FRAIOLI v. LEMCKE

328 F.Supp.2d 250 (2004) | Cited 8 times | D. Rhode Island | August 4, 2004

DECISION AND ORDER

This matter arises out of a private scheme devised andimplemented by Defendant, Alfred M. Lemcke, III, ("Lemcke")whereby Lemcke defrauded Plaintiffs, Frank Fraioli, Jr., D.O. andLouise Frailoi, ("Plaintiffs") out of approximately$1,200,000.00. At various times between 1993 and 2001, Lemckeprovided Plaintiffs with insurance and investment advice while hewas affiliated with Defendants, John Hancock Life InsuranceCompany, ("John Hancock") Signator Investors, Inc., ("Signator")Boston Partners Insurance, ("Boston Partners")1 the MonyGroup, Inc. and Mony Securities Corporation, ("the MonyDefendants") and MML Investors Services, Inc., ("MML")(hereinafter, referred to collectively as "the institutionalDefendants"). In early 1996, Lemcke introduced Plaintiffs to theIndividual Investors Portfolio Design Company, ("I²") afabricated investment company of Lemcke's own creation which,unknown to Plaintiffs, Lemcke would use to divert Plaintiffs'money to his personal use.

Plaintiffs filed a seven count Verified Amended Complaintagainst Lemcke and the institutional Defendants. The factualbasis for each count asserted against the institutionalDefendants is essentially the same. Plaintiffs allege that theinstitutional Defendants' failure to investigate Lemcke'sbackground and adequately supervise his work allowed Lemcke todefraud Plaintiffs and embezzle their funds. Count I presents aclaim for negligent supervision, i.e., that the institutionalDefendants each failed to properly investigate Lemcke'sbackground and supervise his work. In Count II, Plaintiffs allegethat each Defendant owed and breached a fiduciary duty whileLemcke was providing Plaintiffs with insurance and investmentservices in his capacity as an agent, representative, and/orassociated person of each Defendant. Count III presents a claimfor fraud and misrepresentation against each Defendant.Plaintiffs allege that by allowing Lemcke to act as an agent,registered representative, and/or associated person, theinstitutional Defendants directly or indirectly misrepresentedLemcke's qualifications to serve as Plaintiffs' insurance andinvestment advisor and allowed Lemcke to defraud Plaintiffs andembezzle their money. Count IV alleges respondeat superiorliability: that the institutional Defendants were Lemcke'ssupervisors, masters, and/or employers at various times relevantto this litigation and failed to undertake proper supervisorymeasures to ensure that Lemcke was not defrauding Plaintiffs ormisrepresenting the services he was providing. Count V presents aclaim for violations of the Securities Exchange Act, 15 U.S.C.A.§ 78T(a)(1934), ("Securities Act").2 Plaintiffs allegethat each institutional Defendant directly or indirectlycontrolled Lemcke and induced him, through improper supervision,to illegally convert Plaintiffs' assets in violation of theSecurities Act and the Rules and Regulations of the NationalAssociation of Securities Dealers ("NASD"). Count VI alleges thateach institutional Defendant violated the Investment AdvisorsAct, 15 U.S.C.A. § 80b-6 (1940), by not properly investigatingLemcke's background and supervising his work and by allowingLemcke to employ a scheme to defraud Plaintiffs using variousinstrumentalities of interstate commerce. Finally, Count VIIpresents a claim for violations of the Rhode Island UniformSecurities Act, R.I. Gen. Laws § 7-11-501 (1990).3Plaintiffs seek remuneration of all funds embezzled due toDefendants' actions, including tax liabilities and penalties,interest, costs, attorneys' fees, and other fees assessed by thisCourt. Plaintiffs allege jurisdiction under 28 U.S.C. § 1331 andpursuant to diversity of citizenship.

This matter is before the Court on three separate motions forsummary judgment on all counts presented by the Mony Defendants,MML, and Boston Partners. There is also a motion by Plaintiffs tofile a Second Amended Verified Complaint, which adds countsalleging apparent authority against the institutional Defendants(Count VII), joint and several liability against theinstitutional Defendants (Count VIII), conversion against Lemcke(Count IX), and successor liability against Boston Partners(Count X).

For the reasons that follow, this Court is persuaded by thearguments presented by the Mony Defendants, MML, and BostonPartners and grants summary judgment to those entities on all ofPlaintiffs' claims. Plaintiffs' Motion to File a Second AmendedVerified Complaint is granted in part and denied in part. Themotion to amend to add causes of action against the MonyDefendants, MML, and Boston Partners is denied because Plaintiffsfail to state any claim upon which relief could be granted as tothose Defendants. This Court grants Plaintiffs' motion to amendto add their proposed Count VII for apparent authority againstJohn Hancock and Signator and Count IX for conversion againstLemcke. Plaintiffs' motion to add their proposed Count VIII forjoint and several liability against each institutional Defendantand Count X for successor liability against Boston Partners isdenied.

I. Background and Procedural History

In considering a motion for summary judgment, the court mustview the evidence in the light most favorable to the nonmovingparty. See Springfield Terminal Ry. Co. v. Canadian Pac.Ltd., 133 F.3d 103, 106 (1st Cir. 1997). Viewing the evidence inthat manner, the facts in this case are as follows: This case arises out of a long-standing friendship between Plaintiffs and Lemcke. Plaintiffs, Dr. and Mrs. Fraioli, are residents of Smithfield, Rhode Island Defendant, Alfred M. Lemcke, III, was a resident of Hingham, Massachusetts at all times relevant to this litigation. Lemcke attended the Berklee College of Music where he met and befriended Louise Fraioli's brother, Michael Verville ("Verville").

Dr. and Mrs. Fraioli married on September 3, 1988. Shortlythereafter, Dr. Fraioli opened an osteopathic medical practice inSmithfield, Rhode Island Dr. Fraioli met Lemcke in 1989 or 1990at a wedding in Portland, Maine. At some point in 1993, Vervillecontacted his sister and explained that Lemcke had become aninsurance agent and wanted to speak with Dr. Fraioli about hisinsurance needs.

After several meetings, the Fraiolis decided to purchaseinsurance products from Lemcke and to deal with him exclusivelyfor all of their insurance needs. Dr. Fraioli and Lemcke'sbusiness relationship became more personal as Dr. Fraioli beganto consider Lemcke a personal and financial confidant and later,one of his best friends. This close friendship made Dr. Fraiolifeel comfortable going to Lemcke for investment and financialadvice and services.

Lemcke was employed by the Mony Defendants when he firstprovided the Fraiolis with financial services in 1993. The MonyDefendants consist of a corporation, the Mony Group, Inc., and asecurities broker-dealer, Mony Securities, who had places ofbusiness in Waltham, Massachusetts during all time periodsrelevant to this litigation. Before hiring Lemcke, the MonyDefendants verified the information that Lemcke provided on hisapplication and conducted standard background checks. Betweenlate 1992 and March of 1993, the Mony Defendants trained Lemckeand gave him study materials for the requisite life and healthinsurance exams. Lemcke did not have any experience in insurancesales or finance before he came to work for the Mony Defendants.

On March 8, 1993, after passing his life and health insuranceexams, Lemcke entered into a Career Contract with the MonyDefendants. That contract designated Lemcke as an independentcontractor and authorized him to solicit applications forinsurance policies that could be issued by the Mony Defendants.On November 3, 1993, Lemcke entered into a RegisteredRepresentative Contract with the Mony Defendants, whichdesignated him as an independent contractor and authorized him tosell Mony products including mutual funds, variable annuities,unit investment trusts, limited partnership interests, taxshelter programs, variable life insurance, and other approvedproducts that were sold or distributed by the Mony Defendants.

During his tenure with the Mony Defendants, Lemcke attendedroutine meetings with his supervisors, Michael Meehan ("Meehan")and Peter MacAvin ("MacAvin"), to discuss his caseload andgeneral level of production. Jeremiah Healey, Jr. ("Healey"), whowas a general agent of the Mony Defendants, would then contactMeehan and inquire as to Lemcke's productivity and whether or notthere were any problems with his general work performance. Lemckealso attended yearly compliance meetings that were required tomaintain his license. The Mony Defendants' policies requiredLemcke's supervisors to review his client files on a weekly ormonthly basis, depending on the type of file. However, there doesnot appear to be any documentation of a review or audit ofLemcke's work performance for 1993, 1994, or 1995.

Throughout the early 1990s and while employed by the MonyDefendants, Lemcke sold Plaintiffs what were called EnterpriseMutual Fund Accounts that Plaintiffs used to save money for theirchildren's college educations. Lemcke also gave Plaintiffs acomplete financial analysis and sold them annuities and life anddisability insurance policies that were offered by the MonyDefendants. In the summer of 1995, Lemcke told Dr. Fraioli thathe was leaving the Mony Defendants and going to work for JohnHancock.

Defendants, John Hancock and its subsidiary, Signator, arecorporations with places of business in Boston, Massachusetts.They employed Lemcke between August of 1995 and early 2000. JohnHancock employed Lemcke to sell its life insurance products andSignator, a securities broker-dealer, employed Lemcke as aregistered representative to sell its equity products. During hisemployment with these entities, Lemcke sold Plaintiffs variousJohn Hancock insurance products.

John Hancock's agencies are internally identified usingunofficial names and correspondence numbers such as BostonGeneral Agency ("BGA") or Boston General Agency 103. During 1995,and before Lemcke began working for John Hancock, Healey was thegeneral agent for the John Hancock agency known internally asBGA. At some point during 1997, Healey changed the name of BGA toHancock Partners. Lemcke resigned from John Hancock in Decemberof 1999 and since then has had no professional relationship withthat entity. Healey was the only general agent that Lemcke wasaffiliated with during his employment with John Hancock.

In early 1996, while employed by John Hancock, Lemcke toldPlaintiffs that he was affiliated with a Chicago based companyknown as the Individual Investors Portfolio Design Company("I²"). Lemcke told Dr. Fraioli that I² was an investment programor corporate trust that involved a small number of investors.Lemcke wanted to use I² to invest Dr. Fraioli's money in stocksand bonds and allow that money to grow tax deferred. Although Dr.Fraioli was unsure as to what exactly I² was, he had full,complete, one-hundred percent trust in Lemcke and did not feel asthough Lemcke would do him any wrong.

Dr. Fraioli told his wife about Lemcke's I² investment programand the two began investing money, with Lemcke's assistance, invarious I² accounts. Lemcke obtained and had Dr. Fraioli signsurrender forms for the Enterprise accounts that Dr. Fraioli hadwith the Mony Defendants. Later, Dr. Fraioli received checksrepresenting the proceeds from these accounts. Dr. Fraiolideposited those checks into his personal account and then wrotechecks to I² This process continued virtually uninterrupted fromits inception in 1996 until the fall of 2001.

Dr. Fraioli received all of the money from his Enterpriseaccounts and continuously used that money to write checks to I²Dr. Fraioli also cashed in several Mony and John Hancock lifeinsurance policies and mutual funds and invested that money inI²

Dr. Fraioli routinely handed Lemcke checks in amounts rangingfrom $1,000.00 to $50,000.00 made payable to Lemcke, "Lemcke andAssociates," or whomever Lemcke requested. Lemcke often came toDr. Fraioli's office when Dr. Fraioli was very busy, saw him forabout thirty seconds, and asked Dr. Fraioli to endorse a check.Dr. Fraioli never thought twice about following Lemcke'sdirections, even though, on one occasion, Lemcke instructed himto endorse a check that was made out to Mrs. Fraioli. Dr. Fraiolithought that his money was going into various financial accounts,including a retirement account for Mrs. Fraioli.

Dr. Fraioli had never purchased stock prior to 1996 when hebegan investing in I², but the fact that Lemcke worked for JohnHancock made Dr. Fraioli feel comfortable and secure. While Dr.Fraioli did not know the exact relationship between I² and JohnHancock, he knew that Lemcke was a registered representative ofJohn Hancock and thought that I² was a product endorsed by JohnHancock. On one occasion, Dr. Fraioli received correspondenceregarding I², which came in a John Hancock envelope that wasmarked with a Boston address. Lemcke never told Dr. Fraioli thatI² was a separate entity from John Hancock.

All of Dr. Fraioli's contact with I² was through Lemcke. Lemcketold Dr. Fraioli that he was a licensed stockbroker and nevergave Dr. Fraioli a reason to believe any different. Lemckepersonally delivered Dr. Fraioli a statement regarding his I²accounts about every six months. These statements did not containan I² phone number or address for contact purposes, an accountnumber, or any indication that Lemcke was involved with or wasthe broker on the account. Dr. Fraioli repeatedly asked Lemcke toverify that his investments were tax deferred and Lemcke alwaysassured Dr. Fraioli that he was not incurring any tax liabilitieson the I² accounts and could invest an unlimited amount of moneyin I² Dr. Fraioli never tried to telephone any I² office, calldirectory assistance, fill out an application for his I²investments, or see a prospectus for or any literature regardingI² Yet, Dr. Fraioli invested roughly $1 million in I², drawingthis money from his Enterprise and separate business accounts.When Mrs. Fraioli noticed that her husband was taking money fromtheir children's college funds, Dr. Fraioli assured her thatLemcke had given him a good reason for doing so.

Lemcke constantly assured Dr. Fraioli that his I² accounts weredoing well. When the stock market declined in 1999 and 2000,Lemcke told Dr. Fraioli that although he was not making any moneyon his investments, things were staying the same. Dr. Fraiolicontinued investing in I², trusting Lemcke to do what was rightand having no reason to think that what Lemcke was telling himwas untrue.

In the beginning of 1999, Lemcke began to assumeresponsibilities for Dr. Fraioli that went beyond making hisinvestments. Lemcke set up an interest-bearing tax account inwhich Dr. Fraioli would deposit money that Lemcke said he woulduse to pay Dr. Fraioli's quarterly income taxes and to make therequired contributions to Dr. Fraioli's pension fund. Dr. Fraiolinever saw any paperwork for this account but did receive xeroxedcopies of four checks, which Lemcke had supposedly sent to theInternal Revenue Service ("IRS") for Dr. Fraioli's taxes. Onoccasion, Lemcke asked for and received Dr. Fraioli'sauthorization to withdraw cash from Dr. Fraioli's pension fund.Lemcke said he was placing that money in a vehicle that wouldyield a higher return.

At some point prior to September of 2001, without Dr. Fraioli'sauthorization, Lemcke tried to represent himself as Dr. Fraioliand withdraw cash from Dr. Fraioli's pension plan. Dr. Fraioliconfronted Lemcke about this incident and expressed hisdissatisfaction with Lemcke's conduct. Lemcke assured Dr. Fraiolithat this conduct would not be repeated and Dr. Fraioli indicatedthat despite this incident, he still trusted Lemcke.

Dr. Fraioli and his wife divorced in May of 1999. As part ofthe divorce settlement, their I² account was split into two, oneaccount for each spouse, and each account having approximately$210,000.00. Dr. Fraioli also agreed to contribute $2,000.00 amonth to Mrs. Fraioli's I² account. Lemcke advised the Fraiolisto make additional investments through him, which includedsurrendering insurance policies and redeeming savings bonds andaccounts that the Fraiolis had established for their minorchildren. Mrs. Fraioli was unaware that her husband had takenloans against these life insurance policies and had surrenderedsome of the policies on her and her children in order to investmore money in I²

In July of 2000, Lemcke informed Dr. Fraioli that he wasleaving John Hancock and opening his own office called "Lemckeand Associates" in Hingham, Massachusetts. In reality, Lemcke hadcommenced employment with MML on or about June 6, 2000. MML is asecurities broker-dealer with a place of business in Springfield,Massachusetts. Similar to the Mony Defendants, MML contracts withindividuals who are registered with the National Association ofSecurities Dealers ("NASD") and those individuals serve asindependent contractors who are licensed to sell MML investmentproducts.

Dr. and Mrs. Fraioli have never had any affiliation with MML.They did not open accounts with MML, purchase any MML products,or visit any of MML's offices. Dr. Fraioli knew that I² was notan MML product and never wrote a check to MML. Mrs. Fraioli didnot know that Lemcke was a registered representative of or hadany affiliation with MML. Lemcke kept the Fraiolis' file at hisHingham office and listed it as his personal business rather thanas an MML file.

The Fraiolis continued investing their money in I² at Lemcke'sdirection until 2001, when they began to realize that their trustin Lemcke had been entirely misplaced. In March of 2001, Mrs.Fraioli asked Lemcke to roll over certain IRAs issued by the MonyDefendants into her name as required by her divorce settlementwith Dr. Fraioli. However, Lemcke never complied with thisrequest because, as Dr. Fraioli later told his ex-wife, he hadcashed out those IRAs and invested that money in I² In earlySeptember of 2001, Mrs. Fraioli realized that Lemcke was avoidingher and not following through on his promises to deliverstatements regarding the I² accounts. Unhappy with Lemcke andtired of his delays, Mrs. Fraioli told Lemcke and her ex-husbandthat she wanted to transfer her account to Paine Webber. Lemckesaid that this was impossible because her money was in atax-sheltered investment and she could not withdraw it withoutincurring a substantial penalty. When Mrs. Fraioli pressed Lemckefor a full accounting, he told her that this too was impossiblebecause her records were lost in the destruction of the WorldTrade Center on September 11, 2001. Mrs. Fraioli did not believeLemcke because every time he spoke of I², he had said that it wasbased in Chicago. Lemcke was unable to transfer the requestedmonies to Mrs. Fraioli and was forced to admit that all of hermoney was gone. Lemcke later told Dr. Fraioli that all of themoney that the Fraiolis had invested in the I² accounts was gone.

The Securities and Exchange Commission ("SEC") filed acomplaint against Lemcke, froze his assets, and conducted aninvestigation that revealed that: 1)"Lemcke & Associates," theentity under which Lemcke was doing business, was neverregistered with the SEC and may not have ever actually existed;2)I² never existed; 3)Lemcke lacked some of the requisitelicenses to conduct the business he was doing; and 4)all of themoney that Dr. and Mrs. Fraioli had given Lemcke to invest in I²was gone. Lemcke had never transferred about $30,000.00 into Dr.Fraioli's pension fund or made Dr. Fraioli's quarterly income taxpayments as promised. Instead, Lemcke embezzled that money, as hehad done with all of the money that the Fraiolis thought theywere investing in I² Lemcke fabricated the checks that he gaveDr. Fraioli to show his income tax payments and never sent thosechecks to the IRS. As a result, Dr. Fraioli is still liable forthose taxes and the accrued penalties. Between 1993 and 2001,Lemcke defrauded Plaintiffs of approximately $1,200,000.00 andused that money to build and support a lavish lifestyle.

On June 5, 2002, Plaintiffs filed a Complaint with this Court,which each institutional Defendant subsequently answered. OnSeptember 3, 2002, the Clerk entered a default against Lemcke.Plaintiffs later moved for a final default judgment againstLemcke and the institutional Defendants objected. On May 23,2003, Plaintiffs made a motion to amend the Complaint and addDefendant, Boston Partners, which this writer granted on June 11,2003. Plaintiffs filed a Verified Amended Complaint the next day,which each Defendant, except Lemcke, later answered.

Plaintiffs then moved to file a Second Amended VerifiedComplaint and, in early September of 2003, the Mony Defendantsand MML filed separate motions for summary judgment. Defendants,John Hancock and Signator, objected to these motions but did notfile their own motion for summary judgment. On October 22, 2003,this Court held a hearing on the Mony Defendants' and MML'smotions for summary judgment and Plaintiffs' Motion to File aSecond Amended Verified Complaint and took those matters underadvisement. On February 3, 2004, Boston Partners filed a motionfor summary judgment, which was argued before this writer andtaken under advisement on April 10, 2004. The motions of the MonyDefendants, MML, and Boston Partners for summary judgment andPlaintiffs' Motion to File a Second Amended Verified Complainthave been fully briefed and argued and are now in order fordecision.

II. Standards for Decision

Motions for Summary Judgment

The Mony Defendants, MML, and Boston Partners have moved forsummary judgment on all counts asserted against them underRule 56(c) of the Federal Rules of Civil Procedure, which sets forththe standard for ruling on a summary judgment motion: The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.Fed.R.Civ.P. 56(c). The critical inquiry is whether a genuineissue of material fact exists. Menebhi v. Mattos, 183 F. Supp.2d 490,498 (D.R.I. 2002). "Material facts are those `that mightaffect the outcome of the suit under the governing law.'"Morrissey v. Boston Five Cents Sav. Bank, 54 F.3d 27, 31 (1stCir. 1995) (quoting Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 248 (1986)). There is a genuine dispute over a material factwhen the evidence is such that a reasonable jury could find forthe nonmoving party. Id.

In determining whether summary judgment is appropriate, theCourt must view the facts in the record and all inferencestherefrom in the light most favorable to the nonmoving party.See Springfield Terminal Ry. Co. v. Canadian Pac. Ltd.,133 F.3d 103, 106 (1st Cir. 1997). Where the facts support plausibleyet conflicting inferences on a central issue in the case, theCourt may not choose between such inferences on a motion forsummary judgment. Menebhi, 183 F. Supp.2d at 498 (citingCoyne v. Taber Partners I, 53 F.3d 454, 460 (1st Cir. 1995)).Summary judgment "is not appropriate merely because the factsoffered by the moving party seem most plausible, or because theopponent is unlikely to prevail at trial." Gannon v.Narragansett Elec. Co., 777 F. Supp. 167, 169 (D.R.I. 1991). Atthe summary judgment stage, there is "no room for credibilitydeterminations, no room for the measured weighing of conflictingevidence such as the trial process entails, no room for the judgeto superimpose his own ideas of probability and likelihood."Greenburg v. Puerto Rico Maritime Shipping Auth., 835 F.2d 932,936 (1st Cir. 1987). Summary judgement is only available whenthere is no dispute as to any material fact and only questions oflaw remain. See Blackie v. Maine, 75 F.3d 716, 721 (1st Cir.1996). The moving party bears the burden of showing that noevidence exists to support the nonmoving party's position. SeeCelotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); RochesterFord Sales, Inc. v. Ford Motor Co., 287 F.3d 32, 38 (1st Cir.2002).

Motion to Amend the Complaint

Rule 15(a) of the Federal Rules of Civil Procedure permits alitigant to file an amended pleading once as a matter of rightbefore a responsive pleading is filed and thereafter, with theparties' consent or leave of the court. Harvey v. Snow,281 F. Supp.2d 376, 379 (D.R.I. 2003). While leave to amend is to befreely granted as justice requires, the Rule does not requirethat a court carry a rubber stamp. Almedia v. UnitedSteelworkers of Am. Int'l Union, 50 F. Supp.2d 115, 120 (D.R.I.1999) (citing Zenith Radio Corp. v. Hazeltine Research, Inc.,401 U.S. 321, 330 (1971)). See also Harvey, 281 F. Supp.2dat 379; Fed.R.Civ.P. 15(a) (West 2004). A court may deny amotion to amend when the proposed amendments are futile, causethe opposing party unfair prejudice or undue delay, or areproposed in bad faith. Almedia, 50 F. Supp.2d at 120. Seealso Hatch v. Dep't. for Children, Youth & Their Families,274 F.3d 12, 19 (1st Cir. 2001); Maldonado v. Dominguez,137 F.3d 1, 11 (1st Cir. 1998); Cummins v. EG & G Sealol, Inc.,690 F. Supp. 134, 135 (D.R.I. 1988) (citing Forman v. Davis,371 U.S. 178, 182 (1962)).

When a plaintiff files for leave to amend after the close ofdiscovery and while a motion for summary judgment is pending, theproposed amendments must be both theoretically viable and solidlygrounded in the record. Harvey, 281 F. Supp.2d at 381(quotingHatch, 274 F.3d at 19). In this situation, a proposed amendmentis futile unless the allegations therein are supported bysubstantial evidence. Id. In order to determine whether or notan amendment would be futile, the district court applies the samelegal standard that it applies to a motion brought underRule 12(b)(6) of the Federal Rules of Civil Procedure. Almedia,50 F. Supp.2d at 120. See also Harvey, 281 F. Supp.2d at381(citing Glassman v. Computervision Corp., 90 F.3d 617, 623(1st Cir. 1996)). Thus, an amendment is futile when thecomplaint, as amended, would fail to state a claim upon whichrelief could be granted. Id. (citing Glassman, 90 F.3d at623).

III. Discussion

The Amended Complaint alleges that this Court has federalquestion jurisdiction, under 28 U.S.C. § 1331, over Count V(Securities Exchange Act of 1934) and Count VI (InvestmentAdvisors Act of 1940). This Court has jurisdiction over theremaining state law claims based on the parties' diversity ofcitizenship. 28 U.S.C. § 1332(a)(1). Federal courts sitting indiversity must apply the substantive law of the forum state.Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938). Therefore, thisCourt will resolve the present motions as they pertain to thestate common law claims by applying Rhode Island law and, whereappropriate, persuasive adjudications by courts of sister statesand considerations of public policy as identified in statedecisional law. Norton v. Hoyt, 28 F. Supp.2d 214, 219 (D.R.I.Aug. 13, 2003).

The Mony Defendants, MML, and Boston Partners have moved forsummary judgment and argued that there are no genuine issues ofmaterial fact and judgment should be entered in their favor onall counts asserted against them in the Amended Complaint.Defendants, John Hancock and Signator did not file a motion forsummary judgment but objected to the motions of the MonyDefendants and MML.4 Plaintiffs oppose these motions andargue that issues of fact exist regarding each Defendant and eachcount of the Amended Complaint. In addition, Plaintiffs move tofile a Second Amended Verified Complaint adding counts forapparent authority and joint and several liability against theinstitutional Defendants, successor liability against BostonPartners, and conversion against Lemcke. This Court will addresseach motion in turn.

The Mony Defendants' and MML's Motions for Summary Judgment

The Mony Defendants move for summary judgment on all countsasserted against them in Plaintiffs' Amended Complaint. It isundisputed that there is no evidence indicating that Lemckeembezzled funds from Plaintiffs while he was an agent orrepresentative of the Mony Defendants. See Mem. of Law inSupp. of Defs.' The Mony Group & Mony Secs. Corp's. Mot. forSumm. J., (hereinafter, Mony Mem.), at 2; Pls.' Opp'n. toDefs.' The Mony Group, Inc.'s & Mony Secs. Corp.'s Mot. for Summ.J., (hereinafter, Pls.' Opp'n. to Mony Defs.), at 6. However,Plaintiffs argue that there are material issues of fact regardingthe continuation of Lemcke's apparent authority and the MonyDefendants' alleged negligent hiring and supervision of Lemcke,which they maintain allowed Lemcke to lay the foundation for hisfraudulent scheme. Pls.' Opp'n. to Mony Defs., at 6-8.

MML also moves for summary judgment on all counts. MML arguesthat the undisputed evidence reveals that Plaintiffs were not MMLcustomers and that their losses were the result of Lemcke'scriminal activities that were beyond the scope of MML's business.Mem. in Supp. of MML Investors Servs. Inc.'s Mot. for Summ.J., (hereinafter, MML Mem.) at 1. Plaintiffs assert that thefact that Lemcke embezzled over $150,000.00 while he was an MMLrepresentative raises issues of material fact as to whether ornot MML was negligent in hiring and/or supervising Lemcke andindirectly induced him to violate the 1934 Securities Act. Pls.'Opp'n. to Mot. for Summ. J. of Def. MML Investors, Inc.,(hereinafter, Pls.' Opp'n. to MML) at 6-7. Viewing the evidencein the light most favorable to Plaintiffs, this Court willconsider whether or not there are triable issues of factregarding each count alleged against the Mony Defendants and MML.

Count I: Negligent Hiring and Negligent Supervision

A court's analysis of any negligence claim begins with theidentification of a legal duty owed by the defendant to theplaintiff to avoid acting in a manner that might harm theplaintiff in a tangible way. Liu v. Striuli, 36 F. Supp.2d 452,466 (D.R.I. 1999); Rodrigues v. Miriam Hosp.,623 A.2d 456, 460 (R.I. 1993) (quoting Welsh Mfg. Div. of Textron Inc. v.Pinkerton's Inc., 474 A.2d 436, 440 (R.I. 1984)). See also,Ryan v. State Dep't. of Transp., 420 A.2d 841, 843 (R.I. 1980)(noting that the law of negligence does not impose liability onan individual unless there is a breach of a duty owed to theplaintiff); Leonard v. Bartle, 135 A. 853, 854 (R.I. 1927)(noting that the test for negligence is the measure of thedefendant's duty in the circumstances of the particular case).This duty goes to the very existence of liability such that onecannot logically be held liable for the breach of a nonexistentduty. Swajian v. Gen. Motors Corp., 559 A.2d 1041, 1046 (R.I.1989). This duty arises when the risk of injury to another isreasonably foreseeable, Liu, 36 F. Supp.2d at 466 (citingBuilders Specialty Co. v. Goulet, 639 A.2d 59, 60 (R.I. 1994));Palsgraf v. Long Island R.R., 162 N.E. 99, 100 (N.Y. 1928)(Cardozo, C.J.), or from a special relationship between aplaintiff and defendant. Welsh Mfg., 474 A.2d at 440(dutycreated by contract). See also, Leonard, 135 A. at 854(citingMoulton & Remington v. Phillips & Sheldon, 10 R.I. 218, 219(1872) (duty of a carrier of goods for hire); Judge v.Narragansett Elec. Lighting Co., 42 A.507, 508 (R.I. 1899) (dutyof an employee to an employer); Boss v. Prov. & W.R. Co.,1 A. 9, 11 (R.I. 1885) (duty of a common carrier to its passengers)).The existence and extent of a duty of care are questions of lawfor the court to decide. Rodrigues, 623 A.2d at 461 (citingPalmisciano v. Burrillville Racing Ass'n, 603 A.2d 317, 320(R.I. 1992)); Mignone v. Fieldcrest Mills, 556 A.2d 35, 37(R.I. 1989); Banks v. Bowen's Landing Corp., 522 A.2d 1222,1224 (R.I. 1987). Once this duty is established, a plaintiff mustshow that the defendant breached that duty and that such breachfactually and legally caused the plaintiff to suffer ademonstrable loss. Liu, 36 F. Supp.2d at 466(citingSplendorio v. Bilray Demolition Co., 682 A.2d 461,466 (R.I.1996)); W. Page Keeton, et al., Prosser & Keeton on The Law ofTorts, § 30, at 164-5 (5th ed. 1984).

An employer's liability for negligent hiring is based on afailure to exercise reasonable care, by selecting a person whothe employer knew or should have known was unfit or incompetentfor the work assigned, and thereby, exposing third parties to anunreasonable risk of harm. See Welsh Mfg., 474 A.2d at 440.Thus, an employer has a duty to protect those who may bereasonably expected to come into contact with his employees fromharms inflicted by the employer's workers. Liu, 36 F. Supp.2dat 467(citing Welsh Mfg, 474 A.2d at 440). This duty lasts forthe duration of the employee's tenure with the employer. Id.

The extent of an employer's duty to supervise is defined by thenature of the job to which the employee is assigned. See WelshMfg., 474 A.2d at 441. In Welsh Mfg., a young andinexperienced employee was given the task of guarding largequantities of gold for his employer's client. 474 A.2d at 438.When the gold was stolen on the employee's watch, the RhodeIsland Supreme Court held that the employer had breached a dutyto his client by failing to prepare and supervise the employeefor the task to which he was assigned. Id. at 443. See also,Liu, 36 F. Supp.2d at 467-68(discussing Welsh Mfg.). As in aclaim for negligent hiring, this duty to supervise lasts for theduration of the employee's tenure with the employer. Liu,36 F. Supp.2d at 467(citing Welsh Mfg., 474 A.2d at 441).

The Mony Defendants did not have a Duty to Protect Plaintiffsfrom Lemcke's Fraudulent Acts and Alternatively, did not Causethe Harm that Plaintiffs Suffered After Lemcke Ceased Working forthe Mony Defendants.

Plaintiffs contend that even if the first deposit into I² didnot occur until after Lemcke left the Mony Defendants, thoseDefendants' negligent hiring and supervision of Lemcke and thepolicies and funds he sold enabled Lemcke to lay the foundationfor his embezzlement scheme. Pls.' Opp'n. to Mony Defs., at 8.However, any duty by the Mony Defendants to exercise due care inhiring and/or supervising Lemcke lasted for the duration ofLemcke's employment with the Mony Defendants, that being 1992through 1995. It is undisputed that all of Lemcke's fraudulentactivities took place between 1996 and 2001, when Lemcke was nolonger employed by the Mony Defendants. See Mony Mem., at 2;Pls.' Opp'n. To Mony Defs., at 6. At that time, the MonyDefendants had no duty to protect Plaintiffs from Lemcke'sfraudulent acts. See Liu, 36 F. Supp.2d at 467 (citingWelsh Mfg., 474 A.2d at 441).

Plaintiffs argue that the Mony Defendants negligentlysupervised Lemcke by allowing him to sell Mony insurance policieswithout a license and by never reviewing Lemcke's customer files.Pls.' Opp'n. to Mony Defs., at 9. Assuming that the MonyDefendants had a duty to protect Plaintiffs from Lemcke, there isno evidence that any alleged act or omission by the MonyDefendants directly or proximately caused the harm thatPlaintiffs suffered due to Lemcke's fraudulent activities. Hadthe Mony Defendants reviewed Plaintiffs' file between 1993 and1995, they would not have detected the fraudulent scheme that wasthen nonexistent. Therefore, even assuming that the MonyDefendants had and breached a duty to reasonably prepare andsupervise Lemcke, Plaintiffs' negligence claims fail on the thirdelement of causation. Absent a duty owed by the Mony Defendantsto Plaintiffs while Lemcke was using I² to defraud them and/orevidence that the Mony Defendants' acts or omissions causedPlaintiffs harm, there are no issues of material fact regardingPlaintiffs' negligence claims and the Mony Defendants areentitled to summary judgment as a matter of law on Count I of theAmended Complaint.

MML did not owe Plaintiffs a Duty to Exercise Reasonable Carein Hiring or Supervising Lemcke and Alternatively, did notDirectly or Proximately Cause Plaintiffs' Injuries.

Plaintiffs argue that material issues of fact regarding MML'salleged negligence in hiring and supervising Lemcke precludesummary judgment with respect to Count I. Plaintiffs' negligenthiring claim is based on allegations that MML hired Lemcke eventhough Lemcke lied about his educational background and personalassets on his employment application and MML knew that Lemcke hadfiled for bankruptcy in the early 1990s. Pls.' Opp'n. to MML,at 7-8. Plaintiffs also allege that during the applicationprocess, MML did not detect that Lemcke had falsified his pastsales record and was terminated by John Hancock for a lack ofproduction. Id. Plaintiffs base their negligent supervisionclaim on MML's alleged failure to audit Lemcke's job performanceas required by MML's Compliance Manual. Id., at 8-9. MML arguesthat summary judgment is appropriate with respect to Count Ibecause Plaintiffs' allegations assume but do not establish thatMML owed Plaintiffs a legal duty with respect to Lemcke'sactions. Reply Mem. of MML Investor Servs. Inc. in Supp. of itsMot. for Summ. J., at 1-2.

The situation with respect to MML is analogous to thatpresented in Harrison v. Dean Witter Reynolds, Inc., whichinvolved a common law claim for negligent hiring after a DeanWitter vice president and his assistant created and used a schemeto defraud numerous investors. 974 F.2d 873, 875-6 (7th Cir.1992). The Seventh Circuit held that Dean Witter did not owe theplaintiff a legal duty because the plaintiff was never a customerof, purchased no securities from, and never had an account withDean Witter. Id. at 885. Therefore, even if Dean Witter wasnegligent in hiring and retaining its vice president and hisassistant, summary judgment was proper because no duty aroseunder the circumstances presented. Id.

In this case, Plaintiffs were not customers of, purchased nosecurities from, and never held an account at MML. See, LouiseFraioli Dep., at 285; Aff. of James Furlong, at para. 3. Dr.Fraioli did not believe that I² was an MML product and had nocontact with MML while he was involved in his personal andbusiness relationships with Lemcke. Frank Fraioli Dep., at 402& 406. Like the situation in Harrison, even if MML wasnegligent in hiring and/or supervising Lemcke, there is norelationship, contractual or otherwise, that would create theduty required to hold MML liable for negligence.

Plaintiffs argue that MML had a duty by statute and itsCompliance Manual to monitor, audit, supervise, and controlLemcke, his offices, and the files with which he worked. Pls.'Opp'n to MML, at 6. Plaintiffs cite Sections 15(b)(4)(E), 17(a),and Rule 10b-5 of the Securities Exchange Act, which requirebroker-dealers to reasonably supervise their agents and/orregistered representatives and two administrative decisions,which held a broker-dealer liable under these provisions. Seeid. at 9-10(citing Prudential Secs. Inc., Securities ExchangeAct Release No. 34-48149, available at, 2003 WL 21544428 (July10, 2003); and Consol. Inv. Servs. Inc., Securities ExchangeAct Release No. 34-36687, 61 S.E.C. Docket 19, available at,1996 WL 20829 (Jan. 25, 1996)). However, those cases aredistinguishable because in those matters, the courts imposedliability under the Securities laws rather than common lawnegligence. Id.

Even if the Securities Laws created a duty to supervise, RhodeIsland law requires that Plaintiffs prove that a violation ofthose provisions was the direct and proximate cause of theirinjuries, rather than a mere condition or circumstance whichcontributed to such injuries. See Clements v. Tashjoin,168 A.2d 472, 475 (R.I. 1961). Plaintiffs have not shown that MML'salleged failure to supervise Lemcke was a direct and proximatecause of their injuries. Rather, it was the actions of Lemcke andin some instances, Dr. Fraioli that caused Plaintiffs' injuries.Lemcke exploited his close relationship with Dr. Fraioli in orderto persuade Plaintiffs to continuously invest their money in hisfictitious entity. Dr. Fraioli knew that Lemcke had tried torepresent himself as Dr. Fraioli to withdraw money from Dr.Fraioli's pension plan. Frank Fraioli Dep., at 269. Yet, Dr.Fraioli still trusted Lemcke and continued signing his money overto Lemcke to invest in I² Id. at 274. Therefore, while MML'salleged failure to supervise Lemcke may have been a condition orcircumstance which led to his fraudulent scheme, there is noevidence that such failure was a direct or proximate cause ofPlaintiffs' injuries and is not enough to make any allegedviolations of the Securities Laws prima facie evidence ofnegligence.

Assuming that MML owed Plaintiffs a duty to supervise Lemckeand conduct the reviews and audits provided for in its ComplianceManual, there is no evidence that doing so would have uncoveredLemcke's covert scheme and prevented Plaintiffs' injuries. Lemckewent to great lengths to conceal his I² activities from MML bydelivering everything with respect to I² by hand, answeringPlaintiffs' questions in a timely manner, and by never lettinganything sit out on the printer that Lemcke shared with other MMLinsurance agents. Lemcke Dep., at 577. Lemcke never suggestedthat Dr. Fraioli take money from policies issued by MML andinvest it in I² Id., at 295. Rather, Lemcke went directly toDr. Fraioli and asked for checks, which Dr. Fraioli would writeas Lemcke directed. Id.

In sum, MML had no relationship with Plaintiffs that wouldcreate a duty on MML's part to exercise reasonable care in hiringor supervising Lemcke. Alternatively, Plaintiffs have notpresented any evidence to demonstrate that it was MML's breach ofduty, and not Lemcke's and Dr. Fraioli's actions, that were thedirect and proximate causes of Plaintiffs' injuries. Therefore,MML is entitled to summary judgment as a matter of law withrespect to the negligent hiring and supervision claims alleged inCount I.

Count II: Breach of Fiduciary Duty

In Count II, Plaintiffs allege that the Mony Defendants and MMLbreached a fiduciary duty by failing to properly investigateLemcke's background and supervise his work and by allowing him tocreate and perpetuate his fraudulent scheme. A fiduciary dutyarises when the facts show a special relationship of trust andconfidence that requires the fiduciary to act in the otherparty's best interests. VanWest v. Midland Nat. Life Ins. Co.,No. 98-76, 2000 WL 34019293, at * 3 (D.R.I. Mar. 27, 2000). WhileRhode Island does not have a per se rule that an insurer wouldnever owe a fiduciary duty to an insured, the existence of afiduciary relationship is limited to the unusual case where therelationship goes far beyond that found in an ordinary businesstransaction. Id. The mere fact that a plaintiff knows andtrusts his insurance salesman is not enough to create a fiduciaryrelationship between those individuals. Id.

The Mony Defendants Engaged in Ordinary Business Transactionswith Plaintiffs and thus, did not owe them a Fiduciary Duty.

The facts in this case are sufficient to establish arelationship of trust and confidence between Plaintiffs andLemcke. Dr. Fraioli described Lemcke as "one of his bestfriends," Frank Fraioli Dep., at 64, someone in whom he had"full, complete, one-hundred percent trust," id. at 65, a"confidant" whom Dr. Fraioli could talk with about everything,id. at 232, and one who was looking out for Dr. Fraioli's bestinterests. Id. at 436. While Plaintiffs also had a businessrelationship with Lemcke in that he was their insurance andinvestment advisor, that relationship arguably transcendedordinary business when Dr. Fraioli began trusting Lemcke to makehis quarterly income tax payments, see Frank Fraioli Dep., at114-17, payments to his pension fund, id. at 265, and to set upa retirement account for his wife when the couple divorced. Id.at 247.

However, the focus of this Court's inquiry is on therelationship between Plaintiffs and the Mony Defendants andPlaintiffs and MML. Plaintiffs engaged in ordinary businesstransactions when they purchased Mony insurance policies from aMony representative. These transactions alone are not enough tocreate a fiduciary relationship between Plaintiffs and the MonyDefendants. Plaintiffs have not produced any evidence that givesrise to a fiduciary relationship with the Mony Defendants, orpresents a question of fact on that issue. As such, the MonyDefendants' motion for summary judgment must be granted as toCount II.

MML did not do Business and had no Relationship withPlaintiffs that would give rise to a Fiduciary Duty.

MML is also entitled to summary judgment on Count II becausethere are no facts that point to a fiduciary relationship betweenPlaintiffs and MML. There was no business relationship betweenPlaintiffs and MML, let alone the special relationship of trustand confidence required to give MML a fiduciary duty to act inPlaintiffs' best interests. See VanWest, 2000 WL at *3;infra, at 28-29. Therefore, MML is also entitled to summaryjudgment as a matter of law with respect to Count II.

Count III: Fraud/Misrepresentation

A plaintiff must prove three elements to establish a primafacie case for common law fraud in Rhode Island: 1)the defendantmade a false representation; 2)the defendant intended to inducethe plaintiff to rely on that representation; and 3)the plaintiffjustifiably relied on the representation to his or her detriment.Women's Dev. Corp. v. City of Central Falls, 764 A.2d 151, 160(R.I. 2001); Travers v. Spidell, 682 A.2d 471, 472-73 (R.I.1996). See also Nat'l. Credit Union Admin. Bd. v. Regine,795 F. Supp. 59, 70 (D.R.I. 1992) (citations omitted). A cause ofaction for misrepresentation requires a plaintiff to plead andprove one person's manifestation to another, by words or otherconduct, that, under the circumstances, amounts to an assertionthat is not in accordance with the facts. Stebbins v. Wells,766 A.2d 369, 372, n. 4 (R.I. 2001) (quoting Travers, 682 A.2dat 473, n. 1 and Halpert v. Rosenthal, 267 A.2d 730, 734 (R.I.1970)). Since there is no evidence that the Mony Defendants orMML had any contact with Plaintiffs or made any representationsto them regarding I² or any other product, this Court must alsogrant those Defendants summary judgment on Count III.

The Mony Defendants did not make or Authorize Lemcke to makeany Representations Regarding I² and are not Liable for Fraud orMisrepresentation.

Lemcke was a registered representative of and field underwriterfor the Mony Defendants between March of 1993 and August of 1995.Lemcke Dep., at 320 & 325. Lemcke's activities during that timeperiod were limited to selling Mony products and setting upcollege education programs for Plaintiffs' three children. Pls.'Opp'n. to Mony Defs., at 3. See also, Lemcke Dep., at 323.Plaintiffs have not alleged that any of these activities byLemcke were false, deceptive, misleading, or fraudulent. There isno evidence that the Mony Defendants made any statements orrepresentations with respect to I² upon which the Plaintiffsrelied. Rather, the evidence indicates that every statement andrepresentation regarding I² was made by Lemcke after he hadceased working for the Mony Defendants. See Frank FraioliDep., at 68, 72-73. Plaintiffs, particularly, Dr. Fraioli,relied on Lemcke's statements and their close friendship, whichdeveloped before Lemcke began working for the Mony Defendants.See id., at 64-65 & 149. This reliance on Lemcke, rather thanon anything said by the Mony Defendants, caused Plaintiffs'injuries.

Since there is no evidence that the Mony Defendants had anydirect contact with Plaintiffs, their liability, as it pertainsto the fraud and misrepresentation claims, depends on a findingof an agency relationship between Lemcke and the Mony Defendants.See Transurface Carriers Inc. v. Ford Motor Co., 738 F.2d 42,46 (1st Cir. 1984); Brandt v. U.S. Dep't. Of Veterans Affairs,No. 99-197, 2000 WL 1879806, at * 6 (D.Me. Dec. 22, 2000) (bothaddressing whether or not an independent contractor acted withapparent authority). To establish an agency relationship theremust be: 1)a manifestation by the principal that the agent willact for him; 2)acceptance by the agent of the undertaking; and3)an agreement between the parties that the principal willcontrol the undertaking. Toledo v. Van Waters & Rogers Inc.,92 F. Supp.2d 44, 52 (D.R.I. 2000) (quoting Lawrence v.Anheuser-Busch, Inc., 523 A.2d 864, 867 (R.I. 1987) (citingRestatement (Second) Agency § 1(1)(1958))). An agent'sauthority may be terminated when the agent or principal sonotifies the other. Restatement (Second) of Agency,introductory note, at pg. 274 (1958). Termination by theprincipal revokes the agency relationship while an agent'stermination operates as a renunciation of that relationship.Id. at § 118, comm. a.

The Mony Defendants entered into a Career Contract and aRegistered Representative Contract with Lemcke in 1993. SeeDefs. The Mony Group Inc. & Mony Secs. Corp.'s Concise Statementof Undisputed Facts Pursuant to Local Rule 12.1, at Ex. 3&4(hereinafter, Mony Defs.' Ex. 3&4). Those contracts manifestedthe Mony Defendants' consent for Lemcke to act on their behalf asa representative, Lemcke's acceptance of, and an agreement thatthe Mony Defendants would control that undertaking. However, theMony Defendants revoked the agency relationship created by thesecontracts on August 17, 1995, before I² came into existence, whenthey notified Lemcke by letter that the contracts had beenterminated effective August 15, 1995. See id., at Ex. 7.Therefore, there is no basis to hold the Mony Defendants liabilefor Lemcke's subsequent acts of fraud or misrepresentation withrespect to I² and the Mony Defendants' motion for summaryjudgment must be granted as to Count III.

MML is not Liable for Fraud or Misrepresentation Because MMLhad no Contact with Plaintiffs and made no Statements withRespect to I² upon which Plaintiffs Relied.

Plaintiffs have not responded to MML's motion for summaryjudgment with respect to Count III. Since there is no evidencethat Plaintiffs had any contact with MML when I² was inexistence, Plaintiffs' only conceivable argument is that thereare issues of fact as to whether or not Lemcke acted with theapparent authority of MML, which would make MML liable forLemcke's fraud and misrepresentations. See Pls.' Opp' n. toMML, at 13-15. However, since Plaintiffs' Amended Complaint doesnot allege that Lemcke acted with the apparent authority of MML,that issue is only before this Court with respect to Plaintiffs'Motion to File a Second Amended Verified Complaint and does notpertain to MML's motion for summary judgment.

There is no evidence that MML made any representations toPlaintiffs, let alone the false statements required to establisha prima facie case for fraud or misrepresentation. Plaintiffsnever spoke with anyone at MML, had no accounts with, and neverreceived any statements from MML. Frank Fraioli Dep., at 404;Louise Fraioli Dep., at 285. See also, Aff. of JamesFurlong, at para. 3. Plaintiffs began investing in I² longbefore Lemcke became affiliated with MML and Mrs. Fraioli did notknow that Lemcke was an MML representative. Frank Frailoi Dep.,at 395; Louise Fraioli Dep., at 290. There is no evidence thatMML represented to Plaintiffs that Lemcke was licensed to sellsecurities or that Plaintiffs relied on any representations byMML when they decided to give Lemcke money to invest in I² Infact, Dr. Fraioli testified that no one at MML influenced him toopen the I² accounts. Frank Fraioli Dep., at 397. Rather, Dr.Fraioli relied on his personal trust of Lemcke, which developedlong before Lemcke became affiliated with MML. Id. Dr. Fraiolinever wrote a check to, had an account statement mailed to him,and was never told by anyone at MML that the entity wasaffiliated with I² in any manner. Frank Fraioli Dep., at 404.Therefore, absent any evidence of a false representation by MMLto Plaintiffs, MML is also entitled to summary judgment on CountIII.

Count IV: Respondeat Superior Liability

The doctrine of respondeat superior holds a principal liablefor the torts of his or her agents that are committed in thecourse of their employment or within the scope of theirauthority. Toledo v. Van Waters & Rogers Inc., 92 F. Supp.2d 44,52 (D.R.I. 2000) (citing Giroux v. Murphy, 147 A.2d 465,466 (R.I. 1959); Conant v. Giddings, 13 A.2d 517, 518 (1940);Restatement (Second) of Agency, § 214, cmt a (1958)). Seealso Gray v. Wood, 64 A.2d 191, 192 (R.I. 1949) (holding thatabsent a master and servant relationship, the plaintiff may notrely on the doctrine of respondeat superior to claim that an actof the servant is also one of the master). An employer is notliable for the negligent acts of an independent contractor.Toledo, 92 F. Supp.2d at 52 (citations omitted); East CoastCollision & Restoration Inc. v. Allyn, 742 A.2d 273, 275 (R.I.1999); Ballet Fabrics Inc. v. Four Dee Realty Co. Inc.,314 A.2d 1, 6 (R.I. 1974). An independent contractor is one who ishired to perform a task according to his or her own skill andjudgement and is not subject to the employer's control. SeeUnited States v. President & Fellows of Harvard Coll., No.11977, 2004 WL 1447307, at *11 (D. Mass. June 28, 2004);Toledo, 92 F. Supp.2d at 53; Ballet Fabrics, 314 A.2d at 6.

The Mony Defendants are not Liable under the Doctrine ofRespondeat Superior Because they Employed Lemcke as anIndependent Contractor and Alternatively, Lemcke's FraudulentActivities were Beyond the Scope of his Employment with the MonyDefendants.

The Mony Defendants' motion for summary judgment must begranted with respect to Count IV for three reasons. First, it isundisputed that the Mony Defendants employed Lemcke as anindependent contractor, which shields those Defendants fromrespondeat superior liability for Lemcke's actions. See MonyDefs.' Ex. 3&4. Second, even if he was not an independentcontractor, but rather an agent, Lemcke could not have actedwithin the scope of his employment with the Mony Defendants whenhe diverted Plaintiffs' funds because at that time, Lemcke was nolonger affiliated with the Mony Defendants. See Mony Mem., at1-2; Pls.' Opp' n. to Mony Defs., at 6; Frank Fraioli Dep.,at 68. Third, even if Lemcke was affiliated with the MonyDefendants during that time, his fraudulent investments throughI² were beyond the scope of his employment contracts with theMony Defendants, which only authorized Lemcke to sell Monyinsurance policies. See Mony Defs.' Ex. 3 & 4. Therefore,Plaintiffs have not presented any issues of material fact withrespect to their claim to respondeat superior liability againstthe Mony Defendants and this Court must grant summary judgmentwith respect to Count IV.

MML does not have Respondeat Superior Liability for Lemcke'sActions Because it Employed Lemcke as an Independent Contractorand Lemcke's Actions Regarding I² were Beyond the Scope of hisEmployment with MML.

Plaintiffs have neither responded to MML's motion for summaryjudgment with respect to Count IV nor provided this Court withany issues of material fact that would preclude summary judgment.Similar to his employment relationship with the Mony Defendants,MML employed Lemcke as an independent contractor therebyshielding itself from respondeat superior liability for Lemcke'sactions. See Statement of Undisputed Facts in Supp. of Def.MML Investors Servs. Inc.'s Mot. for Summ. J., at paras. 3 & 4;Lemcke Dep., at 324. Alternatively, there is no evidence thatLemcke acted within the scope of his employment with MML when hecreated and induced Plaintiffs to invest in I² Similar to theMony Defendants, Lemcke's activities with respect to I² werebeyond the scope of his employment agreement with MML. Lemcketestified that he knew that he was neither authorized norlicensed by MML to sell securities, that I² had not been approvedby MML, and that it violated the rules associated with his NASDlicense. Lemcke Dep., at 574. The establishment of fictitiousaccounts, such as I², is expressly prohibited by MML's ComplianceManual. See Pls.' Concise Statement of Disputed Facts Pursuantto Rule 12.1, at Ex. F, § 5.10, pg 34. In addition, Lemckestated that Plaintiffs' file was his personal business and hadnothing to do with MML, and that he never sold Plaintiffs any MMLproducts or investments. Lemcke Dep., at 565. Plaintiffs havenot demonstrated that Lemcke's activities with respect to I² wereanything other than private actions that were beyond the scope ofhis employment with MML. As such, MML is not liable under thedoctrine of respondeat superior and is entitled to summaryjudgment on Count IV.

Count V: Violation of the Securities Exchange Act of 1934

Count V alleges that the Mony Defendants and MML are liableunder Section 78t(a) of the Securities Exchange Act ("SecuritiesAct") because they directly or indirectly controlled Lemcke andbreached a fiduciary duty by not properly investigating Lemcke'sbackground and supervising his work. The Securities Act provides,in relevant part, that: Every person who, directly or indirectly, controls any person liable under any provision of this chapter or any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.15 U.S.C. § 78t(a)(1934). A cause of action under this statutecontains two elements: 1)a primary violation of the securitieslaws; and 2)the defendant controlled the person or entity whoengaged in the unlawful conduct. Kafenbaum v. Gtech HoldingsCorp., 217 F. Supp.2d 238, 251 (D.R.I. 2002); Lernout &Hauspie Secs. Litig., 286 B.R. 33, 39 (D. Mass. 2002). The FirstCircuit has recognized, but not addressed, a split among theCircuit Courts as to whether or not a plaintiff must also provethat the defendants were culpable participants in the unlawfulconduct. Aldridge v. A.T. Cross Corp., 284 F.3d 72, 85, n. 6(1st Cir. 2002). Compare SEC v. First Jersey Secs. Inc.,101 F.3d 1450, 1472 (2d Cir. 1996); Harrison v. Dean Witter ReynoldsInc., 974 F.2d 873, 877 (7th Cir. 1992) (both requiring culpableparticipation) with Hollinger v. Titan Capitol Corp.,914 F.2d 1564, 1575 (9th Cir. 1990) (en banc); G.A. Thompson & Co.Inc. v. Partridge, 636 F.2d 945, 958 (5th Cir. 1981) (bothrejecting the culpable participation requirement). The MonyDefendants and MML focus on the second element and argue thatPlaintiffs are unable to produce any evidence that theycontrolled or induced Lemcke to defraud Plaintiffs. Mony Mem.,at 15-16; MML Mem., at 15. This Court agrees with bothDefendants and grants summary judgment in their favor withrespect to Count V.

To meet the control element, the alleged controlling person orentity must have the general power to and actually exercisecontrol over the violator. Aldridge, 284 F.3d at 85(citingSheinkopf v. Stone, 927 F.2d 1259, 1270 (1st Cir. 1991)). Theregulation promulgated under the Securities Act defines controlas, "the possession, direct or indirect, of the power to director cause the direction of the management and policies of aperson, whether through the ownership of voting securities, bycontract, or otherwise." 17 C.F.R. § 230.405. See alsoSheinkopf, 927 F.2d at 1270; Coleman & Co. Secs. Inc. v.Giaquinto Family Trust, 236 F. Supp.2d 288, 306 (S.D.N.Y.2002). A broker-dealer has control person liability under theSecurities Act with respect to its registered representatives,even when the representatives are independent contractors. SeeHollinger, 914 F.2d at 1574.

A broker-dealer is not liable as a controlling person forinvestment advice given by its registered representative when:1)an individual who is not employed by the broker-dealer givesinvestment advice to a third party, see Coleman, 236 F. Supp.2dat 306; 2)the market for the plaintiff's investments wasestablished before the representative became associated with thebroker-dealer and the plaintiff did not rely on the broker-dealerin deciding to make the investments that led to his or herlosses, see Fanelli v. Cypress Capital Corp., No. C-93-20105,1994 WL 725427, at *7-8 (N.D. Cal. Dec. 2, 1994); Hollinger,914 F.2d at 1574 (noting that a broker-dealer's ability to deny arepresentative access to the market establishes the dealer'seffective control over the representative at the most basiclevel); Barnes v. SWS Fin. Servs. Inc., 97 S.W.2d 759, 765(Tex.App. 2003); or 3)the broker-dealer did not deal with theplaintiff and was unaware of and derived no benefits from thetransactions at issue. See Bradshaw v. Van Houten,601 F. Supp. 983, 985-86 (D. Arizona 1985).

The Mony Defendants were not Controlling Persons under theSecurities Act Because Lemcke no Longer Worked for the MonyDefendants when he Advised Plaintiffs to Invest in I²

The facts pertaining to the Mony Defendants' alleged controlperson liability for Lemcke's actions fit within the firstsituation discussed above. The Mony Defendants are not liable ascontrolling persons under the Securities Act for Lemcke's adviceto Plaintiffs, beginning in 1996, to invest in I² because Lemckewas no longer employed by the Mony Defendants at that time. Evenif the First Circuit required Plaintiffs to establish the MonyDefendants' culpable participation in I², doing so would beimpossible because there is no evidence of any connection betweenthe Mony Defendants and Lemcke after August of 1995 that wouldenable the Mony Defendants to control, direct, or induce Lemcketo establish I² and use it to defraud Plaintiffs. SincePlaintiffs have not presented any facts to indicate that the MonyDefendants were controlling persons under the Securities Act,summary judgment is appropriate as to Count V as well.

MML was not a Controlling Person under the Securities ActBecause MML did not Create the Market for I², Convince Plaintiffsto Invest in it, or Benefit from their I² Transactions.

This Court grants summary judgment in favor of MML with respectto Plaintiffs' Securities Act claim for three reasons. First,Plaintiffs have not shown that Lemcke had access to I² solelybecause of his relationship with MML. See Fanelli, 1994 WL at*7-8. Second, there is no evidence that MML dealt with Plaintiffsregarding I², was aware of, or derived any benefits from thosetransactions. See Bradshaw, 601 F. Supp. at 985-6. Third,Plaintiffs relied on Lemcke rather than MML in deciding to investin a fictitious entity. See Barnes, 97 S.W.3d at765.5 As to the first reason, Plaintiffs have not shownthat Lemcke had access to I² only because of his relationshipwith MML. Rather, the undisputed facts are that I² was a privateinvestment company of Lemcke's own creation, which Plaintiffsbegan investing in prior to Lemcke's affiliation with MML. SeePls.' Opp'n to MML, at 6; MML Mem., at 1. Lemcke knew that hewas not licensed or authorized by MML to sell investments in I²Lemcke Dep., at 574.

Second, there is no evidence that MML dealt with Plaintiffswith respect to I², was aware of, or benefitted from thosetransactions. Plaintiffs did not receive any statements from MML.Frank Fraioli Dep., at 404. Mrs. Fraioli never called anyone atMML until January of 2002 when she first found out that her moneywas gone. Louise Fraioli Dep., at 285. Dr. Fraioli never hadany contact with MML, not even when he learned that Lemcke hadtaken all of his wife's and later, his money. Frank FraioliDep., at 406. Furthermore, Plaintiffs were never MML customersand thus, MML did not deal with Plaintiffs regarding I² or anyaccounts, had no knowledge of those transactions, and derived nocommissions from Plaintiffs purported investments. Aff. of JamesFurlong, at para. 24: Ex. B to Statement of Undisputed Facts inSupp. of Def. MML Investors Servs. Inc.'s Mot. for Summ. J..

Third, the undisputed evidence indicates that Plaintiffs dealtexclusively with Lemcke, relied on their close relationship withhim, and decided to enter a market created by Lemcke prior to hisaffiliation with MML and make the investments that led to theirloss of approximately $1,000,000.00. Fraioli Dep., at 397-98.See also, Louise Fraioli Dep., at 290(testifying that she wasunaware that Lemcke was an MML registered representative at thetime he was handling her I² account). For all of these reasons,MML is not liable as a controlling person under the SecuritiesAct and is entitled to summary judgment on Count V.

Count VI: Violation of the Investment Advisors Act

The Investment Advisors Act ("IAA") makes it unlawful for aninvestment advisor to use the mails or any means orinstrumentality of interstate commerce to directly or indirectly: 1) employ any device, scheme, or artifice to defraud a client or prospective client; 2) engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client; 3) acting as a principal for his own account or as a broker for a person other than his or her client, to knowingly sell or purchase any security from a client without first disclosing the transaction to and obtaining the written consent of each client; or 4) to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative. 15 U.S.C. § 80b-6(1-4) (West 1997). When there is a violation of this statute, the clients of investment advisors may bring an action to void their investment contracts. Transamerica Mortgage Advisors Inc. v. Lewis, 444 U.S. 11, 17-18 & 24 (1979). However, they may not sue for money damages. Id. at 24. See also Frank Russell Co. v. Wellington Mgmt. Co., LLP., 154 F.3d 97, 102 (3d Cir. 1998); Corwin v. Marney, Orton Invs., 788 F.2d 1063, 1066 (5th Cir. 1986) (IAA claims properly dismissed where investors sought money damages rather than the voiding of an investment contract); Goldstein v. Malcolm G. Fries & Assocs., Inc., 72 F. Supp.2d 620, 624 (E.D. Va. 1999); SSH Co. v. Shearson Lehaman Bros. Inc., 678 F. Supp. 1055, 1058 (S.D.N.Y. 1985).Plaintiffs are not Entitled to Money Damages under the IAA and donot have any Voidable Investment Contracts with the MonyDefendants or MML that Pertain to I²

Plaintiffs did not seek the limited remedy under the IAA ofrescinding their investment contracts with Lemcke, the MonyDefendants, or MML but instead sought money damages. See V.Am. Compl., at para. 69. This relief is not available under theIAA. Furthermore, even if Plaintiffs had sought to rescind anyinvestment contracts with the Mony Defendants and/or MML, thatrelief would also be unavailable. Plaintiffs closed all of theiraccounts with the Mony Defendants and received all of the moniesowed under those policies in order to make investments in I²See Frank Fraioli Dep., at 436; Defs. The Mony Group & MonySecs. Corp.'s Concise Statement of Undisputed Facts Pursuant toLocal Rule 12.1, at Ex. 9 & 10. There is no evidence that anyinvestment contracts exist between Plaintiffs and MML. Aff. ofJames Furlong, at para. 3. Therefore, the Mony Defendants andMML are entitled to summary judgment on Count VI as well.

Count VII: The Rhode Island Uniform Securities Act6

The Rhode Island Uniform Securities Act ("RIUSA") states thatin connection with an offer to sell or purchase or a sale orpurchase of a security, a person may not directly or indirectly:1)employ a device, scheme, or artifice to defraud; 2)make anuntrue statement of a material fact or omit a material fact thatwould ensure that the statement is not misleading; or 3)engage inan act, practice, or course of business that operates or wouldoperate as a fraud or deceit upon a person. R.I. Gen. Laws §7-11-501 (West 2003). The RIUSA holds one who offers to or sellsa security in violation of this Section, directly or indirectlycontrols the person offering or selling said security, and/or abroker-dealer who materially aids in the act, omission, ortransaction jointly and severally liable for the aboveviolations. R.I. Gen. Laws § 7-11-605 (West 2003).

The Mony Defendants and MML are Entitled to Summary Judgment onCount VII Because they did not make any Untrue Statements orPursue a Course of Business that Defrauded Plaintiffs.

Although there is no Rhode Island case law interpreting thisstatute, this Court concludes that Plaintiffs have not presentedany evidence that raises issues of material fact with respect totheir claims under the RIUSA. While Lemcke's actions through theuse of I² may constitute violations under each of the abovesubsections, there is no evidence of similar violations by theMony Defendants or MML. I², the device and course of businessthat defrauded Plaintiffs and about which Lemcke made untruestatements of material facts, was a fictitious entity created byLemcke after he terminated his employment with the MonyDefendants. Mony Mem., at 1-2; Pls.' Opp'n. To Mony Defs., at2 & 6. Since there are no issues of fact regarding the MonyDefendants' liability under the RIUSA, this Court grants summaryjudgment in favor of the Mony Defendants on Count VII as well.

Likewise, Plaintiffs have not presented any material issues offact regarding their same claim against MML and did not addressthis count in their opposition to MML's motion for summaryjudgment. There is no evidence that MML was aware of ormaterially aided in any of Lemcke's activities with respect toI² Since Plaintiffs never had any contact with anyone at MMLwhile they were investing in I², there is no conceivable set offacts that would present an issue as to whether or not MML madeuntrue statements to or engaged in a practice or course ofbusiness aimed at defrauding Plaintiffs. See Louise FraioliDep., at 285; Frank Fraioli Dep., at 406. Therefore, MML isalso entitled to summary judgment on Count VII.

In sum, there are no issues of material fact regarding any ofPlaintiffs' claims against the Mony Defendants or MML.Plaintiffs' claims for negligent hiring and supervision and forbreach of fiduciary duty fail because there is no evidence thatthese Defendants owed Plaintiffs any duty during the time thatLemcke was operating I² and embezzling Plaintiffs' money. Duringthat time, there is no evidence that the Mony Defendants or MMLmade any statements or representations to Plaintiffs regarding I²or that they acted as controlling persons within the meaning ofthe Securities Act. Plaintiffs' claims under the IAA also failbecause that statute does not provide for the recovery of moneydamages and there is no evidence that investment contractsarising out of I² existed between Plaintiffs and the MonyDefendants or between Plaintiffs and MML. Similarly, there is noevidence that either of these Defendants were aware of ormaterially aided in any of Lemcke's fraudulent activities, whichdefeats Plaintiffs' claims under the RIUSA. For all of thesereasons, the motions of the Mony Defendants and MML for summaryjudgment are granted on all counts asserted in the AmendedComplaint.

Boston Partners' Motion for Summary Judgment

This Court allowed Plaintiffs to amend their Complaint to addDefendant, Boston Partners, to this lawsuit in June of 2003following the deposition testimony of Lawrence Nihland,("Nihland"). Nihland, a John Hancock employee, testified that hewas the person with the most knowledge regarding therelationships between the Boston General Agency and SignatorInvestors and between John Hancock and Signator. Nihland Dep.,at 28-30. John Hancock and Signator designated Nihland as theperson with the most knowledge regarding Lemcke and hisemployment with those entities under Rule 30(b)(6) of the FederalRules of Civil Procedure. Mem. of Law in Supp. of Def. BostonPartners Ins.'s Mot. for Summ. J., (hereinafter, BostonPartners' Mem.) at Ex. 5.

A brief chronology may be helpful. Healey became associatedwith John Hancock in 1995 and served as general agent for theentity known internally as the Boston General Agency ("BGA").Nihland Dep., at 137-38. Lemcke began working for John Hancockon August 25, 1995. Lemcke Dep., at 128. According to Nihland,Lemcke worked with Healey and was affiliated with the BGA, whichis not a subsidiary of any John Hancock entity. Nihland Dep.,at 137-38. Lemcke began the fraudulent activities that are thesubject of this lawsuit in January of 1996 and the next year,Healey changed the name BGA to Hancock Partners 103. Id. at139. Nihland stated that Hancock Partners 103 has since changedits name for marketing reasons and Nihland believes that it isnow known as Boston Partners Insurance. Id. at 140. Lemcketerminated his relationship with John Hancock in December of1999. Boston Partners' Mem., at 2-3. In July of 2001, MarkMarroni, ("Marroni") another John Hancock employee, becamegeneral agent for the entity known internally as Northern NewEngland Agency 057, ("NNEA 057"). Aff. of Mark Marroni, atparas. 4 & 5. Neither Healey nor Lemcke was ever associated withNNEA 057 or Marroni. Id. at paras. 6 & 7. In October of 2002,NNEA 057 changed its name to Boston Partners General Agency 103.Id. at para. 11.

Boston Partners argues that it is entitled to summary judgmenton all counts because it is not a successor in interest to anyJohn Hancock agency, including any agency formerly involved withLemcke. Boston Partners' Mem., at 4-5. Plaintiffs argue thatthere are issues of fact as to the successor liabilities betweenBoston Partners General Agency 103 and Hancock Partners 103 andbetween Boston Partners General Agency 103 and BGA 103, and thus,summary judgment is inappropriate. Plaintiffs' base thesearguments on Nihland's testimony and the fact that BostonPartners has the same agency identification number as the BostonGeneral Agency and Hancock Partners. Pls.' Opp'n. to Mot. forSumm. J. Filed by Boston Partners Ins., at 5.

A corporation may acquire the assets of another corporationwithout assuming the acquired corporation's debts andliabilities. Ed Peters Jewelry Co. Inc. v. C&J Jewelry Co.,Inc., 124 F.3d 252, 266 (1st Cir. 1997); Carreiro v. RhodesGill & Co., Ltd., 68 F.3d 1443, 1447 (1st Cir. 1995); Dayton v.Peck, Stow & Wilcox Co., 739 F.2d 690, 692 (1st Cir. 1984);H.J. Baker & Bro., Inc. v. Orgonics, Inc., 554 A.2d 196, 205(R.I. 1989) (citing Cranston Dressed Meat Co. v. Packers OutletCo., 190 A.29, 31 (R.I. 1937)); Phillip I. Blumberg, The Law ofCorporate Groups, § 13.05.1, at 278 (1994). There are exceptionsto this rule that make the acquiring corporation liable as asuccessor in interest if that corporation expressly assumedexisting debts, there was a de facto merger, the acquisitioninvolved a transfer of assets in order to defraud creditors, orone corporation is a "mere continuation" of the other. Id. Seealso, 3 James D. Cox & Thomas Lee Hazen, Cox & Hazen onCorporations, § 22.08, at 1324 (2003 & 2004 Supp.). Since Lemckehas not had any employment relationship with any John Hancockentity since December of 1999, the only way for Boston Partnersto be liable on any of the causes of action presented in theAmended Complaint is for Plaintiffs to demonstrate that BostonPartners is a successor in interest to John Hancock or one of itsentities under one of the above exceptions. See Dayton, 739F.2d at 692. Plaintiffs rely on the mere continuation exceptionto establish Boston Partners' successor liability and have notargued any of the other exceptions to this Court. See V. Am.Compl., at para. 8.

The mere continuation exception prevents one corporation fromacquiring the assets of another for the specific purpose ofplacing those assets beyond the reach of the acquiredcorporation's creditors. Ed Peters Jewelry Co., 124 F.3d at 268(citing Nissen Corp. v. Miller, 594 A.2d 564, 566 (Md. 1991)).The exception applies when the acquiring corporation maintainsthe same or similar management and ownership but wears adifferent hat. Id. See also, Kely v. Kercher Mach. Works,Inc., 910 F. Supp. 30, 36 (D.N.H. 1995) (noting that the merecontinuation exception applies whenever the successor corporationmore closely resembles a reorganized version of its predecessorthan an entirely new corporate entity). The mere continuationexception is multifaceted and usually requires the factfinder toengage in a cumulative, case by case assessment of the evidenceas it relates to five circumstances.7 However, in orderto apply the exception, the Rhode Island Supreme Court hasrequired that at a minimum, there be evidence of a transfer ofassets between the old and new corporations. Kondracky v.Crystal Restoration Inc., 791 A.2d 482, 483 (R.I. 2002);Carreiro, 68 F.3d at 1447 & 1449. (concluding that the RhodeIsland Supreme Court would not find successor liability under the"mere continuation" doctrine absent any evidence of aninter-corporate asset transfer). A court may grant summaryjudgment where the record contains uncontroverted testimony thatthis requisite transfer of assets did not take place. SeeCarreiro, 68 F.3d at 1449.

There is no evidence that John Hancock or Signator transferredassets or liabilities to any agency known internally as BostonPartners General Agency 103. Statement of Undisputed Facts inSupp. of Def. Boston Partners' Mot. for Summ. J., at para 15 andat Ex. 2: Def. John Hancock Life Ins. Co.'s Resp. to Def. BostonPartners Ins.' Req. for Admiss., (hereinafter, Boston PartnersEx. 2) at 11. Boston Partners Insurance and Boston PartnersGeneral Agency 103 are not registered business entities. BostonPartners Ex. 2, at 10-11. Boston Partners has presented theaffidavit of Mark Marroni, the general agent of Boston PartnersGeneral Agency 103, which states that: 1)Boston Partners GeneralAgency 103 is not a successor in interest to Boston GeneralAgency 103 or any agency formerly run and/or supervised byJeremiah Healey; and 2)neither John Hancock nor any of itssubdivisions, agencies, individuals, representatives, agents,servants, or employees ever conferred any interest or liabilityupon the agency known internally as Boston Partners GeneralAgency 103. Aff. of Mark Marroni, at paras. 12, 13.

Plaintiffs have not presented any evidence to rebut theseassertions and rely instead on Nihland's speculation andunderstanding that Hancock Partners changed its name and is nowknown as Boston Partners Insurance. See Nihland Dep., at 140.Nihland did not testify that Boston Partners was the continuationof the BGA. Rather, he assumed that the similar names indicated asimilar relationship. This is not nearly enough to establish thatBoston Partners is liable to Plaintiffs as a successor ininterest to John Hancock or to create an issue of fact regardingthe mere continuation exception. Absent a theory of successorliability, there is no basis to hold Boston Partners liable forany of the causes of action asserted in the Amended Complaint. Assuch, this Court grants Boston Partners' motion for summaryjudgment on all counts.

Plaintiffs' Motion to File a Second Amended VerifiedComplaint

Plaintiffs have moved to file a Second Amended VerifiedComplaint eliminating Count VII, which alleged violations of theRhode Island Uniform Securities Act and adding counts forapparent authority and joint and several liability against eachinstitutional Defendant (Counts VII and VIII respectively),conversion against Lemcke (Count IX), and successor liabilityagainst Boston Partners (Count X). The Mony Defendants, MML, JohnHancock, and Signator have objected to Plaintiffs' motion toamend to add counts for apparent authority and joint and severalliability arguing that the amendments are futile because they donot state claims upon which relief can be granted, andalternatively, are unduly prejudicial at this stage of thelitigation. See Mem in Supp. of Opp'n. of Defs. The Mony Groupand Mony Secs. Corp. to Pls.' Mot. to File a Second Am. V.Compl., at 3; Def. MML Investors Servs. Inc.'s Mem. of Law inSupp. of its Opp'n. to Pls.' Mot. to File a Second Am. V.Compl., at 4; Opp'n. of Defs. John Hancock Life Ins. Co. &Signator Investors, Inc. to Pls.' Mot. for Leave to File a SecondAm. V. Compl., at 1. Boston Partners makes the same objectionwith respect to the proposed count against that entity forsuccessor liability. Defs.' Objection to Pls.' Mot. to File aSecond Am. V. Compl., at 1-2. There has been no objection toPlaintiffs' proposed count for conversion against Lemcke.

Plaintiffs' Proposed Count VII for Apparent Authority Againstthe Institutional Defendants

In order to add their new proposed Count VII for apparentauthority against the institutional Defendants, Plaintiffs mustshow that their proposal states a claim upon which relief can begranted. See Almedia, 50 F. Supp.2d at 120; Schock,21 F. Supp.2d 115, 124 (D.R.I. 1998). The Mony Defendants, MML, andBoston Partners argue that Plaintiffs cannot make this showingand thus, the motion to amend should be denied. Once again, thisCourt agrees with Defendants.

Apparent authority is an agent's or other actor's power toaffect its principal's liabilities to third parties. Restatement(Third) Agency § 2.03 (Tentative Draft No. 2, 2001). Toestablish apparent authority under Rhode Island law, a plaintiffmust show that: 1)the principal manifestly consented to orknowingly permitted the agent to exercise the principal'sauthority; 2)a third person knew of this fact and, acting in goodfaith, had reason to believe and actually did believe that theagent possessed such authority; and 3)in reliance on thisappearance of authority, the third person changed his positionand will be injured or suffer a loss if the act or transactiondoes not bind the principal. Bates v. Shearson Lehman Bros.Inc., 42 F.3d 79, 82 (1st Cir. 1994) (quoting Am. Title Ins.Co. v. East West Fin. Corp., 16 F.3d 449, 454 (1st Cir. 1994);Calenda v. Allstate Ins. Co., 518 A.2d 624, 628 (R.I. 1986)).See also Lawton v. Nyman, 62 F. Supp.2d 533, 538 (D.R.I.1999); Restatement (Third) of Agency, § 3.03 (Tentative DraftNo. 2, 2001). Apparent authority may arise from indicia ofauthority given by the principal to the agent and does not haveto be in the form of a direct communication to a third person.731 Airport Assocs. v. H&M Realty Assocs., 799 A.2d 279, 283(R.I. 2002) (quoting Menard & Co. Masonry Bldg. Contractors v.Marshall Bldg. Sys., 539 A.2d 523, 526 (R.I. 1988)). When thisapparent authority is established, a principal is liable for hisor her agent's actions. See Restatement (Third) of Agency, at§ 2.03, cmmt. c. The doctrine of apparent authority exists topromote business and protect a third party's reasonable relianceon an agency relationship. Schock, 56 F. Supp.2d at 194.

The focus of an apparent authority inquiry is on the conduct ofthe principal, rather than that of the putative agent. Bates,42 F.3d at 82 (citing Commercial Assocs. v. Tilcon GamminoInc., 998 F.2d 1092, 1099 (1st Cir. 1993)). An agent's successin misleading a third party as to the agent's authority does not,alone, make the principal liable. Restatement (Third) ofAgency, at § 2.03, cmmt c. In addition, a third party's beliefin an agent's authority to act on behalf of the principal must bereasonable. Bates, 42 F.3d at 82 (citing Rodrigues, 623 A.2dat 456). A belief resulting solely from an agent's statements orconduct that is unsupported by any manifestations traceable tothe principal does not create apparent authority. Restatement(Third) of Agency, at § 2.03, cmmt c. Apparent authorityterminates and a principal is no longer bound by the actions ofhis or her agent when the third party receives notice that theagent and principal have terminated their relationship or of anevent that makes it reasonable for the third party to infer thatthe principal no longer consents to the agent's acting on theprincipal's behalf. Schock, 56 F. Supp.2d at 194; Schock v.United States, 21 F. Supp.2d 115, 121-22 (D.R.I. 1998);Restatement (Second) of Agency, § 125 & cmts. a & c.

Plaintiffs are Unable to State a Cause of Action for ApparentAuthority Against The Mony Defendants Because any such AuthorityTerminated Before Lemcke Began Defrauding Plaintiffs.

Any apparent authority held by Lemcke to act on the MonyDefendants' behalf terminated in the summer of 1995 when Lemcketold Dr. Fraioli that he had terminated his employment with theMony Defendants and was going to work for John Hancock. SeeFrank Fraioli Dep., at 66 & 437. Once Dr. Fraioli heard this,it was no longer reasonable for him to infer that the MonyDefendants had consented to Lemcke's continuing to act on theirbehalf. Lemcke had already left the Mony Defendants' employ andnotified Dr. Fraioli of such when he told Dr. Fraioli about I²and began embezzling Plaintiffs' money in early 1996. FrankFraioli Dep., at 66 & 72. At that time, Lemcke no longer had anyapparent authority to act on the Mony Defendants' behalf andthus, those Defendants are not liable for the fraud that Lemckecommitted between 1996 and 2001. It would be futile forPlaintiffs to amend the Complaint to add a count allegingapparent authority against the Mony Defendants because that isnot a claim upon which relief can be granted. Therefore,Plaintiffs' motion to do so is denied.

Plaintiffs are Unable to State a Cause of Action for ApparentAuthority Against MML Because there is no Evidence thatPlaintiffs Relied on or Dealt with MML with Respect to theirInvestments in I²

It would also be futile to add a count for apparent authorityagainst MML because there are no facts that would establish therequired elements of that cause of action. As to the firstelement of an apparent authority claim, it was impossible for MMLto manifest to Plaintiffs its consent for Lemcke to act on MML'sbehalf with respect to I² because Plaintiffs never dealt withanyone from MML until early 2002 and after Lemcke's fraud wasuncovered. See Louise Fraioli Dep., at 286. Dr. Fraioli'sdeposition testimony precludes Plaintiffs from establishing thesecond and third elements required for apparent authority becauseDr. Fraioli acknowledged that he relied on his personal trust inLemcke rather than any statements or actions by MML when hedecided to open his I² accounts. Frank Fraioli Dep., at 397.This trust and Dr. Fraioli's investments in I² began beforeLemcke became affiliated with MML. See id. Therefore, theevidence before this Court does not support a claim for apparentauthority against MML.

Plaintiffs argue that Lemcke led them to believe that they wereMML customers by stating that Plaintiffs' three children had MMLinsurance policies and by giving Dr. Fraioli a business card fromMML. Pls.' Opp'n. to MML, at 6, 15; Pls.' Concise Statement ofDisputed Facts Pursuant to Local Rule 12.1, at Ex. D. However,Plaintiffs' testimony that they never opened accounts with MML,did not visit MML's offices, never received any statements fromor wrote any checks to MML, and were unaware that Lemcke wasworking for MML makes it impossible for Plaintiffs to reasonablybelieve that MML authorized Lemcke to act on its behalf withrespect to I² See Frank Fraioli Dep., at 404; LouiseFraioli Dep., at 285 & 290.

The above facts are identical to those presented to the FirstCircuit in Bates v. Shearson Lehman Brothers, 42 F.3d 79, 81(1st Cir. 1994), where the defendant's agent diverted $70,000.00of the plaintiff's funds into the agent's personal account. TheCourt found no evidence of any representation or conduct by thedefendant to make it reasonable to conclude that the agent hadthe apparent authority to act on the defendant's behalf becausethe plaintiff had no accounts with, never wrote a check to, andwas never told that her funds would be invested with thedefendant. Id. at 82-3. The facts and result in this case arethe same: Plaintiffs are unable to state a claim for apparentauthority against MML. Therefore, amending the Complaint to addsuch a claim would be futile and Plaintiffs' motion to do sohereby, is denied.

There is no Evidence to Support a Claim for Apparent AuthorityAgainst Boston Partners Because Boston Partners is Neither aSuccessor in Interest to any John Hancock Entity nor Related toLemcke and his Activities with I²

Plaintiffs motion to amend to add a count for apparentauthority against Boston Partners must also be denied becausePlaintiffs do not present any facts to make this a viable claimupon which relief can be granted. As discussed above, BostonPartners is neither a successor in interest to any John Hancockentity nor a registered business entity in its own right. Lemckeand Healey never worked for Mark Marroni, the general agent ofBoston Partners. Aff. of Mark Marroni, at paras. 1 & 6.Therefore, it was impossible for Marroni or Boston Partners tomanifest any consent to Plaintiffs that Lemcke was authorized toact on Boston Partners' behalf. Plaintiffs have not presented anyevidence that would make it reasonable for them to rely on Lemckeas a Boston Partners' agent when they made their decisions toinvest in I² Since Plaintiffs lack the evidence to present aviable claim for apparent authority against Boston Partners,adding such a count would be futile and thus, their motion toamend must be denied.

There is Evidence that Dr. Fraioli Relied on Lemcke'sRelationship with John Hancock when he Decided to Invest in I²and thus, it would not be Futile to add a Count for ApparentAuthority Against John Hancock and its Subsidiary, Signator.

It would not be futile to amend the Complaint to addallegations that Lemcke acted with the apparent authority of JohnHancock and its subsidiary, Signator. The evidence presentedindicates that Lemcke became an agent and registeredrepresentative of John Hancock in June of 1995, with hisemployment contract demonstrating John Hancock's consent forLemcke to act on its behalf. See Lemcke Dep., at 128. Dr.Fraioli knew that Lemcke was a John Hancock registeredrepresentative and believed that anything Lemcke sold him wasendorsed by that entity. Frank Fraioli Dep., at 91. AlthoughDr. Fraioli did not know the exact relationship between I² andJohn Hancock, Dr. Fraioli believed that Lemcke had told him thatI² was endorsed by John Hancock. Id., at 91. Dr. Fraioli reliedon Lemcke's relationship with John Hancock when he made thedecisions to invest in I² as evidenced by his belief that therelationship allowed Dr. Fraioli to "sleep better at night,"id. at 402, and made him more confident, secure, andcomfortable with what Lemcke was doing with his money. Id., at65 & 90. Unlike the situation with MML, Plaintiffs receivedchecks from John Hancock, id., at 132, paid attention to howtheir John Hancock stock was doing, id., at 379, and calledJohn Hancock at one point to inquire as to why one of theirinsurance policies had lapsed. Id., at 135. This testimonysupports the elements of a cause of action for apparent authorityand negates any argument that it would be futile to amend theComplaint to add such a count against John Hancock and Signator.

John Hancock and Signator argue that amending the Complaintwould cause them undue prejudice because discovery has closed andalternatively, even if discovery were reopened, they would incuradditional expenses in deposing or redeposing witnesses. Opp'n.of Defs. John Hancock Life Ins. Co. & Signator Investors, Inc. toPls.' Mot. for Leave to File a Second Am. V. Compl., at 1. Anundue delay in seeking to amend a complaint may be a sufficientbasis for denying leave to amend when granting the motion willfurther delay the proceedings. Harvey v. Snow, 281 F. Supp.2dat 380. In Harvey, this Court denied a motion to amend to addan additional plaintiff citing undue delay because discoverywould have to be reopened in order to examine previouslyundiscussed issues of liability. See id. (discussing AcostaMestre v. Hilton Int'l. of Puerto Rico, 156 F.3d 49, 51 (1stCir. 1998)).

Unlike Harvey, Plaintiffs do not seek to add an entirely newparty in a manner that would further delay this litigation.Rather, Plaintiffs seek to assert a cause of action that wasuncovered during the extensive depositions of Healey, Lemcke, andDr. Fraioli taken by all of the parties in this case, includingJohn Hancock and Signator. This Court does not see any need tore-open those depositions or any undue delay or prejudiceresulting from allowing Plaintiffs to amend their Complaint.

Amending the Complaint, albeit a second time, to allegeapparent authority against John Hancock and Signator clarifiesone of the grounds on which Plaintiffs base their claims forrelief. For example, Count III of the Amended Complaint seeksdamages for alleged fraud and misrepresentation that may beattributable to John Hancock and Signator on a theory of apparentauthority, whereas other counts, such as those for negligenthiring and supervision (Count I) or for violations of theSecurities Act (Count V) seek to hold those Defendants liable fortheir own alleged acts and omissions with regard to Lemcke.Unlike the situation presented in Harvey, Plaintiffs' proposedamendments pertaining to the alleged apparent authority of JohnHancock and Signator do not inject any new theories or partiesinto this case. Instead, they clarify a ground for recovery,which may have existed when Plaintiffs filed their initialComplaint and throughout discovery. As such, it would not beprejudicial to allow Plaintiffs to amend the Complaint at thispoint. Unlike the same proposed amendment with respect to theMony Defendants, MML, and Boston Partners, Plaintiffs havealleged facts that would support a cause of action for apparentauthority against John Hancock and Signator. Therefore,Plaintiffs' motion to amend and add their proposed Count VIIagainst John Hancock and Signator is granted.

Plaintiffs' Proposed Count VIII for Joint and SeveralLiability Against Each Institutional Defendant

Plaintiffs seek leave to amend the Complaint to add a cause ofaction for joint and several liability for each institutionalDefendant's alleged failure to properly control and/or superviseLemcke and for allowing Lemcke to engage in his scheme of fraudand embezzlement. See Pls.' Proposed Second Am. V. Compl. atpara. 78. However, joint and several liability is a request forrelief or a rule of contribution: it is not a cause of action.See Tilcon Capaldi, Inc. v. Feldman, 249 F.3d 54, 62 (1stCir. 2001) (noting that at common law, the phrase "joint andseveral" refers to the liability of multiple wrongdoers);Dellefave v. Access Temps., Inc., No. 99 Civ. 6098, 2000 WL45720 at *3 (S.D.N.Y. Jan. 19, 2000) (dismissing a claim forjoint and several liability because it did not state a cause ofaction); accord Chase-Walton Elastomers, Inc. v. Bennett, No.02-1304, 2002 WL 31235508 at *7 (Mass. Super. Oct. 1, 2002);Ahmed v. Goldberg, No. 99-0046, 2001 WL 1842390 at *4(D.N.Mar.I. Mar. 1, 2001); Gudaitis v. Great Atl. & Pac. TeaCo., Inc., No. 97007423, 1998 WL 46263 at *2 (Conn. Super. Jan.26, 1998). Therefore, amending the Complaint to allege joint andseveral liability against each institutional Defendant would befutile because it would fail to state a claim upon which reliefcould be granted. As such, Plaintiffs' motion to amend is deniedwith respect to their proposed Count VIII.

Plaintiffs' Proposed Count IX for Conversion Against Lemcke

Plaintiffs also propose amending the Complaint to add a countfor conversion against Lemcke. Plaintiffs allege that between1996 and 2001, Lemcke intentionally and purposefully took fundsprovided to him by Plaintiffs and converted those funds to hisown use. Pls.' Proposed Second Am. V. Compl., at para. 85.Lemcke has not filed any objection to Plaintiffs' motion to amendwith respect to this proposed count since he has already beendefaulted.

In order to state a cause of action for conversion under RhodeIsland law, a plaintiff must allege and prove that the defendanttook and exercised control over the plaintiff's property withoutthe plaintiff's permission and in a manner inconsistent with theplaintiff's legal right to possession of that property. SeeDeChristofaro v. Machala, 685 A.2d 258, 262 (R.I. 1996);Fuscellaro v. Indus. Nat'l. Corp., 368 A.2d 1227, 1230 (R.I.1977) (citing Iavazzo v. R.I. Hosp. Trust Co., 155 A. 407, 408(R.I. 1931)); Terrien v. Joseph, 53 A.2d 923, 925 (R.I. 1947).In this case, it is undisputed that Lemcke used I² to take andexercise control over Plaintiffs' money. Statement of UndisputedFacts in Supp. of Def. MML Investors Servs. Inc.'s Mot. for Summ.J., at pg 6. While the evidence produced thus far demonstratesthat Dr. Fraioli gave Lemcke permission to invest Plaintiffs'money in I², he did so under the impression that he would get abetter rate of return and build up his investment portfolio.Id. at 4,7; Frank Fraioli Dep., at 430. Lemcke never investedthese funds as promised and instead converted them, withoutPlaintiffs' permission or knowledge, for his own use indeveloping and maintaining an extravagant lifestyle. Statementof Undisputed Facts in Supp. of Def. MML Investors Servs. Inc.'sMot. for Summ. J., at 6. See also, Lemcke Dep., at 231.Plaintiffs have alleged and the evidence presented supports acause of action for conversion against Lemcke such that it wouldnot be futile to so amend the Complaint. Therefore, this Courtgrants Plaintiffs' motion to add Count IX for conversion againstLemcke.

Plaintiffs' Proposed Count X for Successor Liability AgainstBoston Partners

Plaintiffs ask this Court for leave to amend to add theirproposed Count X alleging successor liability against BostonPartners. Allowing Plaintiffs to do so would be an exercise infutility for the reasons previously discussed with regard toBoston Partners' Motion for Summary Judgment. Therefore,Plaintiffs' motion to add their proposed Count X is denied.

IV. Conclusion

For the foregoing reasons, the Mony Defendants, MML, and BostonPartners are entitled to summary judgment on all counts assertedagainst them in the Amended Complaint. Plaintiffs' Motion forLeave to File a Second Amended Complaint is granted in part anddenied in part. That motion is denied with respect to thefollowing proposed counts: Count VII alleging apparent authorityagainst the Mony Defendants, MML, and Boston Partners; Count VIIIalleging joint and several liability against each institutionalDefendant; and Count X alleging successor liability againstBoston Partners. Plaintiffs' motion to amend is granted withrespect to their proposed Count VII alleging apparent authorityagainst John Hancock and Signator and Count IX allegingconversion against Lemcke.

As a result of this disposition, the Mony Defendants, MML, andBoston Partners will be entitled to judgment at the appropriatetime in this case. What remains are all counts asserted in theAmended Complaint against John Hancock, Signator, and Lemcke andthe counts for apparent authority and conversion, whichPlaintiffs now have leave to add. This Court also has a pendingmotion by Plaintiffs to enter a final default judgment againstLemcke. The Court will not consider that matter until all otherclaims are resolved, and no judgments shall enter until allclaims have been resolved.

It is so ordered.

1. Whether or not Lemcke was ever affiliated with BostonPartners is at issue with regard to the present motions.

2. Although the Amended Complaint does not so specify, thisCourt assumes that Plaintiffs assert Count V against theinstitutional Defendants.

3. Since Plaintiffs do not specify, this Court assumes thatCount VII is also asserted against the institutional Defendants.

4. This Court will disregard John Hancock's objection to theMony Defendants' and MML's motions for summary judgment becauseJohn Hancock does not appear to have standing to make thatobjection. See Blonder v. Casco Inn Residential Care Inc.,No. 99-274, 2000 WL 761895, at *1 (D. Me. May 4, 2000)(disregarding a co-defendant's opposition to anotherco-defendant's motion for summary judgment absent cross claims).The Federal Rules of Civil Procedure permit an adverse party tosubmit his or her opposition to a motion for summary judgment.Fed.R.Civ.P. 56(c). However, since none of the defendants inthis case have filed cross claims against each other, thedefendants are not adverse parties who are entitled to object toeach others' motions for summary judgment. Alternatively, JohnHancock supports its objections with John Hancock Life Ins. Co.v. Wilson, 254 F.3d 48 (2d Cir. 2001), which dealt with whethercertain investors' claims could be arbitrated under the NASDrules and has no pertinence to the issues before this Court.

5. Plaintiffs argue that there is an issue of fact as towhether or not MML acted in good faith when it knew of Lemcke'soffice in Hingham, MA that he used to conduct I² business andthat could only operate on the funds that Lemcke embezzled fromPlaintiffs. Pls.' Opp'n. to MML, at 15. However, this Courtneed not address that issue because MML is entitled to judgmentas a matter of law with respect to the Securities Act claim andthe issue of good faith pertains to a possible defense under theSecurities Act.

6. Plaintiffs' proposed Second Amended Verified Complaint doesnot contain a count for violations of the Rhode Island UniformSecurities Act. See Attachment to Pls.' Mot. to File a SecondAm. V. Compl. However, this Court will address that statute asit relates to the present motions for summary judgment withregard to the Amended Complaint.

7. See United States v. Davis, 261 F.3d 1, 53 (1st Cir.2001); Ed Peters Jewelry Co., 124 F.3d at 268 (citationsomitted); Casey v. San-Lee Realty, Inc., 623 A.2d 16, 19 (R.I.1993); H.J. Baker & Bros., 554 A.2d at 205(citing Jackson v.Diamond T. Trucking Co., 241 A.2d 471, 477 (N.J. 1968);Blumberg, supra, at § 13.05.4, p. 283 (all listing the fivecircumstances).

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