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recognizing that while Massachusetts has not yet addressed the issue, "the weight of authority in other jurisdictions is arrayed against" awarding interest-based damages
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Civil Action No. 99-10268-DPW
August 27, 2002
MEMORANDUM AND ORDER
In this diversity action, Plaintiffs Walter F. Sorenson, Jr. and his wife Sarah O. Sorenson assert various theories to recover money damages arising out of HR Block's handling of Mr. Sorenson's tax returns for tax years ("TY") 1993-1995. At the core of the plaintiffs' claim for $5 million is the allegation that Block — assertedly through its employee Karl Brandenburg — reported Mr. Sorenson's suspected fraud on his tax return for TY 1993 to the Internal Revenue Service ("IRS"). This disclosure is said to have resulted in state and federal audits, a state assessment for additional tax liability and penalties, a federal criminal investigation, and a federal civil tax settlement involving substantial payments by Mr. Sorenson. At the same time, the plaintiffs contend that the defendants ought to be held liable for having allegedly disclosed internal company documents revealing prior concerns about Sorenson's TY 1993 return during the course of his federal audit, as well as for having filed multiple tax returns on behalf of Mr. Sorenson which both state and federal authorities ultimately determined to be inaccurate.
"HR Block" or "Block" refers collectively to HR Block, Inc., HR Block Tax Services, Inc., and HR Block Eastern Tax Services, Inc., separate corporations all with their principal place of business located in Kansas City, Missouri.
Altogether, the Sorensons' complaint alleges false and deceptive trade practices, under Mass. Gen. Laws ch. 93A (Counts I-III), negligence (Counts IV-VI), breach of fiduciary duty (Counts VII and VIII), professional malpractice (Counts IX and X), intentional or negligent infliction of emotional distress (Count XI), breach of contract (Count XII), breach of covenant of good faith and fair dealing (Count XIII), intentional or negligent misrepresentation (Count XIV), and loss of consortium (Count XV).
The Sorensons now move for summary judgment on Counts I, III-V, VII-X, XII and XIII. Defendants Block and Brandenburg submit a cross-motion for summary judgment on all of the counts alleged. The defendants also move to strike certain of the facts plaintiffs purport to rely upon in support of their motion for summary judgment.
The parties have resolved many of their factual disputes, as set forth in their joint Stipulation on Defendants' Motion to Strike. With respect to those factual issues that remain in dispute, my analysis of the parties' cross-motions for summary judgment incorporates my analysis of the defendants' motion to strike.
I. BACKGROUND A. The Preparation and Filing of Walter Sorenson's TY 1993 Tax Return
On or about March 10, 1994, Walter Sorenson visited his local (Bradford, Massachusetts) HR Block office for the purpose of having his TY 1993 state and federal income tax returns prepared. Sorenson had relied upon Block to prepare his tax returns for approximately twenty years, although he had not used the same individual tax preparer from year to year and had only gone to the Block office in Bradford since about 1990. On his March 10 visit, Sorenson met with Lauren Knowles. At the conclusion of the meeting, Knowles executed a Form 8453 (the federal income tax form for electronic filing) but noted that she was going to forward some areas of concern to her superiors before the return could be signed by Sorenson and filed with the IRS.Two of those concerns were stated in a memorandum Knowles sent to the Block district manager, Karl Brandenburg. First, Knowles asked Brandenburg to consider whether Sorenson could claim a deduction on expenses relating to his political campaign for a position on the town planning board. Knowles also wanted to know whether Sorenson could claim a deduction for food from a cancelled wedding that he had donated to charity. In a subsequent telephone conversation with Brandenburg, Knowles raised a third concern regarding Sorenson's claimed employee business expenses.
In their conversation, Brandenburg informed Knowles that he considered the deductibility of the donated food and Sorenson's employee business expenses to be "non-issues," which at his deposition in this proceeding he explained to mean "gray areas . . . beyond my capability or responsibility to [assess]." On the other hand, after consulting an IRS publication, Brandenburg determined that Sorenson clearly could not deduct his campaign expenses. This latter judgment was confirmed to Brandenburg by HR Block's central tax hotline group. The parties agree that the office supervisor of Block's Bradford office, Norman Roberts, subsequently conveyed to Sorenson that his campaign expenses could not be taken as a miscellaneous deduction, and that in response, Sorenson sought to have these expenses claimed as a charitable deduction instead.
There is evidence that Brandenburg himself then contacted Sorenson to explain that his campaign expenses could not be taken as either a miscellaneous or a charitable deduction. Sorenson proceeded to complain about the Bradford office's resistance to his sought-for deduction by phoning Block's headquarters in Kansas City on March 14, 1994. In his telephone call, Sorenson stated that he was planning to visit a local Block office to sign his TY 1993 return within an hour, and wanted a response to the asserted deductibility of his campaign expenses by then. Sorenson signed his return without having received any response.
Upon learning of Sorenson's call to Block headquarters, about twenty minutes after it was made, Brandenburg did immediately discuss the issue with his own supervisor, regional administrator Linda Murphy. Murphy describes Brandenburg as adamantly opposed to letting Sorenson claim his campaign expenses as a charitable deduction and, in fact, so "very distraught" over the matter that she was afraid for his health. Murphy referred the question to a Block researcher, who later that day responded that Sorenson should be allowed to claim the deduction. Murphy then directed Brandenburg to drop his opposition and file the return as Sorenson wished.
Brandenburg remained unwilling to do so. On March 15, 1994, he sent Murphy a memorandum reiterating his view that Sorenson's deduction for campaign expenses was illegal, whether designated as charitable or not. As the return stood, Brandenburg wrote, it constituted "Fraud in capital letters." He added, in highlighted text, "Sometimes it may be better to walk away from a client than lose our reputation." Brandenburg appended a draft letter to Sorenson requesting, in order to ensure the accuracy of his return, further documentation in regards not only to his campaign expenses, but also as to the donated food and Sorenson's employee business expenses.
Murphy's response was to tell Brandenburg to "drop this matter now." The draft letter was never sent, and on March 16, 1994, Block electronically filed Sorenson's return.
B. The Audits, Criminal Investigation, and Civil Settlement
On July 18, 1994, the Massachusetts Department of Revenue (the "DOR") issued a notice of audit as to Sorenson's tax returns for TY 1991-1993. Upon review, the DOR concluded that Sorenson was mistaken in designating his tax home as Massachusetts, instead of New York, for the tax years in question, as well as in deducting certain employee business expenses. The DOR proceeded to assess Sorenson $8,322.93 in tax liability, interest, and penalties for those years.
On June 23, 1995, the IRS notified Sorenson that it too would be auditing his TY 1993 return. Sorenson was instructed to provide additional information to support a number of the deductions he had taken — among them, deductions for his claimed charitable contributions and employee business expenses — as well as copies of his returns for TY 1992 and 1994.
Brandenburg accompanied Sorenson to at least two subsequent meetings with the IRS auditor, Agent Paul Lounsbury. At his deposition, Brandenburg testified that, shortly before the first meeting with Lounsbury commenced, Brandenburg privately told Lounsbury that he knew what the audit was about, and that he wished he had had the courage to turn Sorenson in. Brandenburg also testified that at the same time, still outside of Sorenson's presence, he showed Lounsbury a number of internal Block memoranda concerning Sorenson's TY 1993 return — including his memorandum to Linda Murphy describing the return as "Fraud in capital letters" — in order to protect Block's own interests in the matter. Brandenburg added that, during a subsequent meeting, while Sorenson was present, Lounsbury asked for a paper copy of Sorenson's TY 1993 return, and that Brandenburg handed over a file containing not only the return, but also Block's internal memoranda and Brandenburg's unsent letter to Sorenson. Brandenburg did not testify — and the defendants do not appear to contend — that Sorenson was aware at this point that the file handed over to Lounsbury contained the internal memoranda or the unsent letter, or for that matter, that these particular documents existed.
In late 1996, Sorenson retained Attorney John Cox to represent him in the ongoing IRS audit, which eventually expanded to include Sorenson's returns for TY 1992, 1994, and 1995 (all of which also had been prepared and filed by Block). In late 1997, Cox was informed that Sorenson's case had been taken up by the IRS's Criminal Investigation Division ("CID"). According to Cox, the CID agent assigned to the investigation, Eric DiDio, shortly thereafter told Cox that the case had been referred to the CID on account of the large amount of deductions Sorenson was taking, as well as the discovery that a purported amended return for TY 1994 that Sorenson had submitted to a bank in applying for a mortgage listed a higher total income than reported to the IRS.
On the basis of an internal IRS report, the plaintiffs allege that Brandenburg was the Block employee who electronically filed Sorenson's returns for TY 1994 and 1995. The defendants contest this claim on the basis of Sorenson's own testimony that a Block employee named Norman Roberts prepared his return for TY 1994, and another named Patricia Pickersgill prepared his return for TY 1995 — which is confirmed by the testimony of Roberts and Pickersgill, respectively. None of the testimony submitted by the defendants purports to identify who actually filed Sorenson's returns for those years, however.
The parties agree that Agent Lounsbury referred Sorenson's case to the CID on or about June 26, 1997.
The CID's criminal investigation lasted approximately six months, before it was discontinued and the civil audit resumed. By that time, the three-year statute of limitations for ordinary civil assessments had expired as to Sorenson's returns for TY 1992-1994, leaving open only the possibility of penalties for civil fraud. The IRS initially sought to impose civil fraud penalties for those years, as well as for TY 1995, but eventually entered into a settlement agreement with Sorenson whereby it agreed not to pursue civil fraud penalties for any year, and Sorenson waived the statute of limitations for ordinary civil assessments as to TY 1994. Altogether, Sorenson agreed to pay $46,439 in back taxes (deemed negligently unpaid) for TY 1994 and 1995, plus interest and non-fraud penalties.
C. The Plaintiffs' Allegations
In bringing this action, the plaintiffs allege that the defendants ought to be held liable for having filed tax returns on behalf of Sorenson which both state and federal authorities ultimately determined to be inaccurate. The plaintiffs also seek to assign liability for breaches of a duty of confidentiality (1) when either Brandenburg or another Block employee allegedly reported concerns over Sorenson's return for TY 1993 to the IRS before the return was actually filed, thereby leading to the subsequent audits and criminal investigation; and (2) when Brandenburg voluntarily provided the IRS with internal Block documents revealing concerns about Sorenson's return for TY 1993 during the course of Sorenson's audit.
In this connection, Brandenburg has testified to contacting the CID on either March 14 or 15, 1994 to discuss the issues posed by Sorenson's TY 1993 return. CID Agent Paul Donnelly has testified that a criminal investigation report he prepared concerning Sorenson's TY 1993 return — detailing Sorenson's "questionable" deductions for his campaign expenses, food donation, and employee business expenses — was based on information he received the same day the report is dated, March 15, 1994. Brandenburg electronically filed Sorenson's return on the following day. Connecting these pieces of evidence together, the plaintiffs in the first instance contend that Brandenburg must have been the source for Donnelly's information.
In fact, this was the conclusion reached by Agent DiDio in discontinuing the CID's criminal investigation into Sorenson's returns for TY 1992-1995 in April 1998. In his report, DiDio listed Brandenburg's "having made the criminal referral to the [IRS]" prior to filing Sorenson's TY 1993 return as a key reason for discontinuation, because it would hinder the CID's ability to prove Sorenson responsible for fraud.
Notwithstanding Agent DiDio's conclusion, there is before me evidence suggesting an alternative source for the information contained in Donnelly's March 15 criminal investigation report. First, Brandenburg maintains that he did not disclose Sorenson's identity, or any other specific information, in his call to the CID. Furthermore, Donnelly has testified that, while Sorenson's TY 1993 return was referred to him by an individual source, Brandenburg was not that person.
Donnelly testified pursuant to an IRS authorization that only permitted him to give testimony regarding any communications he had, pertaining to Sorenson's case, with Brandenburg, other Block employees, or Agents DiDio and Lounsbury. At his deposition, Donnelly was instructed by the Assistant United States Attorney present that he could not identify his source if it was anyone other than Brandenburg.
The plaintiffs seek to undermine Donnelly's testimony by noting, in particular, Agent DiDio's records of his interviews of both Brandenburg and Donnelly (in conducting the criminal investigation into Sorenson's returns). According to DiDio's handwritten notes of his conversation with Brandenburg, dated April 9, 1998, Brandenburg stated that he had faxed a copy of Sorenson's TY 1993 return to Donnelly, after expressing his concerns, before it was filed. According to DiDio's formal memorandum on his conversation with Donnelly, dated April 15, 1998, Donnelly confirmed that the detailed information on Sorenson's TY 1993 return contained in his criminal investigation report was indeed provided by Brandenburg.
The plaintiffs' submission of these handwritten notes is accompanied by a Certificate of Authenticity of Business Records attested to by DiDio.
At the January 23, 2002 hearing in this case, I expressed concern as to whether DiDio's memorandum was properly authenticated. The plaintiffs have since addressed my concern by their supplemental filing of pages from DiDio's deposition in which he confirmed the memorandum's characterization of his conversation with Donnelly. I note that DiDio's newly submitted deposition testimony also confirms the accuracy of the handwritten notes of his conversation with Brandenburg.
Nevertheless, the plaintiffs concede that, for purposes of their motion for summary judgment, there is a genuine issue of material fact as to whether Brandenburg referred detailed information about Sorenson's TY 1993 return, with his concerns, to the CID before it was filed. The plaintiffs maintain, however, that the record does compel me to find that it was some Block employee who made this report.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits . . . show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Consistent with this standard, I must accept the party opposing summary judgment's version of genuinely disputed facts, drawing all reasonable inferences in their favor. See, e.g., Mullin v. Raytheon Co., 164 F.3d 696, 697 (1st Cir. 1999). It nevertheless remains for the party opposing summary judgment to demonstrate such genuine dispute with specific, provable evidence — mere assertions will not suffice. See, e.g., Brennan v. Hendrigan, 888 F.2d 189, 191 (1st Cir. 1989).
III. PERSONAL JURISDICTION
Before proceeding to the merits, I consider first the defendants' claim for summary judgment on all counts as to two corporate entities amongst their group, HR Block, Inc. and HR Block Tax Services, Inc., due to lack of personal jurisdiction. The defendants contest specific personal jurisdiction over these two entities on the ground that they are separate from (albeit hierarchically related to) the corporate entity which provided services to Sorenson in this case, namely HR Block Eastern Tax Services, Inc. The defendants contest any finding of general personal jurisdiction over HR Block, Inc. and HR Block Tax Services, Inc. insofar as neither, it is alleged, has had any contacts with the Commonwealth of Massachusetts, much less the "continuous and systematic" sort required. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984).
The defendants are correct in their premise that, as a general principle of both federal and state law, jurisdiction over a wholly-owned subsidiary does not automatically confer jurisdiction over the parent corporation. United Electrical, Radio and Machine Workers of America v. 163 Pleasant Street Corp., 960 F.2d 1080, 1091 (1st Cir. 1992); My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614, 618-19 (1968). Ordinarily, then, jurisdiction over related but distinct corporate entities must be independently established. However, Massachusetts law does permit piercing of the corporate veil in certain circumstances. American Home Assurance Co. v. Sport Maska, Inc., 808 F. Supp. 67, 73 (D.Mass. 1992). Among these are where there is evidence of (i) fraud, (ii) "pervasive control" beyond mere common ownership and management, or (iii) "a confused intermingling of activity . . . with substantial disregard of the separate nature of the corporate entities, or serious ambiguity about the manner and capacity in which the various corporations and their respective representatives are acting." My Bread, 353 Mass. at 619 (cited by United Electrical, 960 F.2d at 1091, 1095; American Home, 808 F. Supp. at 73).
Given that the defendants have raised the issue of personal jurisdiction on a motion for summary judgment, the grounds for piercing the corporate veil in this case are subject to a more searching scrutiny than might occur in motion to dismiss practice. See, e.g., Rodriguez v. Fullerton Tires Corp., 115 F.3d 81, 83-84 (1st Cir. 1997) (on a motion to dismiss, courts most commonly apply only a prima facie standard to a plaintiff's evidence in support of personal jurisdiction). I find the evidence favoring personal jurisdiction over HR Block, Inc. and HR Block Tax Services, Inc. to meet the higher burden, however. Supporting a finding of "pervasive control" at least by HR Block Tax Services, Inc. over HR Block Eastern Tax Services, Inc. is the detailed procedural handbook prepared by HR Block Tax Services, Inc. for its subsidiaries (like HR Block Eastern Tax Services, Inc.) — a document which, by its own terms, requires "strict accordance." Extending the jurisdictional reach to HR Block, Inc. as well is the fact that, in a broad range of advertising included in the record before me, "HR Block" has been held out as one company, which performs only one business (namely that of preparing income tax returns). Certainly, then, there would have been projected to Sorenson sufficient ambiguity about any internal separation in corporate identity and responsibilities to support "a reasonable perception that [the separate corporate entities] were one and the same." United Electrical, 960 F.2d at 1095.
Accordingly, I find that the uncontested personal jurisdiction over HR Block Eastern Tax Services, Inc. in this case is sufficient to establish personal jurisdiction over HR Block, Inc. and HR Block Tax Services, Inc. as well, at least in the absence of some more compelling showing by the defendants. In light of this finding, I will continue to refer to all three entities as "HR Block" or "Block."
IV. DID THE DEFENDANTS BREACH A FIDUCIARY DUTY TO SORENSON? (COUNTS VII AND VIII)
Turning to the merits of the plaintiffs' complaint, I begin with Sorenson's claim of breach of fiduciary duty, leveled against Brandenburg in Count VII and against Block in Count VIII. The parties have cross-moved for summary judgment on both counts.
In the first instance, I note that there does not appear to be any support in Massachusetts caselaw for the proposition that a tax preparer owes his client any fiduciary duty as a matter of law. Neither will I accept the plaintiffs' invitation to break new ground in this regard. To the extent that such a per se duty might be inferred from recognition that a tax preparer operates as the client's agent, I find it instructive that most courts in other jurisdictions which have considered the issue have declined to view the relationship as one of agency. See, e.g., Peterson v. HR Block Tax Services, Inc., 971 F. Supp. 1204, 1213 (N.D.Ill. 1997); Basile v. HR Block, Inc., 563 Pa. 359, 369 (2000) ("Basile I"); contra Green v. HR Block, Inc., 355 Md. 488, 505-513 (1999).
The plaintiffs argue that decisions like Peterson and Basile I have specifically focused on Block's past facilitation of Refund Anticipation Loans to certain clients, and thus can be distinguished from Block's more essential function of preparing tax returns. Looking to this latter function does not change the analysis, however. Massachusetts courts have accepted the Restatement's view of an agency relationship as essentially characterized by:
1) the power of the agent to alter the legal relationships between the principal and third parties and the principal and himself;
2) the existence of a fiduciary relationship toward the principal with respect to matters within the scope of the agency; and
3) the right of the principal to control the agent's conduct with respect to matters within the scope of the agency.
See Sabel v. Mead Johnson Co., 737 F. Supp. 135, 138 (D.Mass. 1990) (citing the Restatement (Second) of Agency §§ 12-14 (1958)); see also Theos Sons, Inc. v. Mack Trucks, Inc., 1999 WL 38393, at *3-4 (Mass.App.Div. 1999). Setting aside the thorny question of whether the Restatement compels an independent finding of fiduciary duty before one can identify an agency relationship, I am not persuaded that tax preparation entails either the sort of authority (on the part of the tax preparer) or control (on the part of the client) that the Restatement describes. A tax preparer cannot file a given return without the client's specific authorization. Basile I, 563 Pa. at 371. At the same time, a tax preparer is hardly subject to the same client control as, for example, an attorney.
Finding that no fiduciary duty inheres in the relationship between tax preparer and client does not end the present inquiry, however. As in other jurisdictions, Massachusetts law recognizes that fiduciary duties may arise in particular factual situations, to some degree on an ad hoc basis. See, e.g., Geo. Knight Co., Inc. v. Watson Wyatt Co., 170 F.3d 210, 216-17 (1st Cir. 1999). Thus, even if it bears no fiduciary duties to its clients generally, Block may yet be considered to have breached a particular fiduciary duty to Sorenson in this case.
Of course, the identification of such a particularized duty, fact-driven as it is, can be a somewhat elusive undertaking. Fleet National Bank v. HD Entertainment, Inc., 926 F. Supp. 226, 242 (D.Mass. 1996). In other cases involving Block, courts have viewed seemingly similar factual predicates in different ways. Compare Peterson, 971 F. Supp. at 1213-15 (fact that plaintiff trusted Block for tax advice not sufficient to create fiduciary relationship where interaction was limited to an arms-length, isolated transaction), with Basile v. HR Block, Inc., 777 A.2d 95, 101-107 (Pa.Super.Ct. 2001) ("Basile II") (brief interaction with Block tax preparer not fatal to prima facie finding of fiduciary duty, where plaintiffs were in position of comparative weakness and relied upon widely-advertised trustworthy character of Block's services).
In fact, the evidence in this case does appear to point in competing directions. On the one hand, Block advertising contained in the record before me loudly resonates with the dual themes of trust and expertise, greatly undermining the defendants' current effort to portray Block's services — like those deemed insufficient to give rise to a fiduciary duty on the part of a given accounting firm in Fleet National Bank — to be merely "ministerial in nature." See Fleet National Bank, 926 F. Supp. at 242-43. On the other hand, it is difficult to characterize Sorenson as having been in as weak and dependant a position as the plaintiffs in Basile II. Indeed, the record establishes Sorenson as strongly committed to the deductions for his campaign expenses, donated food, and employee business expenses on his TY 1993 return, even in the face of resistance from local Block employees.
I note a similar distinction between Sorenson and the alleged victim of a stockbroker's embezzlement in Patsos v. First Albany Corp., 433 Mass. 323 (2001), in which the Supreme Judicial Court found there to have been sufficient possibility of a fiduciary relationship between the stockbroker and his client as to merit a jury determination. 433 Mass. at 330-37. Among other things, the Supreme Judicial Court emphasized that the stockbroker in Patsos was alleged to have been in "complete control" of the alleged victim's account. Id. at 336.
My inquiry is made substantially easier, however, by the necessity of identifying what might constitute the breach of a fact-based fiduciary duty. It makes no sense, after all, to define the breach of a particularized fiduciary duty in the abstract. And on this point, Massachusetts courts have provided helpful guidance, indicating that while a "a great disparity or inequality relative to the other party" may give rise to a fiduciary duty, its breach entails some "abuse to the benefit of the more powerful party, particularly where unjust enrichment would result." Industrial General Corp. v. Sequoia Pacific Systems Corp., 44 F.3d 40, 44 (citing Broomfield v. Kosow, 349 Mass. 749 (1965).
Even taking the evidence in the light most favorable to the plaintiffs, there is no basis to conclude that the defendants abused their relationship with Sorenson so as to gain some meaningful benefit. In Basile II, Block was alleged to have shared in the interest and fees collected on Refund Anticipation Loans. 777 A.2d at 98. In Patsos v. First Albany Corp., 433 Mass. 323 (2001), discussed at note 9 supra, the defendant stockbroker was alleged to have embezzled more than $1.6 million from the client's account. 433 Mass. at 327. Here, it is quite difficult to conceptualize what similar sort of benefit Block or Brandenburg would have derived from filing returns that eventually were determined to be inaccurate. It is no less difficult to analogize what benefit may have been derived from Brandenburg's having provided the IRS with internal documents revealing his prior concerns about Sorenson's return for TY 1993 during the course of Sorenson's audit. Brandenburg did testify that he showed Agent Lounsbury certain internal memoranda in order to protect Block against preparer penalties, but this can hardly be characterized as seeking to generate, for either Brandenburg or Block, some unjust benefit out of the relationship with Sorenson. Finally, an analogy to the sort of derived benefit necessary for a breach of fiduciary duty claim might be suggested in the allegation that Brandenburg or some other Block employee initially reported concerns over Sorenson's return for TY 1993 to the IRS in accordance with a "Fraud Prevention Plan" developed by Block to convince the IRS to reinstate an indicator valuable to Block's Refund Anticipation Loan program. However, I consider any benefit of this nature to be too abstract and indirect to support a fiduciary claim.
Accordingly, I find that neither Block nor Brandenburg can be held liable for having breached a fiduciary duty to Sorenson, and thus will grant summary judgment to the defendants on Counts VII and VIII.
V. CAN THE DEFENDANTS BE HELD LIABLE FOR HAVING VIOLATED SOME OTHER DUTY TO SORENSON? (COUNTS IV, V, VI, IX, X, XII, and XIII)
The plaintiffs also allege that the defendants have violated duties to Sorenson sounding in tort (Counts IV, V and VI), professional malpractice (Counts IX and X), and contract (Counts XII and XIII). More precisely, Sorenson's tort claims include: Count IV, a basic negligence claim against Block and Brandenburg; Count V, a claim of negligent failure to investigate/failure to supervise against Block; and Count VI, a claim of negligent failure to train against Block. Sorenson's professional malpractice claims are leveled against Block in Count IX and against Brandenburg in Count X. Finally, Sorenson's contract claims, leveled solely against Block, include a breach of contract claim in Count XII, and a claim of breach of the covenant of good faith and fair dealing in Count XIII.
The plaintiffs have moved for summary judgment on all of the above counts save Count VI; the defendants have cross-moved for summary judgment on all. I will consider each grouping of counts in turn.
A. Negligence Claims (Counts IV, V, and VI)
Sorenson's negligence claims must, of course, be founded upon some relevant legal duty. To support the notion that either of the defendants owed Sorenson a legal duty not to have filed inaccurate tax returns on his behalf, the plaintiffs cite 26 U.S.C. § 6694 and 7206(2). Section 6694 assigns penalties for willful, reckless, or negligent understatement of taxpayer liability by income tax return preparers. 26 U.S.C. § 6694. Section 7206(2) makes it a felony for any person to:
willfully aid or assist in, . . . or advise the preparation or presentation or presentation under . . . the internal revenue laws, of a return . . . which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is within the knowledge or consent of the person authorized or required to present such return[.]26 U.S.C. § 7206(2).
The plaintiffs do not specify any legal basis, under either federal or Massachusetts law, for a duty on the part of the defendants not to have reported concerns over Sorenson's return for TY 1993 to the IRS before the return was filed, or not to have voluntarily provided the IRS with internal documents explaining those concerns during the course of Sorenson's audit. My own review has identified 26 U.S.C. § 6713 and 7216 as the only bases for any statutory duty of confidentiality on the part of the defendants. Section 6713 assigns penalties for each time a tax return preparer:
(1) discloses any information furnished to him for, or in connection with, the preparation of [a tax] return; or
(2) uses any such information for any purpose other than to prepare, or assist in preparing, [a tax] return[.]26 U.S.C. § 6713. Section 7216 makes it a misdemeanor for a tax return preparer to have knowingly or recklessly committed either of the acts described at Section 6713. 26 U.S.C. § 7216.
As a preliminary matter, I emphasize that none of these statutory provisions supports a private right of action under federal law. Nevertheless, I recognize that federal law does not bar a state from treating "federal statutes [as giving rise to] a standard of conduct which, if broken, would give rise to an action for common-law negligence." Hofbauer v. Northwestern National Bank of Rochester, 700 F.2d 1197, 1201 (8th Cir. 1983). Looking then to Massachusetts law, I find it to be the long settled rule that violation of a statute — whether federal or state, and whether permitting a private right of action or not — "does not by itself establish a breach of duty, for it does not constitute negligence per se." Bennett v. Eagle Brook Country Store, Inc., 408 Mass. 355, 358-59 (1990). Rather, violation of a statute is only "some evidence of the defendant's negligence as to all consequences the statute was intended to prevent." Id. at 359 (internal quotations omitted).
Given that the cited statutory provisions represent the only basis under federal or state law for the legal duties posited by the plaintiffs, the Massachusetts rule delineated in Bennett would appear to shut the door on Sorenson's negligence claims. Even if this represents too restrictive a reading of that rule, however, it would remain necessary for the plaintiffs to show that the defendants' putative negligence was in respect of "those consequences which the [federal statutory provisions] were intended to prevent." McKinley v. Northern Associates, Inc., 1998 WL 1184144, at *3 (Mass.Super.Ct. 1998) (citing Bennett, 408 Mass. at 359). At a minimum, I decline to read 26 U.S.C. § 6694 and 7206(2) as intended to prevent provide grounds for collateral attack on a tax preparer by a taxpayer subject to civil or criminal penalty for understatement of his taxes, or to read 26 U.S.C. § 6713 and 7216 as intended to limit a tax return preparer's communications to the IRS.
Accordingly, under either a restrictive or liberal reading of relevant Massachusetts law, I must grant the defendants' motion for summary judgment as to Counts IV, V, and VI.
In anticipation of my analysis of Sorenson's contract claims in Section V(C) below, I note that there exists some support for the proposition that Massachusetts law recognizes tort claims for the negligent breach of contractual duties. See Arthur D. Little, 928 F. Supp. at 1203 (citing Abrams v. Factory Mutual Liability Ins. Co., 298 Mass. 141, 144 (1937)). However, it appears that Massachusetts law does not recognize actions in tort with respect to contractual promises "absent an independent duty imposed by law." Treadwell v. John Hancock Mutual Life Ins. Co., 666 F. Supp. 278, 289-90 (D.Mass. 1987) (citing Anthony's Pier Four, Inc. v. Crandall Dry Dock Engineers, Inc., 396 Mass. 818, 822 (1986)). In Treadwell, Judge Caffrey reasoned that the contractual duty of the defendant insurance company in Abrams extended to a tort duty because "in the insurance context, the law may impose a duty as arising from the relationship of the contracting parties rather than from the contract itself." Treadwell, 666 F. Supp. at 289 (citing Rae v. Air-Speed, Inc., 386 Mass. 187, 192 (1982)).
B. Professional Malpractice Claims (Counts IX and X)
My analysis of Sorenson's negligence claims would appear to foreclose his professional malpractice claims as well. I add that the plaintiffs have cited no Massachusetts statute or case that recognizes a professional malpractice cause of action against a tax return preparer in the first place, and I would be disinclined to endeavor to invent one. Cf. Arthur D. Little Int'l, Inc. v. Dooyang Corp., 928 F. Supp. 1189, 1202-03 (D.Mass. 1996). Accordingly, I also will grant the defendants' motion for summary judgment as to Counts IX and X.C. Contract Claims (Counts XII and XIII)
It remains for me to consider whether Block alone might be held liable on account of its contract with Sorenson.
Focusing first on Sorenson's breach of contract claim, I find that the plaintiffs' best evidence of relevant contractual obligations consists of express representations printed on the jackets in which Sorenson's tax returns were delivered to him after having been filed by Block prior to 1994. In particular, Block represented, first, that "Your return was carefully prepared and checked for accuracy," and second, that "All the information in your return will be kept completely confidential."
I note that the parties agree that Sorenson was not provided with a copy of his return for TY 1993, and hence the accompanying jacket, after the return was filed.
In this connection, Block added: "If we make any error in the preparation of your tax return that costs you any interest or penalty on additional taxes due, while we do not assume the liability for the additional taxes, we will pay that interest and penalty." (emphasis supplied)
Especially in light of Sorenson's longtime course of dealing with Block, I am prepared to treat these quoted representations as contractual terms, imposing upon Block obligations of accuracy in preparation and of confidentiality, respectively. I note that my judgment in this regard was confirmed by Block's counsel at the hearing on these motions. At the hearing, Block further acknowledged that its contractual obligation of confidentiality placed limits even on communications to the IRS, and in particular would have barred transmission of internal suspicions about Sorenson's return for TY 1993, absent some form of legal compulsion.
Recognizing an obligation of this scope is further supported by the promotional context in which Block's contractual representation was made, with its emphasis on trust in Block's services, and inclusion of statements like "[Y]our relationship with a good tax preparer should be as intimate as any relationship you have, short of your marriage."
Accordingly, Block would have breached its contract with Sorenson if it in fact (i) was responsible for inaccuracies contained in tax returns filed on Sorenson's behalf, (ii) reported concerns about Sorenson's return for TY 1993 to the IRS before the return was filed, or (iii) voluntarily provided the IRS with internal documents revealing those concerns during the course of Sorenson's audit. After addressing a threshold statute of limitations issue, I will proceed to evaluate the state of the evidence as to each of these alleged breaches, and as necessary, to identify the damages that might be recoverable.
1. Statute of Limitations
The defendants contend that any possibility of recovery for breach of contract is barred by the relevant statute of limitations.
Under Massachusetts law, contract claims are ordinarily subject to a six-year statute of limitations. Mass. Gen. Laws ch. 260, § 2. The plaintiffs filed their action on February 9, 1999. Given that this date was within six years of even the DOR's July 1994 notice of audit, at first glance there would not appear to be any statute of limitations argument to be made.
However, the defendants contend that the applicable limitations period actually is one of three, and not six years. Their argument is premised on Massachusetts caselaw holding that "in the context of injuries arising from professional-client relationships," where the "gist" of the action "is essentially professional malpractice or professional negligence," then the three-year statute of limitations for professional malpractice claims under Mass. Gen. Laws ch. 260, § 4 will apply, regardless of how a given claim is styled. Light v. Roney, 1995 WL 1280766, at *2-3 (Mass.Super.Ct. 1995) (citing Barber v. Fox, 36 Mass. App. Ct. 525, 529 (1994)).
Having determined that the duties that might apply in this case are solely contractual in nature, and do not sound in professional malpractice, I decline now to find that the "gist" of Sorenson's breach of contract claim is anything but contractual in nature. Thus, I do not consider the applicable limitations period to be any less than six years, and will deny the defendants' motion for summary judgment as to Sorenson's breach of contract claim to the extent that it is premised on the argument that the claim is time-barred.
I add that even if the applicable limitations period were one of three years, I would still consider Sorenson's breach of contract claim only partially time-barred. Massachusetts law provides for equitable tolling where "the factual basis for the cause of action [was] 'inherently unknowable' at the time of the injury." Geo. Knight, 170 F.3d at 213 (quoting Tagliente v. Himmer, 949 F.2d 1, 4 (1st Cir. 1991)). "The factual basis for a cause of action is considered to be 'inherently unknowable' if it is 'incapable of detection by the wronged party through the exercise of reasonable diligence." Id. (quoting Tagliente, 949 F.2d at 4). Sorenson first learned of the existence of internal Block documents expressing concerns about his return for TY 1993 sometime after his attorney, John Cox, was informed in late 1997 that Sorenson's case had been taken up by the CID, and in particular after Cox received a duplicate set of the records Block was sending to the CID pursuant to subpoena. Notwithstanding the state and federal audits, I do not consider Sorenson to have been put on inquiry notice as to the possibility that these documents were provided to the IRS prior to the CID's subpoena any earlier than he became aware of their existence. Further, I see no reason why Sorenson ought to have suspected that a Block employee reported concerns about his return to the IRS before it was filed until this possibility was suggested to Cox during his meeting with Agent Lounsbury in August 1998. In both circumstances, the relevant date is well within three years of the filing of Sorenson's action.
2. Did Block breach a contractual duty to Sorenson?
Turning to analysis of the merits of Sorenson's breach of contract claim, I address the question whether the record permits me to find as a matter of law that any of the alleged breaches did or did not occur.a. Was Block responsible for inaccuracies in Sorenson's returns?
In the first instance, there is no question that Block filed returns on behalf of Sorenson in TY 1991-1995 that were variously determined by the DOR or the IRS to be inaccurate. As the manner in which I have framed the inquiry suggests, however, I do not consider Block's contractual duty to extend to inaccuracies for which Block was not responsible. There must be some showing of error on the part of Block.
Naturally following from this predicate is the need for a fairly precise showing as to what the DOR and IRS actually found to be inaccurate about Block's returns for TY 1991-1995, and why. The record before me is highly limited in this regard. It reveals that Sorenson incurred $8,322.93 in state liability on his returns for TY 1991-1993 because the DOR concluded that these returns were mistaken in designating Sorenson's tax home as Massachusetts, instead of New York, and thus in deducting certain employee business expenses. It further suggests, by virtue of correspondence to the IRS drafted by Cox, that the IRS initially sought to impose civil fraud penalties for TY 1993 (before agreeing to a settlement) in part because of deductions Sorenson had taken for charitable contributions and employee business expenses. The record nowhere specifies the shortcomings for which the IRS initially sought to impose civil fraud penalties for TY 1992, 1994, and 1995 as well.
At best, then, the record supports the conclusion that the inaccuracies in Sorenson's returns for TY 1991-1993 to some degree consisted of a misdesignation of tax home, and claims for excessively large deductions. With respect to Block's role in preparing those returns, there is no evidence of error by Block in connection with Sorenson's choice of his tax home. Moreover, in connection with Sorenson's claimed deductions for charitable contributions and employee business expenses on his return for TY 1993, any attribution of error to Block is countered by Sorenson's own insistence on those deductions — a position Sorenson maintained notwithstanding the general concerns originally conveyed to him by Knowles, and despite Brandenburg's expression of his particular resistance to Sorenson's claiming his campaign expenses as a charitable deduction.
Taking this mix of evidence in the light most favorable to the plaintiffs, the record at best supports a reasonable inference that Block failed to prevent Sorenson from submitting a tax return for TY 1993 that contained certain inaccuracies for which Sorenson himself was responsible. Even if proven, I would not consider this sufficient to establish Block's liability to Sorenson for those inaccuracies. Consequently, I find as a matter of law that Block is not liable for breach of contract on account of any inaccuracies contained in Sorenson's tax returns for TY 1991-1995, and will award the defendants summary judgment in this respect.
The plaintiffs' meager showings with respect to Sorenson's returns for the remaining tax years (TY 1991, 1992, 1994, and 1995) do not permit even this limited inference.
b. Did Block report concerns over Sorenson's return for TY 1993 before it was filed?
In light of the testimony of Brandenburg and Agent Donnelly, the plaintiffs have conceded that there is a genuine issue of material fact as to whether Brandenburg was the individual source for the detailed information contained in Donnelly's March 15 criminal investigation report. The plaintiffs maintain, however, that a rational factfinder would have to conclude that some Block employee was Donnelly's source, and thus that summary judgment against Block is appropriate on this ground.
Given the limited number of persons who had access to the return information reflected in Donnelly's report — and rejecting, of course, the possibility that Sorenson himself decided to call the CID — the circumstantial evidence that a Block employee was the informant has considerable force. Nevertheless, I decline to find the proposition established where Donnelly did not disclose at his deposition whether his source was a Block employee other than Brandenburg, and presumably could be posed the same question before a factfinder.
At his deposition, Donnelly testified pursuant to an IRS authorization which stated:
You may . . . give testimony regarding any conversations or communications you had with Karl Brandenburg, other HR Block employees, Eric DiDio, and Paul Lounsbury pertaining to Walter F. Sorenson's taxes. . . . You are not authorized to testify or produce any records which would reveal . . . a confidential source[.]
In accordance with these terms, the plaintiffs' counsel sought to ask Donnelly whether his source was a Block employee other than Brandenburg, but ultimately acceded to the view of the Assistant United States Attorney present that the IRS authorization did not permit the question. This view, I have now concluded, was in error. The IRS authorization may not have permitted Donnelly to name any Block employee other than Brandenburg, but it certainly permitted him to answer whether his source was a Block employee. Given the untapped potential for Donnelly to answer this critical question, I consider it premature to find as a matter of law that Donnelly's source was — or was not — a Block employee, and thus, to determine whether Block breached its contractual duty of confidentiality to Sorenson on this basis. Accordingly, I will deny both parties' motions for summary judgment on this issue.
c. Did Block voluntarily provide the IRS with internal documents revealing prior concerns about Sorenson's return for TY 1993?
Given Brandenburg's own testimony regarding the subject, there does not appear to be a genuine issue of material fact that Block, through Brandenburg, provided the IRS with internal documents revealing prior concerns about Sorenson's return for TY 1993 during the course of his audit, and before having been served with the CID's subpoena.
The defendants seek to generate a genuine dispute, however, by asserting that Brandenburg did not intend to hand these internal documents — including Brandenburg's memorandum describing Sorenson's return as "Fraud in capital letters," as well as the unsent letter to Sorenson himself — over to Agent Lounsbury during their meeting. The defendants' argument appears to be premised on Brandenburg's testimony that the internal documents in question happened to be in the file that he handed over to Lounsbury upon the agent's request for a paper copy of Sorenson's TY 1993 return.
The defendants' argument entirely ignores Brandenburg's admission — both in his deposition testimony and in his answers to interrogatories — that he had earlier showed Lounsbury many of the same documents in order to protect Block against preparer penalties. In light of Brandenburg's admission, I find the defendants' argument unavailing, and conclude as a matter of law that Block did breach its contractual duty of confidentiality to Sorenson on this basis. Accordingly, I will grant the plaintiffs' motion for summary judgment in this respect.
3. Damages
It remains for me to consider the damages, if any, available on the basis of the particular breach of contractual duty of confidentiality on which I have granted the plaintiffs' motion for summary judgment. I undertake first to consider damages that generally might be available for breach of Block's duty of confidentiality, before focusing on the particular breach that has been established.
a. Emotional Distress Damages
As a preliminary matter, I note that Sorenson's $5 million claim for damages appears to be primarily founded upon the emotional distress allegedly caused him by virtue of the audits and criminal investigation. In particular, Sorenson has alleged that the stress he experienced in connection with his state and federal audits became "severe" upon his learning of the criminal investigation into his returns, causing inter alia "loss of sleep, worry, confusion, doubt, fear of criminal proceedings . . . and, most of all, fear of incarceration." He further alleges that the stress impacted his early relationship with his new wife, whom he married in 1997.
Under Massachusetts law, emotional distress damages generally are not recoverable solely on contractual grounds. St. Charles v. Kender, 38 Mass. App. Ct. 155, 159 (1995). This is not to say that there is a general rule barring such recovery, however. As the Supreme Judicial Court noted in Sullivan v. O'Connor, 363 Mass. 579 (1973), "[i]t is all a question of the subject matter and background of the contract[.]" 363 Mass. at 587. Nevertheless, the showing that a plaintiff must make is quite high, and has been satisfied primarily in cases involving some direct causal link to physical harm. Kender, 38 Mass. App. Ct. at 159-61.
Invited to submit additional briefing on this issue, the plaintiffs have uncovered a single Massachusetts case recognizing emotional distress damages on a contract claim that involves no link to physical harm. In Seraphin Occean v. Marriott Corp., 1994 WL 878962 (Mass.Super.Ct. 1994), Judge Lopez reasoned that emotional distress was "a reasonably foreseeable consequence" of the breach of an employment agreement arising out of the settlement of a discrimination claim, where the employer knew that the plaintiff wanted to be assigned to a facility near his family, and yet failed to live up to its contractual assurances to that end. 1994 WL 878962 at *5. She added that "important public policy considerations" supported her decision, in light of the fact that the plaintiff had relinquished all rights to pursue his discrimination claim. Id.
The public policy considerations in the present case, which implicate the disclosure of suspected fraud to the IRS, are entirely different from those in Seraphin Occean, and in particular undermine any effort to overstate any contractual duty limiting such communications. Even if Seraphin Occean represents a viable approach, then, I find no basis for recognizing emotional distress damages for any breach of Block's contractual duty of confidentiality.
b. Other Potential Damages
Other potential bases for Sorenson's claim for damages include (i) the tax liability that Sorenson incurred as a consequence of the state and federal audits (encompassing the amount of unpaid back taxes, plus interest and penalties), (ii) attorneys' fees paid in connection with the audits and criminal investigation, and (iii) fees paid to Block to prepare Sorenson's tax returns for the subject years.
As to Sorenson's tax liability, I find no basis under any theory of recovery to shift responsibility for the amount of Sorenson's unpaid back taxes. These are Sorenson's responsibility, however they came to be discovered. And, absent some contractual obligation, I decline to permit recovery of interest and penalties as well. While Massachusetts courts have not had occasion to address this latter possibility, the weight of the authority in other jurisdictions is arrayed against such damages. See, e.g., Alpert v. Shea Gould Climenko Casey, 160 A.D.2d 67, 72 (N.Y.App.Div. 1990) (precluding recovery from defendant law firms of interest paid on back taxes, so as to deny the plaintiffs "the windfall of both having used the tax moneys for seven years and recovering all interest thereon"); see also Eckert Cold Storage, Inc. v. Behl, 943 F. Supp. 1230, 1235 n. 7 (E.D.Cal. 1996) (noting Alpert to represent the majority view, while reaching opposite conclusion on the basis of California law). Under this view, recovery of interest and penalties would be possible only on the basis of Block's contractual promise to return interest and penalty paid on account of "error [by Block] in the preparation of your tax return," and not on the basis of a breach of confidentiality.
As noted above, I find no such error by Block to have been established in this case.
As for attorneys' fees paid in connection with Sorenson's audits and criminal investigation, the defendants in supplemental briefing cite Waldman v. American Honda Motor Co., Inc., 413 Mass. 320 (1992) for its holding that:
[a] successful litigant may recover the actual, reasonable costs of the action from an adversary only if a statute permits awards of costs[,] or a valid contract or stipulation provides for costs, or rules concerning damages permit recovery of costs.413 Mass. at 322. In so doing, the defendants suggest the wrong approach. What must be determined in this case is not whether a successful litigant may recover attorneys' fees from his adversary, but rather whether attorneys' fees may be considered compensable damages in actions under Massachusetts law. The answer to this more relevant question is that, generally, attorneys' fees do not qualify as compensable damages. See Chakrabarti v. Cohen, 31 F.3d 1, 7 (1st Cir. 1994); see also M.F. Roach Co. v. Town of Provincetown, 355 Mass. 731, 732 (1969). Massachusetts law does appear to recognize a limited exception "in tortious interference cases where the victim is forced 'to sue. . . . a third party in order to protect his rights,'" Chakrabarti, 31 F.3d at 7 (citing Roach, 355 Mass. 731), but this case is not of that nature. Accordingly, I find that Sorenson's breach of contract claim holds no promise for recovery of attorneys' fees incurred in connection with the audits and criminal investigation.
It can be said, however, that a breach of confidentiality would deprive Sorenson the benefit of his contractual bargain. Under these circumstances, Sorenson would be entitled to claim as damages preparation fees for any year as to which the undertaking of confidentiality was breached by Block.
c. Calculation of Damages
For the breach of confidentiality I have determined as a matter of law to have been committed — arising from Brandenburg's voluntary disclosure of internal Block documents critical of Sorenson's TY 1993 return to Agent Lounsbury — I will award Sorenson recovery of the preparation fee for his TY 1993 return.
Even if the plaintiffs are able to establish that a Block employee initially reported concerns over Sorenson's return for TY 1993 to the IRS before the return was filed — thereby setting in motion a process that led to DOR assessments on Sorenson's returns for TY 1991-1993, and a settlement with the IRS that required Sorenson to pay back taxes, interest, and penalties for TY 1994 and 1995 — I will not award recovery of the preparation fees for Sorenson's returns in TY 1991, 1992, 1994, and 1995. There has been no showing of a breach of confidentiality with respect to the returns prepared by Block for those tax years. I note, however, that I will take up in connection with Sorenson's Chapter 93A claims the question of whether preparation fee damages should be awarded for TY 1994 and TY 1995 as a result of Block's failure to disclose to Sorenson its established breach of confidentiality as to the prior tax year.
Although the briefing has focused on the disclosure to federal tax authorities, I note that the DOR official designated as most knowledgeable about Sorenson's state audit testified that he was alerted to Sorenson's TY 1993 return in March 1994, before it was actually received.
4. Alleged Breach of the Covenant of Good Faith and Fair Dealing
My analysis of Sorenson's contract claims thus far has focused exclusively on his claim of breach of contract, in Count XII. In Count XIII, Sorenson also alleges that Block breached the covenant of good faith and fair dealing. Implied in every contract under Massachusetts law, this covenant addresses bad faith conduct which has "the effect of destroying or injuring the right of the other party to receive the fruits of the contract[.]" Anthony's Pier Four, Inc. v. HBC Associates, 411 Mass. 451, 471 (1991).
This claim would have presented greater significance in this case were I to have found the traditional breach of contract claim lacked viability. But Sorenson's claim that Block breached the covenant of good faith and fair dealing concerns no conduct on the part of Block or its employees which would not constitute a breach of contract, if proven. Given this circumstance, I consider the covenant of good faith and fair dealing claim to be merely duplicative of Sorenson's breach of contract claim. For this reason, I will dismiss Count XIII.
I note that Block's continued preparation of Sorenson's tax returns for TY 1994 and 1995 cannot be viewed as "destroying or injuring [Sorenson's] right . . . to receive the fruits of the contract" with respect to either year.
VI. INTENTIONAL/NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS (COUNT XI)
Although I have determined that Sorenson may not recover emotional distress damages on his breach of contract claim, recovery of such damages remains an issue by virtue of a direct tort claim for infliction of emotional distress. In Count XI of the plaintiffs' complaint, both Sorenson and his wife Sarah assert claims of intentional or negligent infliction of emotional distress against both Block and Brandenburg. Only the defendants move for summary judgment in this respect.
A. Intentional Infliction of Emotional Distress
To sustain a claim of intentional infliction of emotional distress, a plaintiff must show:
(1) that the defendant intended to cause, or should have known that his conduct would cause, emotional distress; (2) that the defendant's conduct was extreme and outrageous; (3) that the defendant's conduct caused the plaintiff's distress; and (4) that the plaintiff suffered severe distress.
Sena v. Commonwealth, 417 Mass. 250, 263 (1994) (citing Agis v. Howard Johnson Co., 371 Mass. 140, 144-45 (1976)). In Agis, the Supreme Judicial Court described the second factor as contemplating conduct that is "beyond all possible bounds of decency," and "utterly intolerable in a civilized community." Agis, 371 Mass. at 145 (quoting the Restatement (Second) of Torts § 46, comment d (1965). The Court also described the fourth factor — significant because it does not require any evidence of physical harm — as contemplating distress of a nature "that no reasonable man could be expected to endure it." Id. (quoting the Restatement (Second) of Torts § 46, comment j).
Although the First Circuit, at least, has expressed the view that the Supreme Judicial Court appears to have abandoned, over time, the objective standard stated in Agis. See Fredette v. Allied Van Lines, Inc., 66 F.3d 369, 374 (1st Cir. 1995).
Mr. Sorenson's claim fails on multiple grounds. First, the evidence is hardly sufficient to raise a genuine question that Sorenson actually suffered "severe distress" on account of the audits and criminal investigation, even as assessed from a subjective standpoint. Generalized assertions of "loss of sleep, worry, confusion, doubt, fear of criminal proceedings . . . and, most of all, fear of incarceration" are entirely undermined by evidence that Sorenson continued to work as a commercial airline pilot throughout the relevant period, and without any reports (by him or by the physicians who examined him every six months) of distress.
Even more damaging to Sorenson's claim is the fundamental difficulty with conceptualizing how Block's disclosure of concerns about Sorenson's TY 1993 return to the IRS constitutes "extreme and outrageous" conduct "utterly intolerable in a civilized community." What the plaintiffs allege the defendants to have done bears not the slightest resemblance, for example, to the conduct recognized as "extreme and outrageous" in Haddad v. Gonzalez, 410 Mass. 855 (1991) — where the defendant inter alia rented out an "essentially uninhabitable" apartment, largely ignored the plaintiff's requests for repairs, commenced eviction proceedings when the plaintiff attempted to assert her rights, subjected the plaintiff to sexual and other harassment, and threatened to interfere with her status as a welfare recipient. 410 Mass. at 870-71. Nor does the defendants' alleged conduct approach in intolerability the conduct that the Supreme Judicial Court in Foley v. Polaroid Corp., 400 Mass. 82 (1987) did not consider to be "extreme and outrageous" — employer conduct which included banishing the plaintiff from his regular place of work, placing his desk in an open corridor, treating him as a pariah, subjecting him to taunts and humiliations in front of his fellow employees, giving him no work, and subjecting him to direct accusations of serious misconduct. 400 Mass. at 84 (Liacos, J. concurring in part and dissenting in part). By contrast, what the defendants are charged with is essentially to have raised a "hue and cry" regarding suspected tax fraud, an activity generally viewed as in the public interest. Cf. Roberts v. United States, 445 U.S. 552, 558 ("gross indifference to the duty to report known criminal behavior remains a badge of irresponsible citizenship.")
Sarah Sorenson's third party claim also fails on these grounds. Accordingly, I will grant the defendants' motion for summary judgment with respect to both Mr. and Mrs. Sorenson's intentional infliction of emotional distress claims.
B. Negligent Infliction of Emotional Distress
Prior to the Supreme Judicial Court's decision in Sullivan v. Boston Gas Co., 414 Mass. 129 (1993), in order to recover for negligent infliction of emotional distress, a plaintiff would have to prove:
(1) negligence; (2) emotional distress; (3) causation; (4) physical harm manifested by objective symptomatology; and (5) that a reasonable person would have suffered emotional distress under the circumstances of the case.
Sullivan v. Boston Gas Co., 414 Mass. 129, 132 (1993) (quoting Payton v. Abbott Labs, 386 Mass. 540, 557 (1982)). In Sullivan, the Court clarified that the physical harm requirement should not be taken too literally, but rather should be understood to represent the need for "objective corroboration of the emotional distress alleged." Id. at 137 (quoting Payton, 386 Mass. at 547). From this perspective, the Court determined that certain symptoms that might be classified as more "mental" than "physical" — such as headaches or stomach problems — could serve to corroborate emotional distress claims, so long as they were supported by some objective basis. Id. at 138-40.
Neither Sorenson's claim nor that of his wife for negligent infliction of emotional distress satisfies even this more relaxed standard. As noted above, Sorenson alleges that his emotional distress resulted in loss of sleep. At her deposition, Sarah Sorenson testified somewhat tentatively about her own loss of appetite and sleep, and more provocatively that her "fear and worry . . . may have been a cause of a miscarriage of our first child in January, 1999[.]" These conclusory assertions represent the sum total of the plaintiffs' evidentiary showings with respect to manifestations of their respective emotional distress. In the absence of any objective corroboration — and considering at any rate that no reasonable person would have suffered emotional distress attributable to acts of another in this setting — I will grant the defendants' motion for summary judgment with respect to both Mr. and Mrs. Sorenson's negligent infliction of emotional distress claims. Accordingly, I will grant the defendants summary judgment as to Count XI.
VII. INTENTIONAL/NEGLIGENT MISREPRESENTATION (COUNT XIV)
In Count XIV, Sorenson claims intentional or negligent misrepresentation against Block. Only the defendants have moved for summary judgment on these claims, but in so doing have chosen not to make any argument. This may be on the view that Sorenson's misrepresentation claims are purely duplicative of the breach of contract claim.
Even if emotional distress damages were available to Sorenson on his misrepresentation claims — and thus would distinguish these claims from Sorenson's breach of contract claim the necessary showing in this regard could be no less demanding than on his claims for intentional or negligent infliction of emotional distress. Having granted summary judgment to the defendants with respect to those latter claims, there remains no rationale for Sorenson's misrepresentation claims to proceed on grounds that they are distinguishable from claims already addressed. Accordingly, I will grant the defendants' motion for summary judgment with respect to Count XIV as well.
VIII. LOSS OF CONSORTIUM (COUNT XV)
In Count XV, Sarah Sorenson seeks recovery from Block and Brandenburg on the ground of loss of consortium. Again, only the defendants move for summary judgment on this ground.
In light of my foregoing analysis, Mrs. Sorenson's claim cannot survive the defendants' motion. Under Massachusetts law, "a claim for loss of consortium requires proof of a tortious act that caused the claimant's spouse personal injury." Sena, 417 Mass. at 264. Having found as a matter of law that Mr. Sorenson did not suffer personal injury on account of any tortious act by either of the defendants, I find that Mrs. Sorenson cannot recover for loss of consortium. Accordingly, I will grant summary judgment to the defendants on Count XV.
IX. CHAPTER 93A (COUNTS I-III)
I finally turn to Sorenson's claims arising under Mass. Gen. Laws ch. 93A, §§ 2 and 9. In Count I, Sorenson alleges that both Block and Brandenburg generally engaged in unfair or deceptive trade practices. In Count II, Sorenson alleges that Block in particular engaged in "false advertising," as that term is defined at 940 C.M.R. § 3.02(2). In Count III, Sorenson's claim is premised on Block's alleged breach of fiduciary duty.
I note that the plaintiffs' complaint also cites Section 11 of Chapter 93A, which covers transactions between businesses, and thus has no applicability to the transactional relationship between Sorenson and Block.
Because I have already found that Block did not breach any fiduciary duty to Sorenson, I will summarily award summary judgment to the defendants on Count III. With respect to the remaining two counts, the plaintiffs move for summary judgment only on Count I, while the defendants move for summary judgment on both Counts I and II.
Sorenson's claim that Block engaged in "false advertising" as defined at 940 C.M.R. § 3.02(2) may be disposed of easily. That regulation provides:
No statement or illustration shall be used in any advertisement which creates a false impression of the grade, quality, make, value, currency of model, size, color, usability, or origin of the product offered, or which may otherwise misrepresent the product in such manner that later, on disclosure of the true facts, there is a likelihood that the buyer may be switched from the advertised product to another.
Although there is no reported Massachusetts decision construing this regulation, a fair reading of its terms compels the conclusion that it has no applicability to this case. There is nothing to suggest that Block may have endeavored to "bait" Sorenson with an advertised product, and then "switch" him to another of different quality. Therefore, I will grant the defendants summary judgment as to Count II.
Focusing, then, on Sorenson's remaining claim in Count I that the defendants generally engaged in unfair or deceptive trade practices, I recognize that a breach of contractual duty may serve as the basis for finding a Chapter 93A violation. Massachusetts Employers Insurance Exchange v. Propac-Mass, Inc., 420 Mass. 39, 42-43 (1995).
However, "a breach of contract alone does not amount to an unfair act or practice under [Chapter 93A]." Id. at 43. A further showing of an "immoral, unethical, oppressive, or unscrupulous" quality remains necessary. PMP Associates, Inc. v. Globe Newspaper Co., 366 Mass. 593, 596 (1975). There is nothing immoral, unethical, oppressive or unscrupulous in making disclosure of suspected fraud to the IRS, even if it was a breach of Block's contractual obligation of confidentiality. Nothing in this record has been advanced that would justify an independent claim of unfair or deceptive trade practice under Chapter 93A arising from disclosure alone.
A distinctive issue, however, is presented by the failure of Block to disclose to Sorenson that it had breached its obligation of confidentiality with respect to TY 1993 when it continued to provide services to him in TY 1994 and 1995. I consider this omission to have constituted an unfair practice which deprived Sorenson of the opportunity to consider seeking tax preparation services elsewhere for those years after Block proved itself insufficiently attentive to its contractual duty of confidentiality.
Accordingly, I will grant the plaintiffs' motion for summary judgment with respect to Count I. The basis on which I do so justifies the award of tax preparation fee damages for TY 1994 and 1995. Given the important public policy supporting the report of suspected tax malfeasance, however, I decline to award more than the minimum double damages mandated for the willful and knowing acts of Block, through its employee Brandenburg. See Mass. Gen. Laws ch. 93A, § 9(3). I am also obligated to award reasonable attorneys fees incurred in connection with the prosecution of this particular action to the plaintiffs. See Mass. Gen. Laws ch. 93A, § 9(4); see generally Morse v. Mutual Federal Sav. Loan Ass'n of Whitman, 536 F. Supp. 1271, 1283 (D.Mass. 1982).
X. CONCLUSION
For the reasons set forth more fully above;
(1) I GRANT the plaintiffs' motion for summary judgment on Counts XII and I only so far as it is alleged that voluntary disclosures made to the IRS during the course of Sorenson's audit constituted a breach of contract followed by an unfair and deceptive trade practice, and I DENY the plaintiffs' motion with respect to all other claims; and
(2) I GRANT the defendants' motion for summary judgment with respect to Counts II, III, IV, V, VI, VII, VIII, IX, X, XI, XIII, XIV and XV of the plaintiffs' complaint, and with respect to Count XII to the extent that it is alleged that Block was responsible for inaccuracies contained in Sorenson's returns for TY 1991-1995. I otherwise DENY the defendants' motion with respect to Counts XII and I.