Opinion
NO. 218-2013-CV-00687
11-26-2013
Michael J. Clare, Sr. v. Bank of New England et al.
ORDER
The Plaintiff, Michael J. Clare, Sr. ("Clare") has sued Stephen Lewis ("Lewis"), Braemoor, LLC ("Braemoor"), Gino Baroni ("Baroni"), Glenridge, LLC, ("Glenridge") and Bank of New England ("BNE"), alleging in substance that Lewis and Clare entered into an agreement to develop property in Salem, New Hampshire, and formed Braemoor to carry out the transaction. Clare alleges that Braemoor borrowed money from BNE, secured by a mortgage on the property, and Lewis breached his fiduciary duty to the Plaintiff by purchasing the property for a different development opportunity which he did not disclose to the other members of Braemoor. He further alleges that BNE aided and abetted in Lewis's alleged breach of fiduciary duty. BNE has moved to dismiss, alleging that New Hampshire does not recognize a cause of action for aiding and abetting a breach of fiduciary duty. For the reasons stated in this Order, the Motion is DENIED.
I
In considering a motion to dismiss, the Court must determine whether the allegations in the complaint are reasonably susceptible of a construction that would permit recovery. Lamprey v. Britton Constr., Inc., 163 N.H. 252, 256 (2012). The factual allegations of the complaint are assumed to be true, and all reasonable inferences from those allegations are construed in the light most favorable to the plaintiff. Gen. Insulation Co. v. Eckman Const. Co., 159 N.H. 601, 611 (2010). A court need not assume the truthfulness of allegations that are merely conclusions of law. Surprenant v. Mulcrone, 163 N.H. 529, 530 (2012).
Clare alleges that he entered into a development agreement with Lewis and a third party to develop real property located in Salem, New Hampshire. (Compl. ¶¶ 7-8.) Pursuant to the development agreement, the parties formed Braemoor, LLC. (Id. ¶ 9.) Braemoor obtained a promissory note, secured by a mortgage on the property from BNE. (Id. ¶ 62.) Clare alleges that Lewis failed to make the payments Braemoor owed BNE causing BNE to foreclose on the property, and that another Lewis-controlled entity subsequently purchased the property with financing from BNE. (Id. ¶¶ 37-40.) Clare alleges that Lewis breached his fiduciary duty to him and to Braemoor by purchasing the property for a different development opportunity which he did not disclose to the other members of Braemoor. (Id. ¶¶ 31-35, 48-58.) He alleges that BNE aided and abetted in Lewis's alleged breach of fiduciary duty because BNE provided substantial assistance or encouragement to Lewis's alleged breach. (Id. ¶¶ 66-68.)
BNE moves to dismiss the complaint against it on the ground that the tort of aiding and abetting a breach of fiduciary duty is not recognized in New Hampshire, or, in the alternative, that the complaint does not adequately set forth the elements of the tort.
II
The parties agree that the New Hampshire Supreme Court has never specifically decided whether or not the tort of aiding and abetting a breach of fiduciary duty is accepted in New Hampshire. However, in Invest Almaz v. Temple-Inland Forest Prods., 243 F.3d 57, 83 (1st Cir. 2001) the First Circuit, without extensive discussion, held that if the issue of whether the tort of aiding and abetting a fiduciary breach was presented to the New Hampshire Supreme Court, that court would adopt the majority rule and allow such an action to proceed. The court held that the New Hampshire Supreme Court would accept the formulation of the tort set forth in the Restatement (Second) of Torts § 876(b): "'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 so to conduct himself. . . .'" Id. at 83; see also S &K Sales Co. v. Nike Inc., 816 F.2d 843, 847-48 (2d Cir. 1987) (applying New York law); Spinner v. Nutt, 417 Mass. 549, 556 (1994). The court rejected a narrower view, taken by the Second Circuit, which employs a constructive knowledge standard, holding that actual knowledge of the breach of fiduciary duty would be required to set forth the cause of action in New Hampshire. Id. (citing Diduck v. Kaszycki & Sons Contractors, 974 F.2d 270, 283 (2d Cir. 1992)). In the wake of Invest Almaz, two federal courts, also without much analysis, have adopted this same view. In re Felt Mfg. Co., 371 B.R. 589, 614-15 (Bankr. D.N.H. 2007); Tamposi v. Denby, No. 10-12283-RBC, 2013 U.S. Dist. LEXIS 144870, at *24 (D. Mass. Sept. 30, 2013).
Clare argues that this Court should recognize a new cause of action by considering the policies behind New Hampshire tort law and applying the analysis that the New Hampshire Supreme Court would apply in deciding whether to recognize a new cause of action. (Pl.'s Memo. in Supp. of Obj. to Mot. to Dismiss at 2-6.) BNE argues that acceptance of the Restatement rule is not universal, and, notes that only 18 jurisdictions have had occasion to explicitly recognized this precise cause of action. Def.'s Reply to Pl.'s Obj. to Mot. to Dismiss at 3.
The role of the Superior Court is, much like that of a federal court, to predict what the New Hampshire Supreme Court would do if the issue were squarely presented to it. The tort of aiding and abetting a fiduciary duty is, like most torts, a product of common law adjudication. In looking to the common law, the New Hampshire Supreme Court must, by necessity, frequently look outside the State because of the relatively small number of cases decided in New Hampshire.
The fact that the Restatement (Second) of Torts recognizes the tort is compelling. The Restatement is an expression of the common law as recognized in the majority of American jurisdictions. Moreover, as the United States Court of Appeals for the First Circuit recently noted, "[t]he New Hampshire Supreme Court has long followed the guidance of the Restatement of Torts concerning issues of tort law generally." Schaefer v. IndyMac Mortg. Servs., 731 F.3d 98, 104 (1st Cir. 2013) (citing Remsburg v. Docusearch, Inc., 149 N.H. 148, 157 (2003) (adopting § 652C); Valenti v. Net Props. Mgt., 142 N.H. 633, 636 (1998) (adopting § 425); Long v. Long, 136 N.H. 25, 29-30 (1992) (adopting § 682); Spherex Inc. v. Alexander Grant & Co., 122 N.H. 898, 904-905 (1982) (adopting § 552); Buttrick v. Arthur Lessard & Sons, Inc., 110 N.H. 36, 38 (1969) (adopting § 402A).
More importantly, the policies expressed in the New Hampshire Supreme Court's tort jurisprudence strongly suggest that this tort would be recognized. The Plaintiff seeks economic damages as the result of intentional conduct. Damages for economic loss may be recovered for more recently recognized intentional torts such as intentional interference with advantageous contractual relations, Tessier v. Rockefeller, 162 N.H. 324, 336-37 (2011), and traditional common law torts such as defamation. Harris v, Burley, 8 N.H. 216 (1836). Moreover, the New Hampshire Supreme Court has traditionally held that one may be found liable for damages on a conspiracy theory for combining with another to commit a civil wrong. Daniels v. Barker, 89 N.H. 416, 421-422 (1938).
In Plante v. Engle, 124 N.H. 213, 217 (1984), the Court held that where a parent is awarded custody of a child by court decree and the non-custodial parent deducts the child, an action will lie in favor of the custodial parent upon an allegation of damages. The Court stated that "likewise, we see no reason not to hold liable one who intentionally aids and abets another in interfering with the custody of rights of a parent". Id. BNE argues that Plante is sui generis, because the interest protected, the union of parent and child "transcends economics and deserves the utmost respect". Plante v. Engle, 124 N.H. at 216-217. While it is no doubt true that the law protects the relationship of parent and child to a greater extent than the relationship between persons in a business relationship, even if there is a fiduciary business relationship, it is also true that the New Hampshire Supreme Court has afforded enhanced protection to relationships between parties which involve duties greater than ordinary care. That this is so is illustrated by application of the economic loss doctrine.
Like most American jurisdictions New Hampshire recognizes the economic loss doctrine: the principle that parties bound by the contract may not pursue a tort recovery for purely economic or commercial losses associated with the contractual relationship. Plourde Sand & Gravel v. JGI E, Inc., 154 N.H. 791, 795 (2007). The purpose of this rule is to prevent tort law from unreasonably interfering with principles of contract. Border Brook Condominium Ass'n v. Gladstone, 137 N.H. 11 (1993). However, New Hampshire has always recognized an implicit exception to the economic loss doctrine, allowing legal malpractice actions based on claims of negligence to proceed. See, e.g., North Bay Council v. Bruckner, 131 N.H. 538, 542 (1989).
In many jurisdictions, and in New Hampshire, the rule has been expanded to bar economic recovery in tort cases where there is no contract and thus no privity. The policy behind this principle is to prevent potentially limitless liability for economic losses. Plourde Sand & Gravel, 154 N.H. at 794. However, in Plourde, the Court held, citing the Restatement (Second) of Torts, that notwithstanding the economic loss doctrine, if a special relationship between the plaintiff and the defendant exists, such as attorney-client, or insurance investigator-insured, an action may be maintained in the economic loss doctrine is not applicable. Id. at 796-97. Similarly, the Court has also held that person who may reasonably be expected to rely on an accountant's work may bring an action against the accountant for malpractice. Spherex, Inc. v. Alexander Grant & Co., 122 N.H. at 904-905.
What follows from all of this is recognition that the New Hampshire Supreme Court will generally allow a tort remedy for at least intentional conduct which causes economic damage, directly or indirectly. It also appears that it believes that fiduciary obligations, or even obligations characterized by something other than the obligation to act with ordinary care, will be enforced through the law of torts if economic harm results from a breach of the obligation. Under these circumstances, the Court is persuaded that the New Hampshire Supreme Court would recognize the tort of aiding and abetting a breach of fiduciary duty in accordance with the standard set forth in Restatement (Second) of Torts § 876(b), which requires that a person may only be held liable for aiding if he knows that another's conduct constitutes a breach of duty and he gives substantial assistance or encouragement to the other so to conduct himself.
III
It remains to apply the allegations in the complaint against the controlling law. Lamprey, 163 N.H. at 256. The allegations in this complaint, which must be construed as true, with all reasonable inferences therefrom, allege that BNE was knowingly involved in facilitating the breach of a fiduciary obligation. Clare alleges that Defendant BNE lent $2,260,000 to Braemoor and became aware of the fiduciary duties owed by Lewis to the plaintiff. (Compl. ¶¶ 57-60, 62, 65.) The Plaintiff alleges a scheme by Lewis to misappropriate a business opportunity from his fellow LLC members. (Id. ¶¶ 14-44.) He alleges that Lewis told BNE of his plan. (Id. ¶¶ 32, 37.) After Lewis told BNE of his intention to stop making payments, BNE acted quickly to foreclose and then immediately extended financing to Lewis, who had refused to pay the existing loan, to purchase the property at foreclosure. (Id. ¶¶ 16, 23, 34-35, 63, 68.) The financing was in excess of the bid price, evidencing an understanding by BNE that the opportunity Lewis was pursuing had valuable real estate value. (Id. ¶¶ 37, 41-42.) These allegations, if true, are sufficient to establish that BNE knowingly aided and abetted Lewis in breaching his fiduciary duty to Clare. It follows that the Motion to Dismiss must be denied.
SO ORDERED
______________________
Richard B. McNamara,
Presiding Justice
RBM/