidence could
not by due diligence have been discovered earlier by
the movant; (3) the evidence is not merely cumulative
or impeaching; and (4) the evidence is of such a nature
that it would probably change the result were a new
trial to be granted.” United States Steel v. M. DeMatteo
Constr. Co., 315 F.3d 43, 52 (1st Cir.2002), citing Mitchell
v. United States, 141 F3d 8, 18 (1st Cir.1998).*!

The trial judge “typically has an intimate, first-hand
knowledge of the case, and, thus, is best positioned to
determine whether the justification proffered in support
of a [rJule 60(b) motion should serve to override the
opposing party’s rights and the law’s institutional
interest in finality.” Karak v. Bursaw Oil Corp., 288 F.3d
15, 19 (1st Cir.2002). “Consequently, we defer broadly
to the {judge’s] informed discretion in granting or
denying relief from judgment, and we review [the] ruling
solely for abuse of that discretion.” /d. This deferential
standard is particularly appropriate where, as here, the

41. Rule 60(b)(2) of the Massachusetts Rules of Civil
Procedure, 365 Mass. 828 (1974), is the same as Fed.R.Civ.P
60(b)(2). “In construing our rules of civil procedure, we are
guided by judicial interpretations of the cognate Federal rule
‘absent compelling reasons to the contrary or significant
differences in content.’ ” Doe v. Senechal, 431 Mass. 78, 81 n. 8,
725 N.E.2d 225, cert. denied, 531 U.S. 825, 121 S.Ct. 71, 148
L.Ed.2d 35 (2000), quoting Rollins Envtl. Servs., Inc. v. Superior
Court, 368 Mass. 174, 179-180, 330 N.E.2d 814 (1975).

4la

Appendix B

judge who ruled on the rule 60(b)(2) motion is not only
the same judge who presided over the trial, but also
the same judge who presided over the discovery phase
of the litigation and so was intimately familiar with the
parties’ discovery conduct.

c. Newly discovered evidence: Patterson. The
newly discovered evidence submitted by the plaintiffs
was twofold: an affidavit and accompanying exhibits
submitted by a Massachusetts attorney not affiliated
with the litigation and an affidavit submitted by the
defendant Paley. The more significant of these was the
affidavit and accompanying exhibits provided by
attorney David Patterson of Newton. In 1998, Patterson
represented an individual who sought to effectuate a
§ 1031 transaction, and who retained Benistar as the
qu

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385015_0249%3A1. Public record. Not legal advice.