Zimmermann, et al v. Epstein Becker and Green, P.C., et al

Filing

OPINION issued by Juan R. Torruella, Appellate Judge; Michael Boudin, Appellate Judge and Timothy Belcher Dyk, Appellate Judge. Published. [10-2174, 10-2275]

Case: 10-2174

Document: 00116264696

Page: 1

Date Filed: 09/22/2011

Entry ID: 5582041

United States Court of Appeals
For the First Circuit
No. 10-2174
ANDREW ZIMMERMANN, as Class Representative for the
Certified Zimmermann Action Classes, ET AL.,
Plaintiffs, Appellants,
v.
EPSTEIN BECKER AND GREEN, P.C., ET AL.,
Defendants, Appellees.
____________________
No. 10-2275
ANDREW ZIMMERMANN, as Class Representative for the
Certified Zimmermann Action Classes, ET AL.,
Plaintiffs, Appellants,
v.
BDO SEIDMAN, LLP, ET AL.,
Defendants, Appellees.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor, U.S. District Judge]
Before
Torruella, Boudin and Dyk,*
Circuit Judges.
Joseph S. Tusa with whom Tusa P.C., Stephen G. Hennessy, David
J. Vendler, Morris Polich & Purdy LLP, Garrett M. Smith, Garrett M.

*

Of the Federal Circuit, sitting by designation.

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Entry ID: 5582041

Smith PLLC, Gregory S. Duncan, G. Oliver Koppell, Daniel Schreck
and G. Oliver Koppell & Associates were on brief for appellants.
Neil J. Dilloff with whom Dale Cathell, DLA Piper LLP(US),
Marjorie Sommer Cooke, Barbara Gruenthal and Cooke Clancy &
Gruenthal LLP were on brief for appellee Epstein Becker & Green,
P.C.
Maura Barry Grinalds with whom Jonathan J. Lerner, Patrick G.
Rideout, Skadden Arps Slate Meagher & Flom LLP and Kurt Wm. Hemr
were on brief for appellee Paul M. Kaplan.
Mark E. Goidell with whom Law Office of Mark E. Goidell was on
brief for appellees Brian J. Davis, Esq., Brian J. Davis P.C.,
Spence & Davis, LLP, Douglas D. Viviani, Esq., and Douglas D.
Viviani, P.C.
Lisa C. Wood with whom Robert E. Toone, Richard G. Baldwin and
Foley Hoag LLP were on brief for appellee BDO Seidman LLP.
Anthony A. Scibelli with whom Hiscock & Barclay, LLP was on
brief for appellee Chipetine Neu & Silverman, LLP.
Daniel L. Brown and Sheppard Mullin Richter & Hampton, LLP on
brief for appellee Sheppard, Mullin, Richter & Hampton, LLP.

September 22, 2011

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BOUDIN, Circuit Judge. This appeal arises out of earlier
class

action

litigation

brought

by

the

present

plaintiff-

appellants, Andrew and Kelly Zimmermann. That earlier litigation,
Zimmermann v. Cambridge Credit Counseling Corp., 529 F. Supp. 2d
254 (D. Mass. 2008), aff'd sub nom., Zimmerman v. Puccio, 613 F.3d
60 (1st Cir. 2010) ("Zimmermann I"), was brought against Richard
and John Puccio and a collection of companies that the Puccio
brothers controlled or managed that were purportedly engaged in
credit repair and debt consolidation.1
The Zimmermanns alleged that these credit companies were
utilized by the Puccios as part of a scheme to defraud debtors in
violation of the federal Credit Repair Organizations Act ("CROA"),
15 U.S.C. §§ 1679 et seq. (2006), and the Massachusetts Consumer
Protection Act, Mass. Gen. Laws ch. 93A (2011). Zimmermann, 529 F.
Supp. 2d at 257.

After various proceedings, the district court

entered judgment in December 2008 in favor of the class for $259
million,

and established a constructive trust over "all fees that

consumers paid to the current or former defendant entities."
The district court expressly reserved jurisdiction to
address,

inter

alia,

"any

issues

enforcement of the judgments."

that

may

arise

from

the

On April 15, 2009, the district

1

Some decisions and filings in the initial class action
incorrectly spelled plaintiffs' surname as "Zimmerman."
Most
filings and orders in the current case use the correct spelling
"Zimmermann."
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court appointed a receiver to take control of the defendants'
property.

However, the plaintiffs found that the judgment was

"largely uncollectable" against the class action defendants, and so
the Zimmermanns sought new targets and brought the actions that
give rise to the appeals now before us.
In November 2009, the Zimmermanns filed two complaints
whose resolution is the subject of this appeal.2

One named as

defendants auditing firms that had assisted the Puccios and their
companies in audits and filing of IRS returns prior to and during
the class action litigation.

The second was against attorneys and

law firms who represented the Zimmermann I defendants in either
that litigation or other matters involving the credit repair
companies, or both.

Both actions were styled as class actions on

behalf of the same plaintiff class certified in Zimmermann I.
The Zimmermanns alleged that both groups of defendants
were

paid

accounting

by

the

services

Puccios

and

their

with

money

that

traceable to the Constructive Trust."

companies
was

for

"deriv[ed]

legal

and

from

and

Additionally, they claimed

that all defendants but one (Sheppard Mullin Richter & Hampton LLP)
had violated CROA as "participant[s] in the same conduct that has
resulted in entry of summary judgment" in the class action.

2

The Zimmermanns filed a third complaint against former
associates and employees of the Puccios.
This complaint was
dismissed by the district court, Zimmermann v. Salzone, 2010 WL
2720021 (D. Mass. July 8, 2010), but that judgment has not been
appealed.
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Both the attorneys and the accountants filed motions to
dismiss.

Ultimately, the district judge dismissed both actions on

the same grounds.

Zimmerman v. BDO Seidman, LLP, No. 09-30190,

2010 WL 3928684 (D. Mass. Sept. 30, 2010); Zimmermann v. Epstein
Becker & Green, P.C., No. 09-30194, 2010 WL 2724001 (D. Mass. July
8, 2010). The Zimmermanns now appeal from both dismissals, and the
two appeals have been consolidated.
court,

we

bypass

a

separate

In affirming the district

procedural

ground

urged

by

the

accountants because it does not affect the outcome.3
The district court dismissed both the constructive trust
and CROA claims because the Zimmermanns were seeking "class-based
relief" but had declined to seek certification of the class as
required by Rule 23 of the Federal Rules of Civil Procedure.
Zimmermann v. Epstein Becker & Green, P.C., 2010 WL 2724001 at *2*3. So far as enforcement of the constructive trust was concerned,
the court ruled that recovery of property was a matter for the
receiver.

Id. at *4.
As to the independent CROA claims against attorneys and

accountants, the court held that these were new actions and outside
the scope of enforcement jurisdiction.

And, it said, even if

brought by the Zimmermanns as individuals (and independent of

3

The Zimmermanns failed to file objections in response to the
magistrate judge's adverse report and recommendation in the
accountants' case, Fed. R. Civ. P. 72(b)(2), but the forfeiture
objection is debatable and need not be resolved.
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claims on behalf of the class), the CROA claims which merely cross
referenced the prior Zimmermann I judgment failed to meet the
pleading standard articulated in Ashcroft v. Iqbal, 129 S. Ct.
1937, 1949-50 (2009).

Id. at *5.

Our review of the dismissal is de novo.
597 F.3d 436, 441 (1st Cir. 2010) (en banc).

SEC v. Tambone,

While we "accept as

true all well-pleaded facts set out in the complaint and indulge
all reasonable inferences in favor of the pleader," id., the issues
in this instance are essentially legal. We consider separately the
claims

purporting

to

enforce

the

constructive

trust

and

the

independent claims based on CROA.
Constructive trust.

The district court dismissed the

Zimmermanns' claim under this heading on several different grounds,
but for us, the narrowest and clearest basis for rejecting it is
that the constructive trust cannot be read as intended to claw back
monies expended, prior to the imposition of the trust, by the
Puccios or their companies in the ordinary course of business and
in exchange for fair value.
A constructive trust is not a conventional formal trust
established with a named trustee, named beneficiary and a specific
object.

Restatement (Third) of Trusts § 2 (2003).

Rather, it is

a court-imposed device, essentially remedial in purpose, to achieve
equitable

restitution

"where

money

or

property

identified

as

belonging in good conscience to the plaintiff could clearly be

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traced

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to

particular

possession."

Page: 7

funds

or

Date Filed: 09/22/2011

property

in

the

Entry ID: 5582041

defendant's

Great-West Life & Annuity Ins. Co. v. Knudson, 534

U.S. 204, 213 (2002).
The central objective is to prevent unjust enrichment,
Restatement (Third) of Restitution and Unjust Enrichment § 55(1)
(2011),

commonly

if

not

invariably

based

on

the

possessor's

improper acquisition of the claimant's property, Foster v. Hurley,
826 N.E.2d 719, 727 (Mass. 2005) ("Under Massachusetts law, a court
will declare a party a constructive trustee of property for the
benefit of another if he acquired the property through fraud,
mistake, breach of duty, or in other circumstances indicating that
he would be unjustly enriched."); accord In re Chew, 496 F.3d 11,
17 & n.8 (1st Cir. 2007).
In Zimmermann I, the Puccios and their companies were
found liable for millions of dollars, and it was readily apparent
that the "Puccios liberally commingled the finances of the various
companies" and used company funds to pay for personal items.
F. Supp. 2d at 272.

529

After the verdict, when the Zimmermanns sought

the constructive trust, they further suggested that other creditors
might seek to reach assets still in defendants' hands.
Against this background, the district court imposed a
constructive trust
over all fees that consumers paid to the
current or former defendant entities . . . .
Such trust shall include without limitation
all monies or benefits in kind, whether
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salary, distributions, or other payments of
money, satisfaction of accounts or charges for
services or purchases of real or personal
property:
a.
traceable as a payment from any
defendant or former defendant to or for the
benefit of John Puccio or Richard Puccio;
b.
traceable as a payment from any
defendant or former defendant to or for the
benefit of members of the families, friends or
associates of John Puccio and/or Richard
Puccio; and/or
c.
traceable as a payment from any
defendant or former defendant to or for the
benefit of any manager or employee of any
defendant or former defendant that is in
excess of the fair value of such person's
services rendered.
Conceivably, this language might in some circumstances
reach transfers that occurred prior to the establishment of the
constructive trust and to innocent persons or entities; this might
at least be argued as to family members, friends or associates of
the Puccios and to managers and employees of the defendants (where
they did not provide fair value in exchange).

The language of the

constructive trust is not as clear cut as it might be, and we do
not decide such issues.
But very little suggests that the order was intended to
reach

payments,

imposed,

to

made

lawyers,

before

the

accountants

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constructive
or

the

trust

butcher,

was
baker

even
or

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candlestick maker.4

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It is even less credible that it was intended

to reach payments made in exchange for the fair value of such
services.

Very serious questions--of retroactivity, fair notice,

and equity--would be raised by such a reading.

The most plausible

reading of the constructive trust order, considering the context in
which it was imposed, is that it was directed at monies derived
from

fraudulent

acts

that

might

yet

be

in

the

defendants'

possession but could be--or perhaps had been--improperly syphoned
away to straws, family members, or employees without receiving fair
value before it could be attached and used to satisfy the judgment.
In the present circumstances, it can hardly be "unjust
enrichment" for lawyers and accountants hired by companies to be
paid for their services.

There was no determination in Zimmermann

I that such non-parties were liable.
independently
enforcement

against

proceeding

jurisdiction.

lawyers

or

carried

on

Such claims might be pursued
accountants,
under

the

but

not

court's

as

an

reserved

U.S.I. Props. Corp. v. M.D. Constr. Co., 230 F.3d

489, 497-498 (1st Cir. 2000).

4

Earlier, in a preliminary injunction phase of the case, the
court had made clear it had no intention of withholding fees from
those providing services to the class action defendants, specifying
that "nothing in this Consent Decree shall . . . prohibit an[y]
Defendant from paying its attorneys' and accountants' fees within
the budget approved by the Court." Similarly, the definition of
"receivership property" in the order appointing the receiver
specifically excludes "transfers" made during the litigation "for
less than fair consideration."
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Neither in their briefs nor when pressed at oral argument
in this court did plaintiffs suggest that any of the listed
payments allegedly covered by the constructive trust occurred after
its

establishment or without fair value in exchange.

cited

to

us

no

authority

for

such

an

outré

Counsel has

reading

of

the

constructive trust language,5 it would not comport with the usual
rationale for constructive trusts, and it was not endorsed by the
judge who entered the order.
CROA.

The independent claims against the lawyers and

accountants based on CROA stand on a different footing.

There is

no want of federal subject matter jurisdiction because these are
federal statutory claims; and such claims might, if the named
plaintiffs chose, have been brought by them personally and--if Rule
23 prerequisites were satisfied--as representatives of a class of
those similarly injured.
The obstacle is that the named plaintiffs expressly
disclaimed any interest in making the CROA claims solely on their
own behalf and conspicuously failed to allege or propose to comply
with Rule 23 conditions on establishment of a new class action.
The reason for this posture is mysterious, but it seems to be part

5

Thomas, Head & Greisen Emps. Trust v. Buster, 95 F.3d 1449,
1454-55 (9th Cir. 1996), cert. denied, 520 U.S. 1116 (1997),
involved a claim of fraudulent conveyance; Owner Operator Indep.
Drivers Ass'n v. Comerica Inc., 2006 WL 1339427 at *4, *7 (S.D.
Ohio May 16, 2006), allowed a class to seek "restitution of money
allegedly withdrawn improperly by a third-party from a trust
account" already established.
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of

an

Document: 00116264696

effort

to

elide

Page: 11

the

Date Filed: 09/22/2011

distinction

between

Zimmermann I action and the present CROA claims.
reflects

concerns

limitations

issues

about
or

personal
obstacles

jurisdiction,
that

might

the

Entry ID: 5582041

original

Whether it
statute
attend

of

class

certification is unclear.
Be that as it may, the plaintiffs could not proceed
without following Rule 23.

The present CROA claims may arise out

of the same background as the earlier case against the Puccios and
their companies, and a plaintiff class suitable for such claims
might be identically defined; but the CROA claims are being brought
against new defendants whose liability would have to be separately
proved based on facts pertaining to those new defendants.

Seeking

only recovery on behalf of a class, the plaintiffs would have to
allege and establish compliance with Rule 23, which they have
declined to do.
The problem is not that the previously certified class
evaporated once the original judgment was entered. It retains some
legal status as to any recovery secured in that action, see, e.g.,
Judge Rotenberg Educ. Ctr., Inc. v. Comm'r of the Dep't of Mental
Retardation, 677 N.E. 2d 156 (Mass. 1997); and, putting aside
issues of the receiver's authority vis à vis that of the class
representatives, the class is covered in any enforcement proceeding
under the retained jurisdiction of the district court in Zimmermann
I.

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But a certified class in one action is not a free
floating entity entitled to conduct new and separate lawsuits
against new defendants6--unless and until it is certified in the
new action. The Zimmermanns respond that they are not "suing" anew
but rather continuing the prior earlier class action to enforce the
judgment.

E.g., In re Trebol Motors Distrib. Corp., 220 B.R. 500,

501 (B.A.P. 1st Cir. 1998)(pursuit of class claim into bankruptcy
court). But new CROA claims against a new set of defendants cannot
ride on the coat-tails of the earlier action under the guise of an
enforcement proceeding.

Cf. Peacock v. Thomas, 516 U.S. 349, 357

(1996); U.S.I. Props. Corp., 230 F.3d at 498.
Affirmed.

6

The Zimmermanns rely on the statement in Sosna v. Iowa, 419
U.S. 393, 399 (1975), that "the class of unnamed persons described
in the certification acquired a legal status separate from the
interest asserted by appellant," but it is taken out of context:
Sosna involved the import of the mootness of the class
representative's own claim during the pendency of the original
class action.
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