Brennan v. Ferreira et al

Filing 47

Judge William G. Young: ORDER entered. MEMORANDUM AND ORDER: This Court grants Brennan's motion for leave to amend her complaint, ECF No. 41 , but dismisses counts I and II as to Leatham. SO ORDERED...(Paine, Matthew)

UNITED STATES
DISTRICT

DISTRICT

COURT

OF MASSACHUSETTS

LINDA BRENNAN,
Plaintiff,
CIVIL ACTION

V .

NO.

16-12536-WGY

THOMAS F. FERREIRA, BARBARA
FERREIRA, JOHN JEFF FERREIRA,
TAMMY FERREIRA, HICKS STREET,
INC., HILDA MIRANDA, THREE BIG
DOGS IRREVOCABLE TRUST, PRESCOTT,
BULLARD & MCLEOD, RICHARD C.

BORGES,

and DOUGLAS LEATHAM,
Defendants.

YOUNG,

May 2,

D.J.
MEMORANDUM AND

I.

2017

ORDER

INTRODUCTION

The plaintiff, Linda Brennan (^'Brennan") , has brought suit
against Thomas F. Ferreira and Barbara Ferreira (collectively
^'T&B Ferreira") ;

John Jeff Ferreira and Tammy Ferreira

(collectively ^V&T Ferreira"); Hicks Street, Inc.; Hilda

Miranda; Three Big Dogs Irrevocable Trust; Prescott, Bullard &
McLeod; Richard C. Borges; and Douglas Leatham (^^Leatham") ,

alleging, inter alia, violations of the Racketeer Influenced and
Corrupt Organizations Act
Fraudulent Transfer Act

(^^RICO") , violations of the Uniform

("UFTA"),

and common law civil

conspiracy.
Compl.

Pi. Linda Brennan's Mot. Am.

and Jury Demand

(^^Am. Compl.")

2,

Compl., Ex. 1, Am.
ECF No.

41-1.

Brennan has moved for leave to file an amended complaint.
PI. Linda Brennan's Mot. Am.

opposed,

Compl.,

41.

Leatham

arguing that the claims against him ought be dismissed

for failure to state a claim.
Linda Brennan's Mot. Am.
Mot.

ECF No.

Def.

Dismiss,

Compl.

ECF No.

12.

Opp'n Def.,

Douglas Leatham,

{^^Def.'s Opp'n"),

ECF No.

For the reasons below,

PI.,

44;

this

Court grants Brennan leave to file her amended complaint, but
dismisses counts I
A.

and II against Leatham.

Procedural History

Brennan initially filed her complaint on December 16, 2016.

Compl. 1, ECF No. 1.
Mot.

Leatham moved to dismiss the complaint.

Def. Dismiss, and the parties briefed the issues, Linda

Brennan's Opp'n Def.'s Mot. Dismiss (^^Pl.'s Opp'n"), ECF No. 35;
Mem.

Law Def. Supp. Mot.

Dismiss, ECF No. 13.

On the morning of the hearing addressing Leatham's motion
to dismiss, Brennan filed a motion for leave to file an amended

complaint.

Pi. Linda Brennan's Mot. Am. Compl.

Leatham

opposed, maintaining that the amended complaint failed to cure
the deficiencies of the original complaint.
B.

Def.'s Opp'n.

Facts Alleged

Brennan is a

Compl. SI 13.

creditor of T&B Ferreira under the UFTA.

Am.

She and her former husband, Andrew Brennan, were

[2]

partners with T&B Ferreira in various businesses and real estate

ventures,

including F&B Enterprises,

Id. at 2.
ways,

Id.

Inc. and Land Locker,

Inc.

In 1995, the Brennans and T&B Ferreira agreed to part

dividing their common business and real estate interests.

As part of their agreement,

the Brennans were to receive

monthly payments, but T&B Ferreira stopped making these payments
in August 2000,

and filed for Chapter 11 Bankruptcy on behalf of

F&B Enterprises,

Inc.

soon after.

Id.

Leatham is T&B Ferreira and J&T Ferreira's certified public
accountant.

Id.

^ 18.

On or about December 17,

2012,

Barbara

Ferreira transferred the deed to 25 Tinkham Lane, Mattapoisett,
Massachusetts,

to J&T Ferreira for $1.00,

property's fair market value.

well below the

Id. SISI 20-21.

J&T Ferreira

subsequently sold the property for $435,000.00.

Id.

^ 22.

Brennan alleges that Leatham filed false tax returns and made
false accounting entries by charging Land Locker,

uninsured property damage,

should have

concealing assets,
II.

id.

for

id. SISI 56-57, that this assistance

was necessary to the Ferreiras' scheme,
Leatham knew or

Inc.

known that

id. SI 61, and that
the

Ferreiras were

SI 64.

ANALYSIS

The amended complaint asserts three causes of action

against Leatham: violation of RICO

(count I) , id. SISI 65-80;

fraudulent conveyances under the UFTA (count II), id. SISI 81-86;

[3]

and civil conspiracy (count III),

id. SISI 87-91.

Leatham

contends that the amended complaint ''suffers from the same
substantive defects as the original

[c]omplaint," in that i t

does not allege sufficient facts to support Leatham's

involvement in the purported scheme to defraud creditors.
Def.'s Opp'n 1-2.

Although a court ought grant leave to amend a pleading

"when justice so requires," Fed. R. Civ. P. 15(a)(2), a district
court retains significant discretion to deny amendment if it

appears futile.

See Foman v. Davis, 371 U.S. 178, 182 (1962).

"In assessing futility,

the district court must apply the

standard which applies to motions to dismiss," Adorno v. Crowley

Towing & Transp. Co., 443 F.3d 122, 126 (1st Cir. 2006)
Classman v. Computervision Corp.,

90 F.3d 617,

623

(citing

(1st Cir.

1996)); that is, whether, accepting all factual allegations as

true, a complaint states a plausible claim to relief, see
Saldivar v. Racine, 818 F.3d 14, 18

(1st Cir. 2016)

(citing

Cardigan Mountain Sch. v. New Hampshire Ins. Co., 787 F.3d 82,
84

(1st Cir.
A.

2015)).

Count I:

RICO Violation

Section 1962 of Title 18 of the United States Code provides

that "[i]t shall be unlawful for any person employed by or

associated with any enterprise engaged in, or the activities of
which affect, interstate .

.

. commerce, to conduct or

[4]

participate, directly or indirectly,

in the conduct of such

enterprise's affairs through a pattern of racketeering activity
or collection of unlawful debt."

18 U.S.C. § 1962(c)

added);

Turkette,

(1981)

see also United States v.
("In order to secure a

452 U.S.

conviction under RICO,

Government must prove both the existence of an

(emphasis
576,

583

the

^enterprise'

the connected ^pattern of racketeering activity.'").

and

The

Supreme Court has stated:

In order to "participate, directly or indirectly, in
the conduct of such enterprise's affairs," one must
have some part in directing those affairs.
Of course,

the word "participate" makes clear that RICO liability
is not limited to those with primary responsibility for
the enterprise's affairs, just as the phrase "directly
or indirectly" makes clear that RICO liability is not
limited to those with a formal position in the
enterprise, but some part in directing the enterprise's
affairs is required.
The "operation or management"
test expresses this requirement in a formulation that
is easy to apply.
Reves v.

Ernst & Young,

omitted).

507 U.S.

170,

179

(1993)

(emphasis

Pursuant to this "operation or management test," in

order to be liable for "conducting" or "participating" in an

enterprise's affairs under section 1962(c), "one must

participate in the operation or management of the enterprise
itself."

Id.

at 185.

The First Circuit consistently has held

that RICO liability does not attach where an accountant engages

in no more than ordinary accounting functions on behalf of an

enterprise.

See United States v. Houlihan, 92 F.3d 1271, 1298

[5]

(1st Cir.

1996)

(^MB]ecause the defendant in Reves was an

outside accounting firm that had only a contractual relationship

with the allegedly corrupt enterprise —

it audited the books

and issued financial reports, but neither controlled the

enterprise nor participated in either its operation or
management —
Oreto,

RICO liability did not attach."); United States v.

37 F.3d 739,

750

accountants in Reves]

1994)

(^MW]hile

[the

were undeniably involved in the

enterprise's decisions,
carried them out;

(1st Cir.

they neither made those decisions nor

in other words,

the accountants were outside

the chain of command through which the enterprise's affairs were
conducted.").

Furthermore, the Supreme Court has rejected the

argument that independent accounting professional standards
defining financial statements as ^^management's responsibility"

should apply to the term ''management of an enterprise" under
section 1962(c).

Reves,

507 U.S.

at 185-86.

Here, construing the pleadings in the light most favorable
to Brennan, Leatham, as an accountant, still does not satisfy

the operation or management test.

The amended complaint alleges

only that Leatham "maintained the books and records on behalf of
Land Locker,

Inc. and F & B Rubberized,

Inc. as well as other

Ferreira entities," and that Leatham, along with J&T Ferreira,

made false accounting entries (filing false tax returns and
fraudulently charging Land Locker for uninsured property damage)

[6]

to shield themselves from creditors.
There are insufficient facts,

Am.

however,

Compl.

5ISI 56-57.

to support an inference

that Leatham operated or managed the enterprise.
U.S.

at 185-86

those here,

See Reves,

507

(holding, under similar factual circumstances to

that an accounting firm overvaluing a company's

audit was not

liable under RICO because the

firm could not be

said to have operated or managed the enterprise).

Brennan argues that ^^should an accountant go beyond the

actions in Reves, they run the risk .

.

.

[of being considered]

part of the management of the entity named as an enterprise,"
and that an ^'association-in-fact" enterprise may ''bring the

outside professional back into RICO's reach even if he or she
would escape under Reves."

Pl.'s Opp'n 5.

The amended

complaint, however, fails to allege facts sufficient to show

that Leatham engaged in operation or management activities in

the alleged enterprise, or in any way goes "beyond the actions
in Reves."

Id.

Thus, the conduct element is not satisfied and

Leatham is not subject to RICO liability under count I.
B.

Count II: Fraudulent Conveyance under the UFTA

Massachusetts's version of the UFTA, Mass.

Gen.

Laws ch.

109A, proscribes a transfer by a debtor if made either:
"(1)

with actual intent to hinder, delay, or defraud any

creditor of the debtor;

equivalent value."

or

(2)

without receiving a

reasonably

Mass. Gen. Laws ch. 109A, § 5(a)(l)-(2).

[7]

The second of the prohibited transactions applies when the
debtor has an unreasonably small amount of remaining assets or
an

intent

[him]

or reasonable b e l i e f that

insolvent."

10293-WGY,

Silica Tech,

2009 WL 2579432,

^^the

L.L.C.

at *17

v.

t r a n s f e r would render

J-Fiber,

(D. Mass. Aug.

GmbH,

19,

No.

06-

2009)

(citing Mass. Gen. Laws ch. 109A, § 5(a)(2)).
Leatham's actions,

based on the allegations in the amended

complaint, do not fall within the ambit of the UFTA.

Court has previously noted,

As this

in order to maintain an UFTA claim,

the defendant must be a debtor and a party to the transfer.
Silica Tech,

2009 WL 2579432,

at *32

(citing General Motors

Acceptance Corp. v. Camilleri Bros. Chevrolet of Holyoke,

109 F. Supp. 2d 58,

60

See

(D. Mass. 2000)

(Gorton, J. )

Inc.,

(^'A

prospective transfer by a non-debtor does not fit within the
statutory meaning of fraudulent transfer.")).

Here, Leatham was

neither a debtor nor a party to the transaction.

Accordingly,

this Court dismisses Leatham as defendant to count 11.^

^ Leatham challenges the adequacy of the entire complaint,
but does not specifically address the UFTA claim. Although
'Msjua sponte dismissals are strong medicine, and should be

dispensed sparingly," there is an exception where ^'it is crystal
clear that the plaintiff cannot prevail and that amending the
complaint would be futile." Chute v. Walker, 281 F.3d 314, 319
(1st Cir. 2002)

(internal quotations and citations omitted).

Such circumstances are present here.
[8]

C.

Coun't III: Civil Conspiracy

Massachusetts recognizes ^^concerted action" civil
conspiracy.

(1998)

See Kurker v.

(citing Restatement

Hill,

44 Mass. App. Ct.

(Second)

of Torts § 876

184,

188

(1979)).

This requires a plaintiff to allege ''a common design or an
agreement

and .

.

.

.

.

between two or more persons to do a wrongful act

. proof of some tortious act in furtherance of the

agreement."
1546, 1564

Aetna Cas. Sur. Co. v. P & B Autobody,
(1st Cir. 1994).

43 F.3d

'^^Key to this cause of action is a

defendant's substantial assistance

[to another],

with the

knowledge that such assistance is contributing to a common

tortious plan."

Kurker,

44 Mass. App. Ct. at 189.

Courts in this district have applied a low bar for

allegations of ''substantial assistance" sufficient to survive a
motion to dismiss.

See,

e.g.,

3d 565, 576 (D. Mass. 2015)

Fiorillo v. Winiker,

(Hillman, J.)

85 F.

Supp.

(denying motion to

dismiss where the plaintiff alleged that the defendant was hired

by other defendants to assist in a scheme to usurp assets from

the plaintiff and in doing so "tortiously misappropriated rents
and equipment, and represented to lenders that he was the sole
owner of [the property]").

Here, the amended complaint alleges

that Leatham took part in making false accounting entries

necessary to the Ferreiras' scheme, of which Leatham knew or

[9]

should have known.

Am. Compl.

SISI 57,

61,

64.

This is adequate

to state a civil conspiracy claim against Leatham.^
III.

CONCLUSION

For the foregoing reasons,

this Court grants Brennan's

motion for leave to amend her complaint,
dismisses

counts

I

and I I

as

EOF No.

41,

but

to Leatham.

SO ORDERED.

WILLIAM

DISTRICT

G.'

J

^Leatham argues that he was not put on adequate notice
regarding the civil conspiracy claim against him because his
name is not mentioned specifically in count III of the

complaint.
See Am. Compl. SISI 87-91. The notice standard is not
so high.
See Kadar Corp. v. Milbury, 549 F.2d 230, 234 (1st
Cir. 1977) (noting that it is ''difficult to say that a claim has
not been minimally stated" where the defendant was mentioned in
several other paragraphs of the complaint as having aided and
abetted "specific, narrowly-defined conduct," and holding this
was enough to lend "some body to the pleaders' claim").
Although Leatham is not listed by name in count III, he is
listed as a defendant in the preceding paragraphs as an alleged
RICO conspirator. Am. Compl. f 87. This is sufficient notice
that

Leatham i s

a

defendant

to

count

[10]

III.