Court Opinion

ID: 2684132
Source: CourtListenerOpinion
Date Created: 2014-07-17 04:00:30.942647+00
Date Added: 2024-06-11T13:13:48.842413
License: Public Domain

Not for Publication in West's Federal Reporter

          United States Court of Appeals
                        For the First Circuit

Nos. 12-1690, 13-1819

JOSEPH IANTOSCA, Individually and as Trustee of the Faxon Heights
          Apartments Realty Trust and Fern Realty Trust,

                               Plaintiff,

    BELRIDGE CORPORATION; GAIL A. CAHALY; JEFFREY M. JOHNSTON;
 BELLEMORE ASSOCIATES, LLC; MASSACHUSETTS LUMBER COMPANY, INC.;
  JOSEPH J. IANTOSCA, As guardian of Joseph Iantosca Sr. and as
Trustee of Faxon Heights Apartments Realty Trust and Fern Realty
Trust; DAVID A. IANTOSCA, As guardian of Joseph Iantosca Sr. and
as Trustee of the Faxon Heights Apartments Realty Trust and Fern
                           Realty Trust,

                        Plaintiffs, Appellees,

                    UNITED STATES OF AMERICA,

                Intervening Plaintiff, Appellee,

                                    v.

 BENISTAR ADMINISTRATIVE SERVICES, INC.; DANIEL CARPENTER; STEP
     PLAN SERVICES, INC.; BENISTAR 419 PLAN SERVICES, INC.,

                        Defendants, Appellants,

MOLLY CARPENTER; BENISTAR PROPERTY EXCHANGE TRUST COMPANY, INC.;
   BENISTAR LTD.; BENISTAR EMPLOYER SERVICES TRUST CORPORATION;
 CARPENTER FINANCIAL GROUP, LLC; BENISTAR INSURANCE GROUP, INC.;
  TRAVELERS INDEMNITY COMPANY; CERTAIN UNDERWRITERS AT LLOYD'S,
      LONDON; TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA,

                              Defendants.

          APPEALS FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Nathaniel M. Gorton, U.S. District Judge]
                              Before

                     Thompson, Circuit Judge,
                   Souter,* Associate Justice,
                   and Kayatta, Circuit Judge.

     William E. Murray, with whom Gordon & Rees LLP, Sebastian R.
Colley, Greenberg Traurig LLP, Joseph Michael Pastore, III, and
Pastore & Dailey LLC were on brief, for appellants.
     Thomas W. Evans, with whom Anthony R. Zelle, Zelle McDonough
& Cohen, LLP, William C. Nystrom, Colleen C. Cook, and Nystrom
Beckman & Paris were on brief, for appellees.
     Patrick J. Urda, Tax Division, Department of Justice, with
whom Kathryn Keneally, Assistant Attorney General, Carmen M. Ortiz,
United States Attorney, and Bruce R. Ellisen, Tax Division,
Department of Justice, were on brief, for intervening appellee.

                          June 20, 2014

     *
       Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
               SOUTER, Associate Justice. This appeal is from a final

district court judgment in favor of individuals and entities who

brought a reach-and-apply action to collect on a Massachusetts

state court judgment. We affirm.

                                   I. Background

               This is the latest chapter in protracted litigation

arising       out   of   financial      misconduct      by   Daniel   Carpenter   and

entities controlled by him. The full story can be found at Boston

Property Exchange Transfer Co. v. Iantosca, 720 F.3d 1, 3 n.1 (1st

Cir. 2013), and United States v. Carpenter, 736 F.3d 619, 622-26

(1st Cir. 2013). Here, it is enough to provide a brief account.

               In   what    we   will    call    the    "Cahaly    litigation,"   the

plaintiffs in this case (now "Appellees") won a Massachusetts state

court       judgment     against   Carpenter      and    various    individuals   and

business entities associated with him (the "original defendants").1

        1
        The plaintiffs in this case are Joseph Iantosca,
Individually and as Trustee of the Faxon Heights Apartments Realty
Trust and Fern Realty Trust; Belridge Corporation; Gail A. Cahaly;
Jeffrey M. Johnston; Bellemore Associates, LLC; Massachusetts
Lumber Company, Inc.; Joseph J. Iantosca, As guardian of Joseph
Iantosca Sr. and as Trustee of Faxon Heights Apartments Realty
Trust and Fern Realty Trust; and David A. Iantosca, As guardian of
Joseph Iantosca Sr. and as Trustee of the Faxon Heights Apartments
Realty Trust and Fern Realty Trust. Joseph J. Iantosca and David A.
Iantosca were not plaintiffs in the Cahaly litigation but are
plaintiffs here as guardians of Joseph Iantosca, Sr. who was a
Cahaly plaintiff and who is the sole non-Appellee plaintiff in this
case.

     The original defendants who are present in this case are
Benistar Property Exchange Trust Company, Inc.; Daniel Carpenter;
Molly Carpenter; Benistar Administrative Services, Inc.; Benistar

                                           -3-
See Cahaly v. Benistar Prop. Exch. Trust Co., 885 N.E.2d 800 (Mass.

2008).      A   number   of    those   original    defendants     in   the   Cahaly

litigation,        including       Benistar   Administrative    Services,      Inc.

("BASI"), were found to be alter egos of Carpenter. The Cahaly

judgment was not satisfied.

                Sometime after the judgment, Appellees discovered that

independent litigation, see Step Plan Servs., Inc. v. Koresko, 12
A.3d 401 (Pa. Super. Ct. 2010), had resulted in a settlement to be

paid       to   BASI   and    to   three   other   corporations    connected    to

Carpenter: Step Plan Services, Inc. ("STEP"); Benistar 419 Plan

Services, Inc. ("Benistar 419"); and Benistar Insurance Group, Inc.

("Benistar Insurance").2 In attempting to obtain the settlement

proceeds to satisfy the Cahaly judgment, Appellees brought the

instant reach-and-apply action in Massachusetts state court against

the original defendants and the three other corporations as new

ones, though Benistar Insurance was subsequently dismissed by

stipulation. Accordingly, we will use the term "new defendants" to

refer only to STEP and Benistar 419.3

Ltd.; Benistar Employer Services Trust Corporation; and Carpenter
Financial Group, LLC.
       2
       There is some uncertainty as to which entities would
actually receive the settlement proceeds, see Iantosca v. Step Plan
Servs., Inc., 604 F.3d 24, 30 & n.6 (1st Cir. 2010), but it does
not affect our analysis here.
       3
       Also named as defendants were the insurers that would pay
the settlement proceeds: certain Underwriters at Lloyd's, London
and Travelers Insurance Company (which was later designated as both

                                           -4-
            At   Appellees'     request,     the    state    court    granted    a

temporary    restraining      order    enjoining      distribution        of   the

settlement proceeds until it was determined whether they could be

used to satisfy the Cahaly judgment. Then the reach-and-apply

action was removed to federal district court, which issued a

preliminary injunction tracking the restraining order, see Iantosca

v. Benistar Admin Servs., Inc., Civ. No. 08-11785-NMG, 2009 WL
2382750,    at   *1   (D.   Mass.   July    30,   2009),    which    we   affirmed

following an interlocutory appeal. See Iantosca v. Step Plan

Servs., Inc. ("Iantosca I"), 604 F.3d 24, 34 (1st Cir. 2010).

            Back in the district court,4 the case proceeded to a jury

trial on the issue, among others, of whether the new defendants

were alter egos of Carpenter, such that their corporate forms could

be disregarded and the settlement proceeds could be reached and

applied to the Cahaly judgment.5 The jury returned a verdict in

Travelers Indemnity Company and Travelers Property Casualty Company
of America).
     4
      After the interlocutory appeal, the Government intervened as
a plaintiff to claim its own interest in the settlement proceeds
based on tax liens against BASI and Benistar 419. The Government
joins Appellees here.
     5
       To be precise, the jury was asked whether the new defendants
were alter egos of Carpenter or BASI, which itself had been deemed
an alter ego of Carpenter in the Cahaly litigation.

                                      -5-
favor of Appellees, and the district court entered judgment. The

new defendants, BASI, and Carpenter (now "Appellants") appealed.6

                                    II.

              Appellants argue that (i) they, as the new defendants,

were not subject to personal jurisdiction; (ii) the claims against

the new defendants are res judicata in their favor; (iii) the

district court should have declared a mistrial; and (iv) the jury

was improperly instructed.

                                    A.

              Our review of the district court's personal jurisdiction

analysis in this case is de novo. See Bluetarp Fin., Inc. v. Matrix

Const. Co., 709 F.3d 72, 79 (1st Cir. 2013). The court found that

it had jurisdiction over Carpenter, and Appellants do not contest

that finding. Instead, they say the court lacked jurisdiction over

them.

              This claim is patently devoid of weight, for jurisdiction

over the new defendants flows as a matter of course from the jury's

finding that they are, in fact, alter egos of Carpenter, over whom

the   court     exercised   uncontested   jurisdiction.   See   Patin   v.

Thoroughbred Power Boats Inc., 294 F.3d 640, 653 & n.18 (5th Cir.

2002) ("[F]ederal courts have consistently acknowledged that it is

        6
       The court entered a second judgment because some further
proceedings, irrelevant to our analysis, occurred after appeal was
taken. Subsequently, a second appeal was filed, and the two appeals
were consolidated.

                                    -6-
compatible with due process for a court to exercise personal

jurisdiction over an individual or a corporation that would not

ordinarily be subject to personal jurisdiction in that court when

the individual or corporation is an alter ego or successor of a

corporation that would be subject to personal jurisdiction in that

court."); cf. United Elec., Radio & Mach. Workers of Am. v. 163

Pleasant St. Corp., 960 F.2d 1080, 1091 (1st Cir. 1992) ("[I]f the

record contains facts that warrant disregarding [a subsidiary]'s

corporate independence, the district court was entitled to find

[the parent] subject to personal jurisdiction in Massachusetts on

the basis of its relationship with its subsidiary."); Donatelli v.

Nat'l Hockey League, 893 F.2d 459, 466 (1st Cir. 1990) ("Since the

essence of personal jurisdiction is to bring responsible parties

before the court, a corporation which is actually responsible for

its subsidiary's decision to undertake instate activities should,

in   all   fairness,   be   within   the   state   courts'   jurisdictional

reach.").

                                     B.

            The district court's denial of Appellants' res judicata

defense is likewise reviewed de novo. See R.G. Fin. Corp. v.

Vergara-Nunez, 446 F.3d 178, 182 (1st Cir. 2006). Appellants say

that the claims against the new defendants are precluded by the

Cahaly judgment, which included terms dismissing all claims against

                                     -7-
"Jane Doe Entities controlled by Daniel Carpenter." According to

Appellants, such Jane Doe entities include the new defendants.

          Today we reaffirm the position that we staked out in

Iantosca I, where we explained that "[t]o extend claim preclusion

in favor of new defendants, who were not named or served as parties

in the earlier litigation, would be dubious as a matter of policy

and is not supported by any case cited by [A]ppellants." 604 F.3d

at 30. It is unclear whom Appellees meant to capture with their

Jane Doe claims in the Cahaly litigation, but it is inconceivable

that when the state court dismissed those claims, it meant to

preclude Appellees prospectively from bringing a collection action

against corporations later determined to be alter egos of those

liable on the state court's judgment.7

     7
       At the time that the district court first entertained the
res judicata defense, a motion was pending before the state court
that sought clarification of the Cahaly judgment's dismissal of the
Jane Doe claims. Accordingly, the district court's denial of the
defense   was   without   prejudice   to  Appellants   moving   for
reconsideration in the event that the state court issued an
inconsistent ruling. Iantosca, 2009 WL 2382750, at *6. The state
court ultimately declined to supply a clarifying order both because
the Cahaly litigation was no longer before that court and because
the judge who had issued the Cahaly judgment no longer sat on the
court. The state court did, however, note in an advisory fashion
that Appellants failed to persuade it that the district court and
our court in Iantosca I had reached an incorrect result. Appellants
now argue that, in rejecting the res judicata defense, the district
court improperly relied on this advisory state court opinion. But
the district court had already denied the res judicata motion prior
to the state court's rendering its advisory opinion. Far from
relying on that opinion, the district court simply left the door
open for Appellants to move for reconsideration in the event of a
contrary state court determination, which never came.

                               -8-
                                        C.

              The district court ordered Appellees to omit from their

case    any    reference     to    criminal    proceedings      pending   against

Carpenter. When the Appellees nevertheless played a videotaped

deposition before the jury that mentioned Carpenter's indictment,

Appellants moved for a mistrial. The denial of the mistrial motion

is reviewed for abuse of discretion. See Acevedo-Feliciano v.

Ruiz-Hernandez, 447 F.3d 115, 120 (1st Cir. 2006).

              For several reasons, the district court did not abuse its

discretion in refusing to declare a mistrial. First, as a general

rule, the argument for mistrial is weak when the party seeking it

passed up an opportunity to file a timely objection. See id. at

120-21; Clemente v. Carnicon-P.R. Mgmt. Assocs., L.C., 52 F.3d 383,

387, 388 n.5 (1st Cir. 1995), abrogated on other grounds by United

States v. Gray, 199 F.3d 547 (1st Cir. 1999). That is what happened

here. The videotape had been designated in advance as evidence to

be presented, and although Appellants objected to certain matters

covered   in    it,   they    raised    no    objection    to    the   indictment

reference. What is more, at the time Appellants filed their

objections, they had every incentive to attend to the mention of

the    indictment,    for    the    court     had   yet   to   issue   the   order

prohibiting references to the criminal proceedings. As the district

court said, "[I]f you knew there was a reference to the Indictment

on the tape, it behooved you . . . to call it to my attention."

                                        -9-
            Second, for us to conclude that a district court abused

its discretion in refusing to declare a mistrial, the movant needs

to show prejudice, see United States v. Freeman, 208 F.3d 332, 339

(1st Cir. 2000), which is less likely when the offending remark was

isolated and passing. See United States v. Diaz, 494 F.3d 221, 227

(1st Cir. 2007); United States v. Lee, 317 F.3d 26, 35 (1st Cir.

2003).   Here,   the   use   of   the    word   "indictment"   was    the   sole

reference Appellees' case made to the criminal proceedings, and it

added little, if anything, to the substance of what Carpenter

himself disclosed. As the district court said, Carpenter's own

plead of Fifth Amendment privilege in this civil case invited the

jury   to   infer   that   he   potentially     faced   criminal     liability.

Appellants have failed to demonstrate prejudice.

            Third, as a response to a wayward remark, declaring a

mistrial is a "last resort." United States v. Sepulveda, 15 F.3d
1161, 1184 (1st Cir. 1993). The usual remedy includes instructing

the jury to disregard the comment, see Lee, 317 F.3d at 35, but

when the district court here offered to give such an instruction,

Appellants declined. They now complain that the court discouraged

them from accepting the instruction by pointing out that it had the

potential to exacerbate the problem by drawing more attention to

the errant reference. But this does not neutralize Appellants'

refusal. The district court simply sounded a note of prudence, and

noting the risk inherent in a curative instruction did not change

                                        -10-
the fact that the court offered to give one. Least of all does it

demonstrate abuse of discretion in denying the mistrial motion.8

                                     D.

             The adequacy of jury instructions in explaining the law

is reviewed de novo. See Goodman v. Bowdoin Coll., 380 F.3d 33, 47

(1st Cir. 2004). Appellants find fault with what the instructions

said about pleading the Fifth and determining that a corporation is

an alter ego.

             The district court instructed that, from Carpenter's

invocation    of   the   Fifth   Amendment,   the   jury   was   "permitted

but . . . not required to draw the inference that the withheld

information would have been unfavorable." The instruction was sound

law. See In re Carp, 340 F.3d 15, 23 (1st Cir. 2003) ("[I]n a civil

proceeding, the drawing of a negative inference is a permissible,

but not an ineluctable, concomitant of a party's invocation of the

Fifth Amendment. . . . [T]he trial court has discretion over

whether a negative inference is an appropriate response to the

invocation of the Fifth Amendment in a particular civil case.");

United States v. Stein, 233 F.3d 6, 15 (1st Cir. 2000) ("[T]he

Supreme Court has adhered to the prevailing rule that the Fifth

Amendment does not forbid allowing adverse inferences to be drawn

     8
       Instead of a curative instruction, Appellants wanted to put
on their own witness to explain the nature of the criminal
proceedings against Carpenter. The district court ruled that if
they did so, Appellees too would be allowed to mention the criminal
proceedings. We see no abuse of discretion in this ruling, either.

                                    -11-
against parties to civil actions from their refusal to testify in

response to probative evidence offered against them." (citing

Baxter v. Palmigiano, 425 U.S. 308, 317 (1976))).

          The court went on to instruct that, from a corporate

officer's invocation of the Fifth, the jury was "permitted but not

required to draw the inference that the information withheld . . .

would have been unfavorable to the corporation [with] which he or

she is associated." Appellants take issue with this statement as

well, citing Veranda Beach Club Ltd. Partnership v. Western Surety

Co., where we said that "[i]n a civil case . . . an individual's

invocation of a personal privilege against self-incrimination

cannot, without more, be held against his corporate employer in

circumstances analogous to those at the bar." 936 F.2d 1364, 1374

(1st Cir. 1991). Given the careful qualifications in this language,

however, as a district court in this circuit has previously

recognized,   "Veranda   Beach   establishes   no   per   se   rule   which

insulates a corporate employer from any adverse inference based on

an employee's invocation of his Fifth Amendment privilege. Rather,

the court demanded that such an inference be based on something

more than the mere existence of an employment relationship." Data

Gen. Corp. v. Grumman Sys. Support Corp., 825 F. Supp. 340, 352 (D.

Mass. 1993); see also Rad Servs., Inc. v. Aetna Cas. & Sur. Co.,

808 F.2d 271, 275 (3d Cir. 1986) ("[N]othing forbids imputing to a

corporation the silence of its personnel.").

                                  -12-
            Here,      there   was    more    than    a     simple     employment

relationship. Two corporate officers pleaded the Fifth, one in

addition    to   Carpenter.    The    corporations     to   which     Carpenter's

silence was permitted to be imputed, far from merely employing him,

were in fact deemed to be his alter egos. The other officer who

invoked the privilege was Carpenter's brother-in-law, Wayne Bursey,

who was president of both of the new defendants; in the case of

STEP, Bursey not only served as its president, but was appointed to

the post by Carpenter and was the only other natural person

affiliated with it. Given the identity between Carpenter and the

corporations, the relationship between Carpenter and Bursey, and

the extent of Bursey's own involvement as president of the new

defendants, it was entirely reasonable to allow the jury the option

of imputing even Bursey's silence to them,9 let alone Carpenter's.

            On   the   issue   of    corporate     alter-ego    character,     the

Appellants say that the district court should have instructed the

jury that, under Massachusetts law, deeming a corporation an "alter

ego" requires finding that it is a "sham." But this is not an

accurate statement of Massachusetts law, under which finding a

corporation a "sham" may at times be sufficient to point to an

alter-ego    conclusion,       but    is     not   necessary.        The   seminal

     9
       Contrary to Appellants' protestations, the terms of the
district court's instruction permitted the jury to impute Bursey's
silence only to the new defendants, of which he was an officer, and
not to BASI, of which he was merely a salaried employee.

                                      -13-
Massachusetts case on disregarding the corporate form, My Bread

Baking Co. v. Cumberland Farms, Inc., does not suggest that making

a "sham" finding is a prerequisite. 233 N.E.2d 748, 751-52 (Mass.

1968), and neither do the later cases that have distilled My Bread

into a list of considerations bearing on the decision whether to

look past the corporate form. See, e.g., Kraft Power Corp. v.

Merrill, 981 N.E.2d 671, 681 n.11 (Mass. 2013); Scott v. NG U.S. 1,

Inc., 881 N.E.2d 1125, 1132-33 (Mass. 2008); Attorney Gen. v.

M.C.K., Inc., 736 N.E.2d 373, 380 n.19 (Mass. 2000).

           Having reviewed the jury instructions in their entirety,

see   Goodman, 380 F.3d   at   47    ("Our   review   of   the   challenged

instructions considers the big picture . . . ."), we are satisfied

that they accurately depict the law on this issue. The district

court did, in fact, instruct the jury that a corporation's having

been "created as a mere device or sham to accomplish some ulterior

purpose" could furnish one ground for disregarding the corporate

form. But, quite properly, the instructions discussed other valid

considerations as well.

                                        III.

           The judgment of the district court is AFFIRMED.

                                        -14-