2005 | Cited 0 times | D. Massachusetts | February 11, 2005


On April 23, 2003, Paula Perotta, as Trustee of Tory Pines EnterpriseRealty Trust, Algen Construction Development LLC, and Torrey PinesEnterprise LLC, filed this Complaint against Summit Home Loans, Inc.,Daniel Morris, Frank Dweller, and Caroline Investment, Inc., allegingbreach of an agreement to fund the purchase of a golf course. On June16, 2003, Morris and Dweller moved to be dismissed from the suit, arguingthat plaintiffs have failed to allege any basis on which they could befound individually liable. On June 23, 2003, Morris and Dweller, joinedby Summit Home Loans, filed a second motion to dismiss arguing a lack ofpersonal jurisdiction stemming from plaintiffs' failure to allege theminimum contacts with the forum necessary to satisfy the MassachusettsLong-Arm Statute, G.L. c. 223A, § 3. On July 14, 2003, the court allowedthe Morris and Dweller motion to dismiss without prejudice, giving leaveto plaintiffs to file an Amended Complaint alleging facts sufficient tostate a claim against the defendants in their individual capacities. Thecourt also denied the motion to dismiss for lack of personal jurisdictionPage 2without prejudice, pending the completion of discovery.1 On July 21,2003, plaintiffs filed an Amended Complaint and on July 31, 2003, Morrisand Dweller filed a renewed motion to dismiss. The court denied themotion without prejudice as premature.2, 3

On July 7, 2004, Morris and Dweller renewed their motion to dismiss forfailure to state a claim and renewed their motion to dismiss for lack ofpersonal jurisdiction.4 In their opposition, plaintiffs argued thatdiscovery on jurisdictional matters remained incomplete, and that, in anyevent, jurisdiction attached to Morris and Dweller because their"activities as agents suffices to confer jurisdiction over theplaintiffs' claims against them as such agents for an undisclosed orpartially disclosed principal. . . ." On July 26, 2004, the court orderedthe defendants to respond to all outstanding jurisdictional discovery. Indoing so, the court sounded a cautionary note, stating that "plaintiffs'theory supporting the existence of jurisdiction over the defendants intheir individual capacities appears to confuse personal and corporateliability. See McCarthy v. Azure, 22 F.3d 351, 360 (1st Cir. 1994)Page 3(acts performed by a defendant in a corporate capacity do not asa rule provide a basis for personal jurisdiction over a defendantin his individual capacity)."

On February 10, 2005, the court heard oral argument. Morris and Dwellerinsist that they cannot be held personally liable because the actsalleged in the Amended Complaint were performed in their capacities asemployees of Summit Home Loans d/b/a Summit Finance. In the absence ofany allegation of fraud or any facts warranting a piercing of thecorporate veil, Morris and Dweller contend that there are no grounds uponwhich a claim of personal liability can be based.

Plaintiffs concede that there is no basis for questioning Summit HomeLoans' corporate identity or for alleging any fraudulent acts ondefendants' part. Instead, they rely on Atlantic Salmon A/S v. Curran,32 Mass. App. Ct. 488, 491 (1992), for the proposition that anindividual may become personably liable, even when acting on behalf of acorporation, if the identity of the corporation is undisclosed or onlypartially disclosed. In support of this argument, plaintiffs point to sixparagraphs of the Amended Complaint.

11. Dweller approved financing to Algen by letter dated February 24, 2003 [on Summit Finance letterhead] a copy of which is attached hereto and marked "A". Morris, both before and after said letter from Dweller, communicated with Algen and its attorneys to carry forward the mortgage financing. 36. Dweller and Morris, at all times and in all correspondence, merely identified their company "Summit Finance;" at no time did they claim to be agents for or acting on behalf of Summit Home Loans, Inc.

37. Plaintiffs, prior to institution of this action, had never heard of or had actual knowledge of the entity "Summit Home Loans, Inc." Neither the business dealings with Dweller and/or Morris nor their review of the web site for "Summit Finance" disclosed such an entity or claimed that the actions of Dweller or Morris were on behalf of such an entity.Page 4

38. The identity of the corporation Summit Home Loans, Inc. was discovered by plaintiffs' counsel in his preparation for drafting of their Complaint in this litigation. 39. The actions of Dweller and Morris were, at most, actions of individuals on behalf of an undisclosed principal or a partially disclosed principal; as such, Dweller and Morris are, individually, parties to the funding contract with plaintiffs and responsible for their loss. 40. The trade name "Summit Finance" is inadequate to put plaintiffs on notice that they were contracting with the corporation Summit Home Loans, Inc."In Atlantic Salmon, defendant Michael Curran began purchasing quantitiesof salmon from two Norwegian salmon exporters in 1985. He did so

as a representative of "Boston International Seafood Exchange, Inc.," or "Boston Seafood Exchange, Inc." The salmon purchased by the defendant was sold to other wholesalers. Payment checks from the defendant to the plaintiffs were imprinted with the name "Boston International Seafood Exchange, Inc.," and signed by the defendant, using the designation "Treas.," intending thereby to convey the impression that he was treasurer. Wire transfers of payments were also made in the name of Boston International Seafood Exchange, Inc. The defendant gave the plaintiffs' representatives business cards which listed him as "marketing director" of "Boston International Seafood Exchange, Inc." Advertising placed by the defendant appeared in trade journals under both the names "Boston Seafood Exchange, Inc.," and "Boston International Seafood Exchange, Inc." (indicating in one instance as to the latter that it was "Est: 1982").Atlantic Salmon, 32 Mass. App. Ct. at 489. In truth, no corporationnamed "Boston International Seafood Exchange, Inc.," or "Boston SeafoodExchange, Inc.," ever existed.

In 1987, after Curran stopped making payment on his salmon purchases,Atlantic Salmon discovered that Boston Seafood Exchange, Inc., was afictitious entity. Consequently, it filed suit against Curranpersonally. Curran defended by arguing that he had acted as the agent ofanother entity, Marketing Designs, Inc., that he had incorporated in 1977for "the purpose of selling motor vehicles." Marketing Designs, however,had beenPage 5dissolved in1983, two years before Curran began doing business withAtlantic Salmon.5 Curran argued that it made "no difference that theplaintiffs thought they were dealing with corporate entities which did notexist, . . . because they were `aware' that they were transactingbusiness with a corporate entity and not with the defendantindividually." Atlantic Salmon, 32 Mass. App. Ct. at 491. TheMassachusetts Appeals Court rejected Curran's argument quoting liberallyfrom Professor Mechem's treatise on agency.

The duty rests upon the agent, if he would avoid personal liability, to disclose his agency, and not upon others to discover it. It is not, therefore, enough that the other party has the means of ascertaining the name of the principal; the agent must either bring to him actual knowledge or, what is the same thing, that which to a reasonable man is equivalent to knowledge or the agent will be bound. There is no hardship to the agent in this rule, as he always has it in his power to relieve himself from personal liability by fully disclosing his principal and contracting only in the latter's name. If he does not do this, it may well be presumed that he intended to make himself personally responsible.1 Mechem on Agency § 1413 (2d ed. 1914). The Appeals Court also cited toRestatement (Second) of Agency (1958). "Unless otherwise agreed, a personpurporting to make a contract with another for a partially disclosedprincipal is a party to the contract." Id. at § 321. As comment (a) to §321 and the accompanying illustrations make clear, it is not sufficientfor the agent to simply disclose that he is acting on behalf of another,he must provide sufficient information about the principal so that itsidentity can be readily distinguished.Page 6

In this case, according to the allegations of the Amended Complaint,Morris and Dweller conducted business with plaintiffs not in the name ofSummit Home Loans, Inc., but that of Summit Finance, its registered d/b/aor trade name. There is, as the Appeals Court noted in Atlantic Salmon, afistful of cases holding that use of a trade name is not a sufficientdisclosure of a principal's identity unless in the circumstances thetrade name would have no tendency to mislead or deceive. But all of thecases cited by the Appeals Court share a common theme — in each case thetrade name was meant to disguise the identity of the principal for somefraudulent purpose, or was asserted to avoid a legitimately incurred debtor obligation, or was injected in a misleading fashion to entice theextension of credit.6 See W.W. Leasing Unlimited v. CommercialStandard Title Ins. Co., 149 Cal. App. 3d 792, 795-796 (1983) (closelyheld company "E.D. Jones" used the fictitious trade name "IndustrialTelephone Systems" to avoid repurchase obligations under a telephonesystem contract); J & J Builders Supply v. Caffin, 248 Cal. App. 2d 292,296 (1967) (agent misrepresented his corporate principal as apartnership in which he was personally involved in order to obtaincredit); New England Whalers Hockey Club v. Nair, 1 Conn. App. 680,683-684 (1984) (defendant attempted to avoid a debt by falselyrepresenting himself as an officer of a non-existent corporation);Chambliss v. Hall, 113 Ga. App. 96, 100 (1966) (defendant heldhimself out as a partner rather than as an employee of the principal);Saco Dairy Co. v. Norton, 35 A.2d 857, 859 (Me. 1944)Page 7(defendant purchaser did not disclose that he was only the manager andnot the proprietor of a family-owned hotel); Stevens v. Graf,358 Mich. 122, 124 (1959) (defendant's testimony that he had disclosedthe fact of his agency properly discounted where his ulterior purpose wasto defraud creditors); Howell v. Smith, 261 N.C. 256, 258 (1964)(defendant never disclosed the fact that he had incorporated the tradename under which he had been doing business); A to Z Rental Center v.Burris, 714 S.W.2d 433, 436 (Tex.Ct.App. 1986) (defendant misled acreditor into believing that he was doing business as a partnership orsole proprietorship rather than as a corporation). Cf. Meyers-Leiber SignCo. v. W.L. Weirich, 2 Ariz. App. 534, 536 (1966) (acknowledging thegeneral rule, but finding sufficient evidence that plaintiff knew thatNorthern-Aire Lodge and Country Club and Northern-Aire Development Co.were one and the same entities).

While in an academic sense, the matter may seem reasonably close, thisis not a case in which a strict application of the undisclosed principalrule is required or even desirable. Morris and Dweller did notmisrepresent the fact that they were acting as employees of SummitFinance, and that Summit Finance was a Georgia company in the business offinancing loans. Summit Finance is the registered trade name of SummitHome Loans, and the latter entity has done nothing to conceal the factthat the two names are interchangeable. Moreover, the names are similarenough in their mutual use of the word "Summit" to rebut any inferencethat one name is meant to conceal its connection to the other. But mostimportant, unlike the cases cited in Atlantic Salmon, here there is noeffort on the part of Summit Home Loans to use Summit Finance to avoidany contractual obligation Morris and Dweller may have incurred on itsbehalf or to accomplish some otherPage 8unsavory purpose.

While there is no reason to doubt the good faith of plaintiffs'assertion that they learned of Summit Finance's formal corporate nameonly after the loan deal went sour, they have failed to offer anyexplanation as to how their earlier ignorance of this fact impactedeither their contractual rights or the negotiations over the loan. Thepurpose of the undisclosed principal rule is to prevent abuses of thecorporate form by defendants seeking to shield themselves from personalliability. To apply the undisclosed principal rule in the circumstancesof this case would elevate formalism over substance, and I decline to doso.7


For the foregoing reasons, the Morris and Dweller motion to dismiss forfailure to state a claim is ALLOWED. The Morris and Dweller motion todismiss for lack of personal jurisdiction is MOOT.


1. On September 3, 2003, the court held a scheduling conference andbifurcated discovery. Jurisdictional discovery was to be completed byJanuary 30, 2004.

2. Defendants also filed a motion for sanctions arguing thatplaintiffs' amendments were not made in good faith. On August 21, 2003,the court denied the motion.

3. On June 14, 2004, Summit Home Loans was defaulted for itssuccessive failures to comply with the court's November 21, 2003 Orderthat it obtain successor counsel. On June 15, 2004, substitute counselentered an appearance for Summit Home Loans and the court removed thedefault.

4. The original motion to dismiss for lack of personal jurisdictionwas brought by Morris, Dweller, and Summit Home Loans. While the renewedmotion to dismiss references the original, it is brought solely on behalfof Morris and Dweller. It asks that "the court dismiss the plaintiffs'complaint with prejudice as to any and all claims against them in theirindividual capacities." There is no pending challenge to the court'sjurisdiction over Summit Home Loans.

5. The Appeals Court noted that on "December 4, 1987, a certificatewas filed with the city clerk of Boston declaring that MarketingDesigns, Inc. (then dissolved), was conducting business under the name ofBoston Seafood Exchange (not with the designation "Inc." and not alsounder the name Boston International Seafood Exchange, Inc.)." AtlanticSalmon, 32 Mass. App. Ct. at 489.

6. An air of fraud permeated the Atlantic Salmon case and exerted anobvious influence on the Appeals Court's decision. See Atlantic Salmon,32 Mass. App. Ct. at 489 n. 2 ("On the evidence in this case, one mightview with considerable skepticism the good faith of the defendant's claimthat he was in fact acting as the agent of Marketing Designs, Inc.").

7. In this age of mergers and acquisitions and the proliferation ofcorporate brands (Is it Exxon or is it Mobil or is it ExxonMobil? Or isit Esso?), the undisclosed principal rule seems out of place in anycontext other than the devious debtor cases cited in Atlantic Salmon. Onecan understand why the general financing arm of Summit Home Loans wouldwant to use a name that implied a broader range of commercial intereststhan the home mortgage market. Things would, of course, be different ifSummit Home Loans was attempting to hide behind its Summit Finance tradename.Page 1

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