Traverse et al v. The Gutierrez Company et al

Filing 26

Judge Denise J. Casper: ORDER entered. MEMORANDUM AND ORDER. The Court ALLOWS Gutierrez Defendants' motion to dismiss, D. 18, with respect to Count IV and Count V, the fraud claims, and DENIES it with respect to Count II, Count III, Count IX, and Count X. Count I, Count VI, Count VII and Count VIII also remain as they were unchallenged in this motion to dismiss. (McKillop, Matthew)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
__________________________________________
)
NORMAN TRAVERSE AND NASSRINE
)
TRAVERSE, INDIVIDUALLY AND ON
)
BEHALF OF TECHNOLOGY PARK X
)
LIMITED PARNTERSHIP,
)
)
Plaintiffs,
)
)
v.
)
)
No. 18-cv-10175-DJC
)
THE GUTIERREZ COMPANY, GUTIERREZ )
CONSTRUCTION COMPANY, ARTURO J.
)
GUTIERREZ, ARTHUR J. GUTIERREZ JR., )
and TECHNOLOGY PARK X LIMITED
)
PARTNERSHIP,
)
)
Defendants.
)
__________________________________________)
MEMORANDUM AND ORDER
October 30, 2018

CASPER, J.
I.

Introduction
Plaintiffs Norman Traverse (“Norman”) and Nassrine Traverse (“Nassrine”), individually

and derivatively on behalf of Technology Park X Limited Partnership (collectively, “the
Traverses”), bring suit against The Gutierrez Company (“TGC”), Gutierrez Construction
Company, Inc. (“GCCI”), Arturo J. Gutierrez (“Arturo”), Arthur J. Gutierrez, Jr. (“Arthur”), and
Technology Park X Limited Partnership (“Tech Park X”). D. 1. Arthur J. Gutierrez, Jr., Arthur J.
Gutierrez, Gutierrez Construction Co., and the Gutierrez Company (“the Gutierrez Defendants”)
move to dismiss certain counts of the complaint. D. 18. For the following reasons, the Court
ALLOWS in part and DENIES in part the Gutierrez Defendants’ motion.

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II.

Standard of Review
To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must “contain

sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)). The Court must distinguish between “the complaint’s factual allegations (which must
be accepted as true) from its conclusory legal allegations (which need not be credited).” MoralesCruz v. Univ. of P.R., 676 F.3d 220, 224 (1st Cir. 2012). “The court then must determine whether
the ‘factual content . . . allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.’” Id. (quoting Iqbal, 556 U.S. at 678). Under Rule 9(b) of the
Federal Rules of Civil Procedure, a party alleging “fraud or mistake” must “state with particularity
the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). This requires specifying
“not only . . . the false statements and by whom they were made but also identifying the basis for
inferring scienter.” N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 567 F.3d 8,
13 (1st Cir. 2009).
III.

Factual Background
The following summary is based upon the allegations in the amended complaint, D. 15,

which are accepted as true for the consideration of the motion to dismiss. Tech Park X is a limited
partnership, created by the Tech Park X Limited Partnership Agreement (“LP Agreement”) in
which the Traverses hold a 38 percent share, and TGC, Arturo, and Arthur, among others, all hold
smaller stakes. D. 15 ¶ 12. Both TGC and GCCI are corporations owned by Arturo, who is the
father of Arthur. D. 15 ¶ 9. Arthur is the President of TGC and of GCCI. D. 15 ¶ 10. Tech Park
X was formed in the 1980s, with the principal asset of an office building with leasable space and
the underlying land. D. 15 ¶¶ 17, 19. Over the years, other similar entities have been created with
the “Tech Park” name. D. 15 ¶ 16. TGC is the “general partner” of Tech Park X and is responsible
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for the management of Tech Park X. D. 15 ¶ 22. Under the LP Agreement that created Tech Park
X, TGC is required to pay reasonable rates for services it purchases on behalf of Tech Park X,
must ensure that contracts it makes on behalf of Tech Park X with entities that it is affiliated with
are in the best interests of all parties, must distribute Tech Park X surplus cash flow annually to
the partnership and may not loan any funds on behalf of Tech Park X. D. 15 ¶¶ 22-25.
Tech Park X, through TGC, paid out distributions to the partnership in 2010, 2011, and
2012, some portion of which was subsequently clawed back pursuant to an agreement between the
parties. D. 15 ¶ 26. In 2011, Tech Park X paid out $2 million in distributions, out of under $7
million cash receipts, at least some of which was later clawed back. D. 15 ¶ 28. Since 2012, Tech
Park X has not paid any distributions. D. 15 ¶ 26. In 2015, Tech Park X’s cash receipts were $1.4
million above its 2011 cash receipts and in 2016, Tech Park X’s cash receipts reached nearly $10
million. D. 15 ¶ 28. Management fees paid by Tech Park X to TGC or a TGC affiliate increased
to $400,000 in 2015 and $500,000 in 2016, almost double the amount charged in 2013 and above
the maximum permitted in the LP Agreement. D. 15 ¶ 29. Building supervision fees paid to GCCI
from 2013-2016 were allegedly twice the cost of the labor incurred. D. 15 ¶ 29. Other expenses
that were allegedly unreasonably high included expenses for cleaning supplies, snow removal, and
accounting and auditing. D. 15 ¶¶ 30. TGC allegedly overpaid GCCI to perform certain services,
such as the construction of a cafeteria, the installation of drywall in the cafeteria, improvements to
the fitness center, and demolition work. D. 15 ¶¶ 37-41. The Traverses allege that the TGC
wrongfully used Tech Park X funds to pay expenses for other Tech Park partnerships in which
TGC had a greater ownership share; that TGC improperly awarded unreasonably expensive
contracts to itself or affiliated corporations; and that TGC did not bid out contracts to obtain
competitive rates. D. 15 ¶ 36.

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The complaint specifically references an incident wherein a water main broke, due to
improper installation of a component by GCCI, according to an engineer’s report provided by
TGC. D. 15 ¶ 46. TGC, rather than pursuing claims against GCCI, paid GCCI to supervise the
work to fix the water main damage. D. 15 ¶ 46.
In a subsequent incident, TGC executed a promissory note in the amount of $2.3 million
from Tech Park X to Arturo on December 31, 2014, ostensibly to document a loan from Arturo to
Tech Park X. D. 15 ¶ 47. Tech Park X did not receive the funds of the purported loan, but rather
Arturo paid the $2.3 million directly to TGC, and Tech Park X repaid Arturo in installments in
2015 and 2016. D. 15 ¶ 47.
Since 2014, TGC, acting on behalf of Tech Park X, sent various financial statements and
ledgers to the Traverses. D. 15 ¶ 98. Around September 2015, the Traverses began requesting
additional records and financial information regarding Tech Park X. D. 15 ¶ 50. The records the
Traverses received indicated to them that Tech Park X engaged in allegedly irregular financial
patterns, including keeping “due to” and “due from” accounts with affiliated entities including
TGC, GCCI, and other vendors, without making actual payments. D. 15 ¶ 52. The records also
purportedly showed that TGC, acting on behalf of Tech Park X, transferred sums between Tech
Park X, other projects, and affiliated interest, “without any apparent justification.” D. 15 ¶ 53.
Included in those transactions was a transfer that appeared to reimburse TGC for expenses that it
was not contractually eligible to be reimbursed for, relating to expenses maintaining the land
related to both Tech Park X and another project. D. 15 ¶ 53. At one point, Tech Park X received
a $200,000 wire transfer from BOP V, another office park entity purportedly controlled by the
Gutierrez family. D. 53 ¶ 55. That wire transfer came with the entry “due from BOP V.” D. 15
¶ 55. At some point, that entry was transferred from the “due to BOP V” account to the “due to

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TGC” account, without any apparent reason. D. 15 ¶ 55. Additionally, Tech Park X made
payments to BOP I, an entity purportedly related to BOP V, similarly without explanation. D. 15
¶ 55.
Nassrine sought additional information to sort through Tech Park X’s complex records, but
TGC purportedly obstructed and delayed responding to her request for information. D. 15 ¶ 58.
She continued to seek and review documents through 2016 and 2017. D. 15 ¶ 59. On July 24,
2017, in a letter written by counsel, Nassrine wrote that TGC may have caused Tech Park X to pay
unreasonably high compensation for certain services provided from 2011 forwards. D. 15 ¶ 61.
The letter requested a tolling arrangement between the parties to provide an opportunity for the
parties to resolve their disputes before commencing litigation. D. 15 ¶ 61. On August 10, 2017,
counsel representing simultaneously Tech Park X and TGC responded to Nassrine’s letter rejecting
the request for a tolling agreement. D. 15 ¶ 62. Nassrine sent a follow up letter on September 8,
2017, outlining the potential claims against TGC and GCCI, and again proposed a tolling
agreement. D. 15 ¶¶ 64, 65. On September 26, 2017, the same counsel representing both Tech
Park X and TGC rejecting the request for a tolling agreement. D. 15 ¶ 66.
IV.

Procedural History
On December 29, 2017, the Traverses filed a complaint in Suffolk Superior Court. D. 1-

1. The Defendants subsequently removed the action to federal court. D. 1. The Traverses filed
an amended complaint on February 26, 2018. D. 15. In the amended complaint, the Traverses
assert the following claims: Count I, breach of the LP Agreement, against TGC; Count II, breach
of fiduciary duty, against TGC, Arthur and Arturo; Count III, aiding and abetting a breach of
fiduciary duty, against GCCI, Arturo and Arthur; Count IV, fraud, against TGC, GCCI, and
Arthur; Count V, aiding and abetting fraud, against Arturo, Arthur, and GCCI; Count VI, a Chapter

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93A claim against Arturo, Arthur and GCCI; Count VII, a Chapter 93A claim against all
Defendants; Count VIII, a demand for accounting against TGC related to Tech Park X’s accounts;
Count IX, a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”)
against all Defendants; and Count X, a claim for conspiracy to violate RICO against all
Defendants. D. 15. The Gutierrez Defendants have now moved to dismiss certain counts on March
12, 2018. D. 18. On May 10, 2018, the Court heard argument on the motion and took the matter
under advisement. D. 25.
V.

Discussion
The Gutierrez Defendants move to dismiss certain counts in the complaint: Count II, the

breach of fiduciary duty, but only with respect to Arturo and Arthur; Count III, aiding and abetting
the breach of fiduciary duty; Count IV, fraud and misrepresentation; Count V, aiding and abetting
fraud and misrepresentation; Count IX, the RICO claim; and Count X, the RICO conspiracy claim.
A.

Count IX and Count X: RICO and RICO Conspiracy Claims Against All
Defendants

To state a claim under RICO, a plaintiff must allege “(1) conduct, (2) of an enterprise, (3)
through a pattern, (4) of racketeering activity.” Giuliano v. Fulton, 399 F.3d 381, 386 (1st Cir.
2005). “‘Racketeering activity’ means any act that violates one of the federal laws specified in the
RICO statute . . . including the mail and wire fraud statutes.” Id. To show a “pattern,” a plaintiff
must allege “two acts of racketeering activity,” “within ten years of each other,” that are “related”
and “amount to or pose a threat of continued criminal activity.” Id. There are two ways that a
plaintiff may show that the criminal activity at issue satisfies the continuity requirement of such
showing: the “closed-ended approach,” which requires a plaintiff show “a series of related
predicates extending over a substantial period of time” that amount to “a threat of continued
criminal activity,” and the “open-ended approach,” which requires a plaintiff to show “a specific
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threat of repetition extending indefinitely into the future” or as “part of an ongoing entity’s regular
way of doing business.” Id.
The Gutierrez Defendants argue that the complaint does not state facts sufficient to show
continuity under either the “closed-ended” or “open-ended” theories, because the alleged scheme
was of insufficient duration and was designed with only one victim – the Traverses – in mind. D.
19 at 7-10.
The Traverses contend first that the complaint pleads facts sufficient to state a claim under
the “closed-ended theory,” because the purported scheme to transfer money out of Tech Park X
and towards TGC-affiliated entities, extended from 2012 through 2016 and across multiple types
of expenses and multiple TGC-affiliated entities. D. 22 at 7-10. The Traverses allege specific
unlawful transfers that took place in each year from 2012 to 2016. D. 15 ¶¶ 29 (management fees
in 2015 and 2016), 30 (cleaning supplies in 2015), 47 ($2.3 million promissory note in 2014);
131(a) (lobby renovation work in 2012 and 2013); 131(b) (Empirix renovation work in 2013);
131(d) (cafeteria renovation work in 2013 and 2014). The Traverses further argue that the
transmission of the fraudulent financial statements, throughout that period and into 2017, across
the mail and through the internet, constituted predicate acts that furthered the fraud. D. 22 at 1013.
In assessing the duration of a putative RICO scheme, “the scheme’s duration must be
measured by reference to the particular defendant's fraudulent activity, rather than by otherwise
innocuous or routine mailings that may continue for a long period of time thereafter.” Feinstein
v. Res. Trust Corp., 942 F.2d 34, 46 (1st Cir. 1991). The mailing of financial documents would
only serve to extend the period if they “comprised a means by which the fraudulent scheme was
perpetrated, or served to perpetuate or conceal the fraud.” Id. Here, the Traverses adequately

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allege that the financial statements served to “conceal the fraud,” because the Traverses allege that
the manner of accounting for the transfers between TGC-affiliated entities within the financial
statements was done with the intention to conceal overpayments and unlawful transfers to TGCaffiliated entities. D. 15 ¶ 52-55. The amended complaint identifies dates that particular officers
of TGC, acting at the direction of Arthur, sent specific financial documents to the Traverses. D.
15 ¶ 128. In particular, the amended complaint identifies the financial statements and cash ledgers
for 2013, 2014, 2015, and 2016 as documents sent by wire to the Traverses by Tobin Dozois,
acting at the direction of Arthur, from October 2014 to November 2017. D. 15 ¶ 128. It also
identifies particular entries in those financial statements that served to conceal the underlying
fraud. D. 15 ¶ 129. In particular, the amended complaint identifies a $140,160 amount in the 2014
general ledger that served to conceal an unlawful payment that was falsely recorded as being
related to tenant improvements, D. 15 ¶ 129, among other unlawful payments documented in the
financial statements in 2012 and 2013. D. 15 ¶ 131. Both the underlying purportedly fraudulent
transfers and the transmission of the financial statements, therefore, constitute acts relevant to
considering the duration of the scheme. The scheme, as pled by the Traverses, thus spanned nearly
six years and included numerous predicate acts and entities.
Nevertheless, the scheme only involved a small number of victims – those co-owners of
Tech Park X who do not have interests in the TGC-affiliated entities that were the recipients of the
unlawful transfers. D. 15 ¶ 12. Also, while the amended complaint alleges a scheme that involves
numerous entities, it only alleges one entity that was negatively affected: Tech Park X. The First
Circuit, in reviewing a RICO claim regarding misconduct within a partnership, albeit over a
twenty-one month time frame rather than a six-year time frame, reasoned that “[a]lthough a RICO
pattern need not have countless victims, the finite nature of the racketeering activities alleged here,

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together with their occurrence over a relatively modest period of time, cannot, in our view, support
a jury finding of a RICO pattern under the ‘closed’ continuity approach.” Efron v. Embassy Suites
(Puerto Rico), Inc., 223 F.3d 12, 19 (1st Cir. 2000). While it may be a close question, the Court
concludes that the Traverses have not adequately pled a “closed-ended” theory of continuity under
RICO. See Systems. Mgmt. Inc. v. Loiselle, 303 F.3d 100, 105-6 (1st Cir. 2002) (holding that a
complaint did not state a claim under the closed-ended theory where the scheme related to the
fraudulent maintenance of a single contract, even though that scheme included multiple fraudulent
acts).
The Traverses, however, fare better under the “open-ended” theory of RICO. As the First
Circuit explained in Efron, “[h]ad [the plaintiff] argued that the defendants planned to operate the
hotel indefinitely at a paper loss as a means of perpetually defrauding him, rather than asserting
the specific objective of squeezing him out of the Partnership, he would have a stronger argument
for an open-ended RICO pattern.” Efron, 223 F.3d at 20. That is what the Traverses allege here
– that the Defendants are engaged in on ongoing conduct to squeeze funds out of Tech Park X, a
purportedly profitable venture, indefinitely. The Traverses thus adequately allege “a specific
threat of repetition extending indefinitely into the future” sufficient to state a claim under the openended theory. Giuliano, 399 F.3d at 387.
The Gutierrez Defendants also contend that the amended complaint does not adequately
allege the RICO predicate of wire fraud because it does not allege that there was interstate activity.
D. 19 at 6. The pleading, however, alleges that several of the fraudulent communications at issue
took place via email. D. 15 ¶¶ 98, 128. In other contexts, the First Circuit has found that
transmission over the internet constitutes interstate activity. See United States v. Lewis, 554 F.3d
208, 215 (1st Cir. 2009); see also Dewey v. Lauer, No. CIV.A08CV01734WYDKLM, 2009 WL

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3234276, at *4 (D. Colo. Sept. 30, 2009) (finding use of email is sufficient to meet the interstate
activity element of wire fraud). For all of these reasons, the Gutierrez Defendants’ motion to
dismiss Count IX and Count X is DENIED.
B.

Count II: Breach of Fiduciary Duty, Against TGC, Arturo and Arthur

The Gutierrez Defendants move to dismiss Count II with respect to Arturo and Arthur (but
not with respect to TGC). D. 19 at 12-13. To state a claim for breach of fiduciary duty, the plaintiff
must allege “(1) the existence of a fiduciary duty; (2) breach of that duty; (3) damages; and (4) a
causal connection between breach of the duty and the damages.” Baker v. Wilmer Cutler Pickering
Hale & Dorr LLP, 91 Mass. App. Ct. 835, 842 (2017). The Gutierrez Defendants contend that
neither Arthur nor Arturo owed a fiduciary duty to the Traverses or Tech Park X. D. 19 at 13. The
Traverses respond that Arthur and Arturo, as officers of TGC, are liable for Tech Park X’s breach
of fiduciary duty. D. 22 at 17 (citing Ray-Tek Services, Inc. v. Parker, 64 Mass. App. Ct. 165,
177-78 (2005) (holding that an officer of a corporation who was personally involved in the breach
of fiduciary duty may be held personally liable for that breach)). The Gutierrez Defendants
respond that the amended complaint does not adequately allege that either Arthur or Arturo
“directly participated in the management of Tech Park X” because the LP Agreement only
authorizes TGC to manage Tech Park X. D. 19 at 14-15. The amended complaint, however,
alleges that Arthur is the President of TGC, that Arthur controlled TGC throughout the series of
allegedly unlawful transactions at issue, that Arthur as President of TGC was the key decision
maker at Tech Park X, that Arthur was involved in the repayment of the unlawful $2.3 million
promissory note, that Arthur is involved in the management of BOP V, one of the affiliated firms
that received transfers from TGC, and that Arthur directed others to provide false financial
statements to the Traverses. D. 15 ¶¶ 10, 36, 47, 54, 68, 97, 98. The complaint also alleges that
Arturo is the chairman of TGC and Arturo received the unlawful $2.3 million promissory note and
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was thus directly involved in that transaction. D. 15 ¶ 9, 47. The complaint thus alleges specific
actions that Arthur and Arturo took that made them personally involved in TGC’s breach of
fiduciary duty. The Gutierrez Defendants’ motion to dismiss Count II is DENIED.
C.

Count III: Aiding and Abetting Breach of Fiduciary Duty, Against TGC,
Arturo and Arthur

To state a claim for aiding and abetting a tort, the plaintiff must allege “(1) that [a party]
committed the relevant tort; (2) that [the defendant] knew that [the first party] was committing the
tort; and (3) that [the defendant] actively participated in or substantially assisted in his commission
of the tort.” Go-Best Assets Ltd. v. Citizens Bank of Massachusetts, 463 Mass. 50, 64 (2012).
The Gutierrez Defendants argue that the amended complaint does not state a claim for aiding and
abetting the breach of fiduciary duty, because they contend that the amended complaint does not
allege that Arthur, Arturo, or TGC were aware of the breach of fiduciary duty or took specific acts
to further that tort. D. 19 at 13. As explained above, however, it alleges the ways in which both
Arthur and Arturo took specific acts to further the tort. The amended complaint also identifies
numerous particular transactions that TGC took to further the breach of fiduciary duty at issue,
including overpaying itself for management fees. D. 15 ¶ 29. The Gutierrez Defendants’ motion
to dismiss Count III is DENIED.
D.

Count IV: Fraud and Misappropriation, Against TGC, GCCI and Arthur

To state a claim for fraud, a plaintiff must allege “that the defendant has knowingly made
a false statement of material fact, intending that the plaintiff rely thereon, and upon which the
plaintiff did rely.” Chan v. Chen, 70 Mass. App. Ct. 79, 82 (2007). Under Rule 9(b), a plaintiff
alleging fraud must “specify the time, place, and content of an alleged false representation in his
complaint.” Tapogna v. Egan, 141 F.R.D. 370, 372 (D. Mass. 1992). The Gutierrez Defendants
contend that the amended complaint does not allege that the Traverses detrimentally relied on any
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false statements, because it does not identify the conduct that the Traverses would have taken but
for the false statements. D. 19 at 11-12. The Traverses respond that they need not allege reliance.
D, 22 at 13. In support of this contention, they cite first to Sebago, Inc. v. Beazer E., Inc., 18 F.
Supp. 2d 70, 82 (D. Mass. 1998). In Sebago, the court held that there is no requirement of “actual,
detrimental reliance” in RICO mail fraud cases. Id. at 81. Sebago, however, does not address the
elements of a common-law fraud claim under Massachusetts law. Thus, while the complaint may
adequately allege a claim for wire fraud as a RICO predicate notwithstanding its failure to allege
detrimental reliance, the complaint does not state a claim for fraud under Massachusetts law. See
Van De Velde v. Coopers & Lybrand, 899 F. Supp. 731, 738 (D. Mass. 1995) (noting that a “claim
for fraud and deceit in Massachusetts should ordinarily be dismissed unless it pleads actual
reliance”). The other cases cited by the Traverses, Demoulas v. Demoulas, 428 Mass. 555, 557
(1998) and Com. v. O'Brien, 305 Mass. 393, 395 (1940), do not address the reliance requirement.
The Gutierrez Defendants’ motion to dismiss Count IV is ALLOWED.
E.

Count V: Aiding and Abetting Fraud, Against Arturo, Arthur and GCCI

Because the Traverses have failed to state a claim for fraud, they similarly cannot state a
claim for aiding and abetting fraud. See Go-Best Assets, 463 Mass. at 64 (explaining that stating
a claim for aiding and abetting the commission of a tort requires stating a claim that some entity
committed the underlying tort).

The Gutierrez Defendants’ motion to dismiss Count V is

ALLOWED.
VI.

Conclusion
For the foregoing reasons, the Court ALLOWS Gutierrez Defendants’ motion to dismiss,

D. 18, with respect to Count IV and Count V, the fraud claims, and DENIES it with respect to

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Count II, Count III, Count IX, and Count X. Count I, Count VI, Count VII and Count VIII also
remain as they were unchallenged in this motion to dismiss.
So Ordered.
/s/ Denise J. Casper
United States District Judge

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