Title: Chelsea Housing Authority v. McLaughlin
Citation: N/A
Docket Number: SJC-12635
State: Massachusetts
Issuer: Massachusetts Supreme Court
Date: July 9, 2019

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SJC-12635 
 
CHELSEA HOUSING AUTHORITY  vs.  MICHAEL E. McLAUGHLIN & others.1 
 
 
 
Suffolk.     March 5, 2019. - July 9, 2019. 
 
Present:  Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, 
& Kafker, JJ. 
 
 
Common Law.  Accountant.  Negligence, Accountant.  Fraud.  
Waiver.  Practice, Civil, Waiver. 
 
 
 
 
Civil action commenced in the Superior Court Department on 
October 29, 2014. 
 
 
The case was heard by Timothy Q. Feeley, J., on motions for 
summary judgment, and entry of separate and final judgment was 
ordered by him. 
 
 
The Supreme Judicial Court granted an application for 
direct appellate review. 
 
 
 
Ronaldo Rauseo-Ricupero (Richard C. Pedone also present) 
for the plaintiff. 
 
William L. Boesch for Martin J. Scafidi, P.C. 
 
Nancy M. Reimer (Eric A. Martignetti also present) for John 
Marotto. 
 
Maura Healey, Attorney General, & Roberta L. Rubin, Special 
Assistant Attorney General, for Department of Housing and 
Community Development, amicus curiae, submitted a brief. 
                                                          
 
 
1 John Marotto; and Martin J. Scafidi, P.C. 
2 
 
 
 
Matthew P. Bosher & Matthew S. Brooker, of the District of 
Columbia, & Nicholas D. Stellakis, for American Institute of 
Certified Public Accountants & another, amici curiae, submitted 
a brief. 
 
 
 
GANTS, C.J.  Under the equitable common-law doctrine of in 
pari delicto, a plaintiff who has committed fraud cannot recover 
damages resulting from the negligence of an accountant in 
failing to detect the plaintiff's fraud, unless such relief is 
required as a matter of public policy.  See Merrimack College v. 
KPMG LLP, 480 Mass. 614, 625 (2018).  In Merrimack College, we 
held that, where the plaintiff is a corporation, it is barred 
under the doctrine from recovering damages for the negligence of 
its accounting firm in failing to detect the corporation's 
fraudulent conduct only if the fraud was committed by someone in 
its "senior management -- that is, the officers primarily 
responsible for managing the corporation, the directors, and the 
controlling shareholders."  Id. at 628.  But because the parties 
did not raise the issue, we did not decide in that case whether 
the Legislature by enacting G. L. c. 112, § 87A 3/4 -- which 
applies to conduct occurring after February 23, 2003, see St. 
2001, c. 147, § 2 -- replaced the common-law doctrine of in pari 
delicto "in cases where an accounting firm is sued for its 
failure to detect fraud by a client's employee, with a statutory 
3 
 
 
allocation of damages akin to, but different from, comparative 
negligence."  Merrimack College, supra at 631.2 
 
Here, the plaintiff, the Chelsea Housing Authority (CHA), 
has commenced this suit in the Superior Court against, among 
others, its former accountants, John Marotto and Martin J. 
Scafidi, P.C. (collectively, accountants), seeking to recover 
the losses it incurred from their alleged negligent failure to 
detect the fraudulent conduct of its former executive director, 
Michael E. McLaughlin,3 and former finance director, Vitus Shum, 
among others.  A Superior Court judge granted the accountants' 
motions for summary judgment solely on the ground that CHA's 
claim of negligence against them is barred by the common-law 
doctrine of in pari delicto -- due to the intentional misconduct 
of McLaughlin and Shum -- without addressing the applicability 
of § 87A 3/4.  Because the accountants' alleged negligent 
conduct occurred after the effective date of § 87A 3/4, CHA's 
appeal from that judgment now requires us to decide the issue 
                                                          
 
 
2 In Merrimack College v. KPMG LLC, 480 Mass. 614, 629 
(2018), we concluded that the financial aid director at 
Merrimack College, who had committed fraud, could not be deemed 
a member of senior management of the college, and so the college 
was not barred by the common-law doctrine of in pari delicto 
from recovering damages from its accounting firm.  Perhaps 
because most of the relevant conduct in Merrimack College 
occurred before the effective date of G. L. c. 112, § 87A 3/4, 
the parties did not discuss the statute.  See id. at 631-632. 
 
 
3 Michael E. McLaughlin, a defendant below, is not a party 
to this appeal. 
4 
 
 
left unanswered in Merrimack College:  whether the Legislature 
intended to preempt the common-law doctrine of in pari delicto 
in cases where an accountant is sued for failing to detect fraud 
committed by a client. 
 
After careful examination of the language of that statute, 
viewed in the context of its legislative history, we conclude 
that the Legislature intended that, where a plaintiff sues an 
accountant for negligently failing to detect the fraudulent 
conduct of the plaintiff, the plaintiff may recover damages from 
the accountant, but only for the percentage of fault attributed 
to the accountant (as compared to the fault of all others whose 
fraudulent conduct contributed to causing the plaintiff's 
damages).  In so doing, by necessary implication, the 
Legislature has preempted the common-law doctrine of in pari 
delicto doctrine as it applies to the negligent conduct of 
accountants and auditors in failing to detect fraud.  We 
therefore vacate the grant of summary judgment and remand the 
5 
 
 
case to the Superior Court for further proceedings consistent 
with this opinion.4,5 
 
Background.  We summarize the relevant facts recited by the 
judge in granting the accountants' motions for summary judgment.  
Ng Bros. Constr., Inc. v. Cranney, 436 Mass. 638, 639 (2002).  
From 2000 until 2011, McLaughlin served as the executive 
director of CHA, which is the agency responsible for the 
administration of Chelsea's low income housing programs.  His 
employment agreements -- which were executed between McLaughlin 
and CHA's five-member board of commissioners (board) -- 
established his annual salary, which began at $107,000 for the 
2001 fiscal year.  CHA was required to submit annual budget 
reports to the Department of Housing and Community Development 
(DHCD) for approval, subject to regulatory limits on the amount 
by which a housing authority could increase administrative 
salaries. 
                                                          
 
 
4 Accordingly, we do not reach any other issues raised by 
the parties, such as whether, as a matter of public policy, we 
would carve out an exception to the in pari delicto doctrine in 
cases where a public authority seeks to recover damages from its 
accountant and auditor for their alleged negligence in failing 
to detect fraudulent conduct committed by members of senior 
management.  See Merrimack College, 480 Mass. at 625. 
 
 
5 We acknowledge the amicus briefs submitted by the 
Department of Housing and Community Development, and by the 
American Institute of Certified Public Accountants and 
Massachusetts Society of Certified Public Accountants. 
6 
 
 
 
However, McLaughlin quickly sought and obtained board 
approval for salary increases vastly higher than those permitted 
by the regulatory limits imposed by DHCD.  By 2004, McLaughlin's 
board-approved salary had risen to $180,000; in 2008, he earned 
$267,199; and in 2011, his final year at CHA, the board approved 
a salary of $291,975.  In order to avoid scrutiny from DHCD for 
these raises, McLaughlin stopped submitting his employment 
agreements to DHCD, and instead prepared and filed budget 
reports with deliberately falsified salary figures that fell 
within State regulatory guidelines.  For example, McLaughlin 
incorrectly reported salaries of $135,000 in 2004, $151,945 in 
2008, and $160,415 in 2011.  These budget reports were submitted 
to DHCD with the knowledge and approval of the CHA board.6 
 
At McLaughlin's direction, CHA "misallocated and misused" 
Federal funds granted to CHA by the United States Department of 
Housing and Urban Development (HUD) under its capital funds 
program.  Some of these Federal funds were diverted to pay 
McLaughlin the difference between his actual salary and the 
                                                          
 
 
6 In the same action brought against John Marotto and Martin 
J. Scafidi, P.C. (collectively, accountants), the Chelsea 
Housing Authority (CHA) individually sued each member of the 
board of commissioners who served during Michael E. McLaughlin's 
tenure as executive director.  The commissioners' motion to 
dismiss was allowed because, as board members of a public agency 
who had not engaged in malfeasance, they were statutorily immune 
from suit.  See G. L. c. 121B, § 13.  CHA does not challenge the 
dismissal on appeal. 
7 
 
 
falsified figures reported to DHCD.  Eventually, HUD 
investigators uncovered McLaughlin's excessive compensation and 
the misuse of Federal funds.  HUD has since demanded the 
recapture from CHA of $2.7 million:  $500,000 of excessive 
compensation paid to McLaughlin and $2.2 million of misused 
capital funds program monies. 
 
In July 2013, McLaughlin pleaded guilty in the United 
States District Court for the District of Massachusetts to four 
counts of falsifying a record in a matter pertaining to a 
Federal agency, in violation of 18 U.S.C. § 1519.  Each count 
pertained to a different fiscal year and charged McLaughlin with 
knowingly and falsely understating the amount of his budgeted 
annual salary in CHA budgets that HUD required to be submitted 
to State regulatory authorities.7,8 
                                                          
 
 
7 McLaughlin also pleaded guilty in a separate indictment in 
the United States District Court for the District of 
Massachusetts to conspiracy to defraud the United States, in 
violation of 18 U.S.C. § 371, for conspiring with a contractor 
to receive advance notice of the housing units that would be 
subject to random inspection by the United States Department of 
Housing and Urban Development, which enabled CHA to repair the 
units before the inspection.  It is not clear whether any 
damages to CHA were alleged to have resulted from this 
inspection-rigging scheme. 
 
 
8 On March 5, 2019, the Superior Court judge in this action 
granted CHA's motion for summary judgment against McLaughlin as 
to liability.  The judge entered an order awarding $1,187,460.44 
to CHA, plus interest and costs. 
8 
 
 
 
In the Superior Court action, CHA moved for summary 
judgment against the accountants, claiming that, based on the 
undisputed facts, they committed professional malpractice by 
failing to detect the fraud perpetrated by McLaughlin and Shum, 
and their negligence caused CHA to suffer substantial losses.  
The accountants opposed CHA's motion, asserting that there is a 
material dispute of fact whether they were negligent in the 
performance of their duties.  They also cross-moved for summary 
judgment, claiming that -- even if they were negligent -- they 
are entitled to judgment under the doctrine of in pari delicto 
because the fraudulent conduct of McLaughlin and Shum is imputed 
to CHA, and an entity that committed fraud cannot recover 
judgment against its accountants for failing to detect that 
fraud. 
 
As noted, the motion judge granted the accountants' motions 
for summary judgment, concluding that the doctrine of in pari 
delicto barred CHA from recovering damages against them even if 
they were negligent.  The judge found that CHA was "by far the 
greater wrongdoer" based on the intentional misconduct of 
McLaughlin and Shum, whose actions, the judge held, must be 
imputed to CHA because those actions were committed within the 
scope of their employment.  The judge further noted that, if 
CHA's claims were not barred by the doctrine of in pari delicto, 
he would have denied the motions for summary judgment because 
9 
 
 
the other arguments raised were "more appropriately dealt with 
at trial."  The judge did not cite or make reference to G. L. 
c. 112, § 87A 3/4. 
 
CHA timely appealed from the grant of summary judgment, and 
we allowed an application for direct appellate review. 
 
Discussion.  On appeal, CHA contends that, where, as here, 
the alleged negligence of the accountants occurred after 
February 23, 2003, the common-law doctrine of in pari delicto is 
preempted by the statutory allocation of damages for an 
accountant's liability established by G. L. c. 112, § 87A 3/4.  
In Merrimack College, 480 Mass. at 631, we noted that "the 
Legislature appears to have replaced the common-law doctrine of 
in pari delicto in cases where an accounting firm is sued for 
its failure to detect fraud by a client's employee, with a 
statutory allocation of damages akin to, but different from, 
comparative negligence."  But we declined to decide the issue, 
noting that "[t]he parties and the judge did not cite § 87A 3/4 
or make reference to it."  Id. at 630-631.   
 
1.  Waiver.  The accountants contend that we must again 
decline to decide the issue, because CHA failed to argue to the 
motion judge that § 87A 3/4 preempts the doctrine of in pari 
delicto, and therefore waived its right to make the argument on 
appeal.  Although we recognize it to be a close question, we 
conclude that the issue is not waived. 
10 
 
 
 
Underlying the purpose of the waiver doctrine is the need 
to give other parties -- and the courts -- fair notice that a 
claim or defense is being raised.  See Nelson v. Adams USA, 
Inc., 529 U.S. 460, 469 (2000) ("[waiver] principle does not 
demand the incantation of particular words; rather, it requires 
that the lower court be fairly put on notice as to the substance 
of the issue").  Here, both accountants raised § 87A 3/4 as a 
defense in their answer to CHA's amended complaint.  In 
response, in CHA's motion for summary judgment against Marotto, 
CHA argued that Marotto could not invoke § 87A 3/4 to limit his 
liability at the summary judgment stage because the issue of his 
liability had not yet been determined.  Marotto countered that, 
if he lost on summary judgment, the statute would "squarely 
appl[y]" to limit his liability as an accountant "where others 
have committed fraud."  No party raised the question of 
preemption.  However, after the issuance of the summary judgment 
order but before any briefs were filed in this appeal, we 
decided Merrimack College, where we suggested that the 
Legislature may have supplanted the doctrine of in pari delicto 
through its enactment of § 87A 3/4.  Merrimack College, 480 
Mass. at 631. 
 
We are satisfied that CHA may raise this argument on 
appeal.  The parties and the judge were indisputably on notice 
that the applicability of § 87A 3/4 was at issue as to CHA's 
11 
 
 
claims against these defendants.  Given that CHA's discussion of 
preemption arose out of our discussion in Merrimack College, it 
would make little sense to avoid deciding the issue of 
preemption, where the issue of the applicability of § 87A 3/4 
was before the Superior Court. 
 
2.  Legislative history of G. L. c. 112, § 87A 3/4.  We 
have "long held that a statutory repeal of the common law will 
not be lightly inferred."  Passatempo v. McMenimen, 461 Mass. 
279, 290 (2012).  To answer the question whether a legislative 
act necessitates preemption of a common-law doctrine, we must 
first examine the history behind the act's passage in order to 
discern its purpose.  See Lipsitt v. Plaud, 466 Mass. 240, 245-
249 (2013). 
 
Section 87A 3/4, as enacted by the Legislature in 2001, 
provides: 
"When an individual or firm licensed to practice public 
accountancy under [§] 87B or 87B 1/2 is held liable for 
damages in a civil action arising from or related to its 
provision of services involving the practice of public 
accountancy, in which action a claim or defense of fraud is 
raised against the plaintiff or another party, individual 
or entity, and that plaintiff or other party, individual, 
or entity has been found to have acted fraudulently in the 
pending action or in another action or proceeding involving 
similar parties, individuals, entities and claims, and the 
fraud was related to the performance of the duties of the 
individual or firm licensed to practice public accountancy, 
the trier of fact shall determine:  (a) the total amount of 
the plaintiff's damages, (b) the percentage of fault 
attributable to the fraudulent conduct of the plaintiff or 
other party, individual or entity contributing to the 
plaintiff's damages, and (c) the percentage of fault of the 
12 
 
 
individual or firm in the practice of public accountancy in 
contributing to the plaintiff's damages.  Under the 
circumstances set forth in this section, individuals or 
firms in the practice of public accountancy shall not be 
required to pay damages in an amount greater than the 
percentage of fault attributable only to their services as 
so determined.  This section shall not apply where a 
finding is made that the acts of the individual or firm in 
the practice of public accountancy were willful and 
knowing.  In such an action involving the practice of 
public accountancy in which a claim or defense of fraud is 
raised, if there is pending a separate action or proceeding 
in which the alleged fraudulent conduct of the same party, 
individuals or entity against whom the claim or defense is 
raised is to be adjudicated or determined, the court may 
stay, on its own or by motion, the action involving the 
practice of public accountancy until the other action or 
proceeding is concluded or the issue of fraudulent conduct 
is determined in that other action."9 
 
Under the terms of this statute, as noted in Merrimack College, 
480 Mass. at 630, "if a plaintiff suffered damages of $1 
million, and seventy per cent of those damages is attributable 
to the plaintiff's own fraudulent conduct while only thirty per 
cent is attributable to the negligence of the defendant 
accounting firm, the defendant shall not be required to pay more 
than $300,000." 
 
A close look at the legislative history reveals that, no 
later than 1999, the accounting industry urged the Legislature 
to enact legislation that would protect accountants from being 
held jointly and severally liable for the entirety of damages 
                                                          
 
 
9 There is no dispute that the accountants are licensed to 
practice public accountancy in Massachusetts and therefore are 
within the scope of the statute. 
13 
 
 
when a client firm fails and the accountant is found negligent.  
Bill Would Shield CPAs from Suits When Clients Falter, Boston 
Globe, Feb. 11, 2000.  Under a joint and several liability 
framework, "a plaintiff injured by more than one tortfeasor may 
sue any or all of them for her full damages."10  Shantigar Found. 
v. Bear Mountain Bldrs., 441 Mass. 131, 141 (2004).  As 
articulated by a former executive director of the Massachusetts 
Society of Certified Public Accountants, the industry was 
concerned that, with joint and several liability, "[i]f there's 
just the slightest bit of culpability, [the accounting firm] can 
suffer [one hundred] percent of the loss" if it is the only one 
"left standing."  Bill Would Shield CPAs from Suits When Clients 
Falter, supra. 
 
The enormous risk to accountants arising from joint and 
several liability ripened as a subject of public debate in 
Massachusetts when, early in January 2000, the largest health 
                                                          
 
 
10 "Massachusetts retains the traditional principle of joint 
and several liability in tort cases" as part of the common law.  
Glannon, Liability of Multiple Tortfeasors in Massachusetts:  
The Related Doctrines of Joint and Several Liability, 
Comparative Negligence and Contribution, 85 Mass. L. Rev. 50, 50 
(2000).  In contrast, under the concept of proportional or 
"several" liability, adopted in some jurisdictions, "each would 
pay [only] according to her percentage of fault."  Id. at 52 
n.12.  "Significantly, Massachusetts has declined previous 
opportunities to eliminate joint and several liability . . . in 
favor of imposing fault-based liability on all parties."  
Shantigar Found. v. Bear Mountain Bldrs., 441 Mass. 131, 142 
(2004). 
14 
 
 
maintenance organization in Massachusetts, Harvard Pilgrim 
Health Care (Harvard Pilgrim), was placed into receivership by 
order of the then Chief Justice of this court after suffering 
dramatic financial losses.  Harvard Pilgrim in Receivership 
Care, Coverage Will Continue, Boston Globe, Jan. 5, 2000.  
Harvard Pilgrim publicly blamed its financial woes -- which 
amounted to losses of at least $177 million in 1999 alone -- on 
errors in accounting practices.  Id.  The episode triggered a 
public discussion of the role of accountants and auditors in 
reviewing the financial well-being of large corporations, with 
"many officials . . . calling for higher standards of fiscal 
accountability in the wake of the crisis," Bill Would Shield 
CPAs from Suits When Clients Falter, supra, and the 
Massachusetts Society of Certified Public Accountants calling 
for proportional liability that "would shield them from the 
fallout of failed business ventures or fraudulent lawsuits 
resulting from inaccurate audits," Accountants Seek Law to 
Protect Them from Business Failure Lawsuits, State House News 
Service, Mar. 22, 2001. 
 
In February 2000, the Legislature passed a bill titled "An 
Act relative to the practice of public accountancy," which 
provided in relevant part: 
"No individual or firm licensed to practice public 
accountancy pursuant to [§] 87B or 87B 1/2 of this act 
shall be held liable for any damages in any civil action 
15 
 
 
arising from, or related to, their provision of services 
involving the practice of public accountancy unless such 
damages are found to be solely the direct and proximate 
result of the actual conduct of the individual or firm." 
 
1999 Senate Doc. No. 368.  When the bill arrived at the desk of 
then Governor Paul Cellucci, however, he declined to sign it.  
Recognizing that this proposed legislation did not enact 
proportional liability for accountants, but instead protected 
accountants from any liability unless their negligence was the 
sole cause of the client firm's losses, the Governor responded 
to the Legislature in a letter dated February 11, 2000, writing: 
"The purpose of this legislation, as articulated by its 
proponents, is to replace joint and several liability for 
accountants with proportionate liability.  The bill is not 
intended to change the current standard of accountant 
professional liability, but only to apportion an 
accountant's responsibility to pay damages in direct 
proportion to his fault. 
 
"I am sympathetic to the principle underlying this bill 
that, in some cases, it would be more equitable to limit a 
tortfeasor's responsibility to pay damages in proportion to 
his fault, rather than to impose on a single tortfeasor the 
responsibility to pay all damages, including those caused 
by the fault of others.  I am concerned, however, that, as 
drafted, this bill could have the broader effect of 
changing our current standard of accountant professional 
liability by severely narrowing the scope of conduct and 
damages for which accountants may be held liable.  Such a 
result would be especially troubling given the critical 
role that accountants play in our complex system of 
commerce and the extensive reliance that individuals, 
businesses, and government place on the expertise they 
provide.  I therefore recommend that this bill be amended 
to more clearly limit its effect to its stated purpose." 
 
16 
 
 
2000 Senate Doc. No. 2096, at 1.  The Governor returned the bill 
to the Legislature with a suggested amendment that provided in 
relevant part: 
"When an individual or firm licensed to practice public 
accountancy pursuant to [§] 87B or 87B 1/2 is held liable 
for damages in a civil action arising from, or related to, 
its provision of services involving the practice of public 
accountancy, there shall be a determination by the trier of 
fact both of (1) the total amount of each plaintiff's 
damages, and (2) the percentage of fault of the individual 
or firm in contributing to each plaintiff's damages.  No 
individual or firm shall be required to pay damages in an 
amount greater than the percentage of fault as so 
determined.  This section shall not apply where a finding 
is made that the acts of the individual or firm were 
willful and knowing." 
 
Id. at 2.  The Governor's proposed language, rather than 
protecting accountants from any liability for their negligence 
except where they are proved to be the sole cause of damages, 
would have replaced the common law of joint and several 
liability for accountants with proportional liability, limiting 
the amount of damages that accountants would pay if found liable 
for negligence in a civil action to their percentage of fault.  
The Legislature did not take any further action on the matter in 
2000. 
 
In early 2001, in the new legislative session, the Senate 
reintroduced the public accountancy bill, reflecting the 
Governor's proposed language.  See 2001 Senate Doc. No. 402.  In 
late September 2001, the bill was referred to the House, which 
on November 5, 2001, proposed an amendment to the bill's 
17 
 
 
language.  The House amendment dramatically limited the bill's 
reach to circumstances "involving the practice of public 
accountancy wherein a claim or defense of fraud is raised 
against the . . . plaintiff or another party . . . and said 
party . . . has been found to have acted fraudulently in the 
pending action or in any other action or proceeding involving 
similar parties."  2001 House Doc. No. 4718.11  In short, while 
the bill proposed by the Governor and referred by the Senate 
provided for proportional liability for accountants in all civil 
cases, the amended House bill limited the application of 
proportional liability for accountants to cases where a defense 
or claim of fraud is raised against the plaintiff or any other 
party, person, or entity, and one or more of them is found to 
have acted fraudulently.  It was this House bill, not the 
earlier Senate bill reflecting the Governor's suggested 
amendment, that was ultimately enacted by the Legislature and 
signed into law by then Acting Governor Jane Swift on November 
25, 2001.  St. 2001, c. 147. 
 
The legislative history is silent as to why the Legislature 
decided in the late fall of 2001 to limit the scope of 
                                                          
 
 
11 The Senate further amended the bill on November 13, 2001, 
adding another qualifier to make clear that the law would only 
apply where the alleged fraud of the plaintiff or other person 
"was related to the performance of the duties of the individual 
or firm licensed to practice public accountancy."  2001 Senate 
Doc. No. 2174. 
18 
 
 
proportional liability for accountants to cases where the 
accountant committed negligence and others committed fraud.  But 
it is noteworthy that in October 2001, Enron Corporation 
(Enron), once "the world's dominant energy trader," began to 
face significant scrutiny in nationwide media reports regarding 
its internal financial crisis.  Once-Mighty Enron Strains Under 
Scrutiny, N.Y. Times, Oct. 28, 2001.  After Enron's reported 
third quarter earnings statements failed to reflect a $1.2 
billion reduction in shareholder equity, many began pointing 
fingers at Enron's accounting practices.  See id.  Although the 
company's chief executive officer tried to reassure investors 
that auditors from Arthur Andersen LLP -- Enron's accounting 
firm -- "had carefully reviewed Enron's reporting," the public 
was aware by mid-October that the United States Securities and 
Exchange Commission (SEC) was expected to look into "the 
sophisticated financing techniques used by the company [that] 
might be effectively keeping losses off the earnings statement."  
Enron Tries to Dismiss Finance Doubts, N.Y. Times, Oct. 24, 
2001.  Within days, on October 30, the SEC opened a formal 
investigation into Enron's practices and sent a letter to Enron 
requesting accounting documents.  Arthur Andersen LLP v. United 
States, 544 U.S. 696, 701 (2005).  The episode raised concerns 
that accountants, without sufficient incentive to report 
misdeeds by clients, would "[take] an overly partisan approach, 
19 
 
 
approv[e] highly questionable deals and grossly exaggerat[e] 
[their clients'] financial strength."  Rostain, Pockets of 
Professionalism, 54 Stan. L. Rev. 1475 (2002). 
 
We often say that, in interpreting the meaning of a 
statute, we seek to effectuate the intent of the Legislature, 
"ascertained from all its words construed by the ordinary and 
approved usage of the language, considered in connection with 
the cause of its enactment, the mischief or imperfection to be 
remedied and the main object to be accomplished, to the end that 
the purpose of its framers may be effectuated."  DiFiore v. 
American Airlines, Inc., 454 Mass. 486, 490 (2009), quoting 
Industrial Fin. Corp. v. State Tax Comm'n, 367 Mass. 360, 364 
(1975).  In ascertaining why the Legislature began the 2001 
session with a bill intended to replace joint and several 
liability for accountants with proportional liability, yet 
ultimately passed a bill that provided for proportional 
liability only where the plaintiff (or another party, person, or 
entity who contributed to the plaintiff's damages) committed 
fraud, it is reasonable to infer that -- as the Enron scandal 
began to unravel -- the "mischief or imperfection" the 
Legislature sought to remedy included not only the potential 
unfairness to accountants of joint and several liability, but 
also the need to hold accountants accountable for negligently 
20 
 
 
failing to detect and reveal financial fraud committed by their 
client and its officers. 
 
3.  Preemption.  CHA contends that the Legislature has 
supplanted the common-law doctrine of in pari delicto by 
enacting G. L. c. 112, § 87A 3/4.  It is a "settled rule of 
statutory construction that '[a] statute is not to be 
interpreted as effecting a material change in or a repeal of the 
common law unless the intent to do so is clearly expressed.'"  
Riley v. Davison Constr. Co., 381 Mass. 432, 438 (1980), quoting 
Pineo v. White, 320 Mass. 487, 491 (1946).  Such intent may be 
"clearly expressed" in one of two ways:  by words in the statute 
itself clearly stating that the statute supersedes the common 
law, or by "necessary implication."  See Lipsitt, 466 Mass. at 
244, quoting Eyssi v. Lawrence, 416 Mass. 194, 199-200 (1993) 
("It is well established that 'an existing common law remedy is 
not to be taken away by statute unless by direct enactment or 
necessary implication'").  Cf. George v. National Water Main 
Cleaning Co., 477 Mass. 371, 378 (2017), quoting Commonwealth v. 
Harris, 443 Mass. 714, 725 (2005) ("[A] statute is not to be 
deemed to repeal or supersede a prior statute in whole or in 
part in the absence of express words to that effect or of clear 
implication"). 
 
There are no words in § 87A 3/4 expressly stating that the 
statute was intended to repeal the in pari delicto doctrine as 
21 
 
 
applied to the negligent failure of accountants to detect and 
reveal fraudulent conduct.  Nor have we found any legislative 
history that indicates that the Legislature considered, or even 
knew of, the in pari delicto doctrine when it enacted § 87A 3/4.  
But a common-law rule may be replaced or amended by the 
Legislature even where "there is no indication of legislative 
intent to preempt the common law" if the enacted statute 
preempts the common law by "necessary implication."  See 
Lipsitt, 466 Mass. at 247, quoting Eyssi, 416 Mass. at 199-200.  
A statute preempts a common-law doctrine by necessary 
implication where the doctrine "is so repugnant to and 
inconsistent with" the statute that "both cannot stand."  See 
George, 477 Mass. at 378, quoting Commonwealth v. Hayes, 372 
Mass. 505, 511 (1977).  See also Skawski v. Greenfield Investors 
Prop. Dev. LLC, 473 Mass. 580, 586 (2016) (implied repeal may 
"be clear where the subsequent legislation comprehensively 
addresses a particular subject and impliedly supersedes related 
. . . common law that might frustrate the legislative purpose").  
"[T]he question is one of practicality."  Lipsitt, supra.  Can 
the common-law doctrine and the statute reasonably coexist in 
harmony, or must the common-law doctrine necessarily give way in 
order to effectuate the purpose of the statute?  To better 
illustrate this process, we examine the effect that all three 
22 
 
 
proposed bills before the Legislature would have had on the 
doctrines of in pari delicto and joint and several liability. 
 
a.  The 2000 bill.  The bill that initially reached 
Governor Cellucci's desk could have coexisted in harmony with 
the common-law doctrine of in pari delicto.  As noted supra, 
that bill provided that no licensed accountant or accounting 
firm "shall be held liable for any damages in any civil action 
arising from, or related to, their provision of [accounting] 
services unless such damages are found to be solely the direct 
and proximate result of the actual conduct of the individual or 
firm."  Under the in pari delicto doctrine, if a plaintiff had 
engaged in intentional conduct -- including fraudulent conduct12 
-- a defendant accountant who negligently failed to detect that 
fraud would not be liable for damages arising from the fraud.  
Under the framework imposed by the bill, the result would be the 
same; because of the plaintiff's fraudulent conduct, the 
plaintiff's damages would not "be solely" the result of the 
accountant's conduct, and the accountant would not be held 
liable.  Accordingly, the first bill and the in pari delicto 
doctrine would have coexisted without conflict. 
                                                          
 
 
12 "Under the common law, fraud is a knowing false 
representation of a material fact intended to induce a [person] 
to act in reliance, where the [person] did, in fact, rely on the 
misrepresentation to his [or her] detriment."  Fordyce v. 
Hanover, 457 Mass. 248, 257 (2010).  See Balles v. Babcock Power 
Inc., 476 Mass. 565, 573 (2017) (describing elements of fraud). 
23 
 
 
 
However, this first bill could not have coexisted in 
harmony with the common-law doctrine of joint and several 
liability, and by necessary implication, would have preempted -- 
for accountants only -- that common-law doctrine.  Under the 
doctrine of joint and several liability, if an accountant and 
another defendant were both found to be negligent, each would be 
jointly and severally liable to pay the judgment; if the other 
defendant were unable to pay, perhaps because of bankruptcy, the 
accountant would be responsible alone to pay the entirety of the 
judgment.  But under the bill's provisions, if an accountant and 
another defendant were both found to be negligent, the 
accountant would not be liable for damages and the other 
defendant would be responsible alone to pay the entirety of the 
judgment. 
 
b.  The bill proposed by the Governor.  The bill 
recommended by Governor Cellucci also could have coexisted in 
harmony with the common-law doctrine of in pari delicto.  As 
noted supra, that bill provided that accountants found liable 
for negligence in their performance of accounting services would 
pay proportional damages no greater than their percentage of 
fault.  In cases where the plaintiff had committed fraud and the 
accountant had committed negligence, the doctrine of in pari 
delicto would have resulted in the accountant not being found 
liable, so the proportional liability provision of the bill 
24 
 
 
would not apply.  The bill and the doctrine thus would not 
overlap in practice, and could have coexisted side by side. 
 
But the bill's proportional liability provision would apply 
to limit the amount of damages that an accountant would be 
required to pay where the plaintiff had not engaged in fraud, 
and the accountant and other defendants were found negligent.  
In these cases, under the doctrine of joint and several 
liability, the accountant would be responsible to pay the 
entirety of the judgment if the other defendants were unable to 
pay.  Under proportional liability, the accountant would be 
responsible to pay damages only in proportion to his or her 
share of liability.  Therefore, by necessary implication, the 
bill would have preempted -- for accountants only -- the common-
law doctrine of joint and several liability. 
 
c.  G. L. c. 112, § 87A 3/4.  As discussed supra, neither 
of the first two bills before the Legislature ever became law.  
Instead, the Legislature enacted as G. L. c. 112, § 87A 3/4, a 
bill dramatically different in its text and, as a result, in its 
legal implications.  We conclude that § 87A 3/4 cannot coexist 
in harmony with the common-law doctrine of in pari delicto.  
Section 87A 3/4 provides for proportional liability for 
accountants only where others have committed fraud and the 
accountants did not, and expressly provides that "the percentage 
of fault attributable to the fraudulent conduct of the plaintiff 
25 
 
 
. . . contributing to the plaintiff's damages" shall be included 
in the calculation of proportional liability.  If the doctrine 
of in pari delicto applied in these circumstances, the 
accountant who negligently failed to detect fraud by a client 
would never be held liable, so there would never be occasion to 
include "the percentage of fault attributable to the fraudulent 
conduct of the plaintiff" in the calculation of the accountant's 
proportional liability.  The doctrine must yield, because if we 
held otherwise, the statute's express intent to govern 
circumstances where "a plaintiff . . . [has] acted fraudulently" 
would be rendered superfluous.  G. L. c. 112, § 87A 3/4.  See 
Connors v. Annino, 460 Mass. 790, 796 (2011), quoting Wheatley 
v. Massachusetts Insurers Insolvency Fund, 456 Mass. 594, 601 
(2010), S.C. 465 Mass. 297 (2013) ("We . . . endeavor to 
interpret a statute to give effect 'to all its provisions, so 
that no part will be inoperative or superfluous'").  By limiting 
proportional liability to cases where fraud is found and by 
including the plaintiff's fraud in the calculation of 
proportional liability, the Legislature, by necessary 
implication, has preempted the common-law doctrine of in pari 
26 
 
 
delicto in cases where an accountant is found liable for failing 
to detect and reveal a plaintiff's fraud.13 
 
For example, imagine a case where the fraudulent financial 
machinations of a corporation's president and chief financial 
officer leave a corporation in ruins, and its accounting firm 
negligently fails to detect the fraud (or fails to reveal it for 
fear of reprisal by the client).  If the corporation's new 
executive leadership seeks to recover damages from the 
accounting firm for its professional malpractice, the accounting 
firm may be held liable under § 87A 3/4, but would be 
responsible only for damages reflecting its proportional 
liability.  This result is consistent with the apparent intent 
of a Legislature that wanted to protect accountants from joint 
and several liability where they negligently failed to detect 
fraud, but also wanted accountants held accountable to a 
                                                          
 
 
13 To be sure, there are circumstances in which the common-
law doctrine of in pari delicto and G. L. c. 112, § 87A 3/4, 
could exist side by side.  For instance, there are cases in 
which the statute would apply but the in pari delicto doctrine 
would not, such as where the fraudulent conduct is committed by 
"[another] party, individual or entity contributing to the 
plaintiff's damages," but not by the plaintiff or by a person 
whose conduct is imputed to the plaintiff.  G. L. c. 112, 
§ 87A 3/4.  See Merrimack College, 480 Mass. at 627-628.  But 
this does not undermine our holding where the heart of the 
statute establishes a formula to allocate proportional damages 
in cases where "a plaintiff . . . [has] acted fraudulently," 
G. L. c. 112, § 87A 3/4, thus directly conflicting with the 
doctrine.  The fact that the statute reaches beyond the scope of 
a plaintiff's conduct does not affect our preemption analysis. 
27 
 
 
proportional degree for professional malpractice in failing 
adequately to address the fraudulent conduct of their clients -- 
such as Enron. 
 
The accountants highlight one aspect of our interpretation 
that they contend is unreasonable.  They ask us to imagine a 
case where more than fifty percent of the fault is attributable 
to the conduct of the plaintiff.  They note that, if § 87A 3/4 
preempts the common-law doctrine of in pari delicto, a plaintiff 
who engaged in fraudulent conduct could recover proportional 
damages from a negligent accountant under § 87A 3/4, but a 
plaintiff who engaged in negligent conduct could not recover any 
damages from a negligent accountant under the comparative 
negligence statute.  See G. L. c. 231, § 85; Merrimack College, 
480 Mass. at 624.  It is true that "[w]e assume the Legislature 
intended to act reasonably," and thus we "will not adopt a 
literal construction of a statute if the consequences of such 
construction are absurd or unreasonable."  Attorney Gen. v. 
School Comm. of Essex, 387 Mass. 326, 336 (1982).  But we do not 
consider it to be absurd or unreasonable for the Legislature to 
want accountants to be particularly vigilant in detecting fraud 
and to fear the possibility of liability, albeit liability 
proportional to their relative fault, at least as much as they 
may fear reprisal from a client for revealing the fraud. 
28 
 
 
 
It is plain from the statutory revisions that ultimately 
resulted in the enactment of § 87A 3/4 that -- perhaps because 
of the publicity arising from the Enron scandal -- the 
Legislature was focused on accountants' revelation of their 
clients' fraud, not their clients' negligence, because the 
statute applies only where there is a finding of fraudulent 
conduct.  The need for accountants to fear the threat of 
liability is greater where a client's conduct is fraudulent 
rather than simply negligent, because fraudulent conduct is 
intentional (and potentially criminal), and an accountant's 
revelation of the conduct will not likely be welcomed by the 
client.  It is not absurd or unreasonable to surmise that the 
Legislature simultaneously addressed two concerns -- 
accountants' concern about the unfairness of joint and several 
liability, and the public policy concern about the need to hold 
accountants accountable for their negligent failure to call out 
their clients' fraud -- without also taking on the law of 
comparative negligence.  But it would be absurd and unreasonable 
to conclude that the Legislature enacted § 87A 3/4, which by its 
plain terms established how to calculate proportional liability 
where the plaintiff engaged in fraudulent conduct and the 
accountant was negligent, but intended that such a calculation 
would never actually be applied against a plaintiff because the 
in pari delicto doctrine would always shield an accountant from 
29 
 
 
liability in these circumstances.  We cannot endorse such a 
reading of the statute.  See Casseus v. Eastern Bus Co., 478 
Mass. 786, 801 (2018) ("An interpretation that causes a statute 
to have . . . no practical effect . . . is absurd" [quotation 
and citation omitted]). 
 
Conclusion.  Because the Superior Court judge's grant of 
summary judgment to the accountants rested solely on his 
application of the in pari delicto doctrine, and because we 
conclude that, for conduct that occurred after February 23, 
2003, the doctrine is preempted by G. L. c. 112, § 87A 3/4, in 
cases where an accountant is alleged to have negligently failed 
to detect a client's fraudulent conduct, we vacate the grant of 
summary judgment and remand the case to the Superior Court for 
further proceedings consistent with this opinion. 
 
 
 
 
 
 
 
So ordered.