U.S. District Court Case Summaries: May 16, 2014.

Byline: Massachusetts Lawyers Weekly Staff Report

Editor's note: The full text of these decisions can be found on Lawyers Weekly's website, masslawyersweekly.com. Securities Stay - Discovery Where a defendant in an SEC enforcement has requested a stay pending completion of her criminal case, the request must be denied on the ground that the interests of the SEC and the public outweigh any risk of prejudice to the defendant. "... The Complaint alleges violations of the Securities Act, 15 U.S.C. s.77b et seq., and the Exchange Act, 15 U.S.C. s.78a et seq., arising from the alleged fraudulent sale of fictitious investment instruments. ... (T]he only remaining defendants are K2 (Unlimited, Inc.] and (Diane] Glatfelter, whom the Complaint identifies as K2's sole shareholder. ... "Glatfelter asks that this case be stayed until after her criminal trial in United States v. Glatfelter, No. 12-CR-10247-DPW, which is scheduled to begin on September 8, 2014. Glatfelter states that she plans to invoke her Fifth Amendment privilege against self-incrimination during her deposition by the SEC in this case on May 1, 2014. Although Glatfelter does not explain why a stay would be merited in the instant case, the court assumes that she believes that it would be unfairly prejudicial for her to confront the dilemma of either invoking her Fifth Amendment privilege during her deposition, from which a civil jury may draw an adverse inference, ... or responding to questions and having her answers used against her in her criminal case. ... "First, the SEC has an interest 'in proceeding expeditiously with the civil litigation.' ... This case has been pending since 2011. A decision in it will serve the public interest that the SEC is constituted to represent. Staying discovery would entail the risk of losing evidence through the death of witnesses or fading memories. ... "Second, proceeding with discovery in this case is unlikely to prejudice Glatfelter. Most significantly, the allegations in Glatfelter's criminal and civil cases are different. ... "In addition, Glatfelter will not be prejudiced in her criminal case if she invokes a Fifth Amendment right in this case because her assertion of the privilege will not be admissible in that prosecution. ... If Glatfelter answers questions at her deposition on matters other than the loan at issue in the criminal case, her responses may be inadmissible in the criminal case as irrelevant under Federal Rule of Evidence 401, as evidence of propensity under Rule 404(a), or by operation of Rule 403 even if relevant and admissible under Rule 404(b)(2). "Moreover, if discovery in this case were stayed until after the criminal case is resolved, Glatfelter would still have an incentive to invoke any valid Fifth Amendment privilege if her answers could lead to additional criminal charges against her. Therefore, the preparation and presentation of Glatfelter's defense in this case is not likely to be injured by her being deposed now rather than after the completion of her criminal trial. "...Glatfelter has made not argued, let alone shown, that parallel proceedings would be an inconvenience for either court, that any third parties would be adversely affected, or that the government has acted in bad faith by pursuing the civil and criminal actions simultaneously. In addition, as the Supreme Court has explained, 'to defer civil proceedings pending the ultimate outcome of a criminal trial' may 'stultify enforcement of federal law.' ..." Securities and Exchange Commission v. K2 Unlimited, Inc., et al. (Lawyers Weekly No. 02-241-14) (7 pages) (Wolf, J.) (USDC) (C.A. No. 11-11649-MLW) (April 29, 2014). Agency and partnership Commissions - G.L.c. 93A Where plaintiffs claiming to be owed commissions have asserted claims of negligence, breach of contract and violation of G.L.c. 93A, the allegations are sufficient to withstand a motion to dismiss. "... (Defendant] John Hancock markets and sells insurance products through a network of General Agents. ... In addition to selling John Hancock insurance products, the General Agents facilitate contractual relationships between John Hancock and other entities ('Sub-Agents') seeking to sell John Hancock insurance products. ... On or around September 2001, Plaintiffs became Sub-Agents for the sale of John Hancock insurance products. ... "... The sub-agency agreement requires the General Agent to forward the appropriate commissions to the Sub-Agent without discretion to decrease the amount paid. ... "... Sometime in late March 2013, Plaintiffs learned they had earned residual commissions for which they had not been paid. ... Collectively, Plaintiffs failed to receive residual commissions of at least $662,222.95, which were earned within the time-frame of January 2009 through June 2012. ... "First, (third-party defendant Eric] Schwartz asserts that the economic loss rule bars Plaintiffs' negligence claim. ... Massachusetts courts, however, 'have upheld tort claims to recover economic losses from negligent breach of contractual duties.' ... The relationship of the parties in contractual privity, such as fiduciary or one that is legally protected, will be considered. ... Thus, a plaintiff may allege negligence arising out of the breach of a duty of care established in a contract, the scope of such duty being defined by the terms of the contract. ... In such a circumstance the economic loss rule does not bar the claim. ... While there may be a question as to whether the contract at issue creates such duties, that question is not amenable to resolution on a motion to dismiss when the contract is not before the Court. Nothing here precludes Defendants from challenging the claim on a fuller record. "Second, Schwartz asserts that Plaintiffs have 'failed to plead any actual breach of any terms of the alleged Sub-Agent contract' by failing to plead and prove specific conduct constituting breach. ... For notice pleading purposes, however, Plaintiffs have pled a breach of contract claim. ... "Third, Schwartz asserts that the 93A claim fails to allege any unfair or deceptive acts and fails to plead any facts establishing that the acts at issue occurred primarily and substantially in Massachusetts. He contends that Plaintiffs' 93A claim is cut from the same cloth as their negligence and breach of contract claims, and that more is required to allege unfair or deceptive practices. ... Furthermore, Schwartz argues that the 93A claim focuses upon conduct in New York where Plaintiffs sold the policies, Schwartz paid (or did not pay) the commissions, and both Plaintiffs and Schwartz operate their businesses. Had Plaintiffs brought the claim Schwartz describes, they would not prevail. However, Plaintiffs allege a claim predicated on different factual allegations. The Plaintiffs allege unfair and deceptive acts by John Hancock primarily in Massachusetts in the form of John Hancock's decision to employ General Agents as intermediaries, John Hancock's alleged failure to supervise the General Agents, John Hancock's alleged failure to establish any internal controls, and John Hancock's failure to respond to reports of General Agents failing to pay commissions. ... These alleged actions, at least on the present record drawing all reasonable inferences in Plaintiffs' favor, occurred substantially and primarily in Massachusetts, and are sufficiently stated for pleading purposes." Fishman, et al. v. John Hancock Life Insurance Company (U.S.A.), et al. (Lawyers Weekly No. 02-180-14) (7 pages) (Sorokin, Ch. U.S.M.J.) (Civil Action No. 13-12166-LTS) (March 27, 2014). Negligence Hospital - Transfer - EMTALA Where a defendant medical center has moved for summary judgment on a claim brought under the Emergency Medical Treatment and Active Labor Act, the motion must be allowed because the defendant's transfer of the plaintiff to another hospital did not violate the statute. "Dr. Hayley Marshall, the physician who ordered the transfer to UMASS, testified that she made the decision to transfer Plaintiff to UMASS because UMASS had the ability to care for a premature child and to offer gastric bypass...

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