Halawi Investment Trust, S.A.L. v. Bacon

• Court: Massachusetts Appeals Court
• Decided: July 25, 2024
• Docket: AC 22-P-1225
• Status: Published

Opinion

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22-P-1225 Appeals Court

HALAWI INVESTMENT TRUST, S.A.L. vs. JAMES T. BACON & others.1,2

No. 22-P-1225.

Suffolk. January 3, 2024. - July 25, 2024.

Present: Green, C.J., Walsh, & Smyth, JJ.

Attorney at Law, Malpractice. Evidence, Legal malpractice, Opinion. Practice, Civil, Summary judgment.

Civil action commenced in the Superior Court Department on August 31, 2017.

The case was heard by Katie Rayburn, J., on motions for summary judgment.

Neil D. Goldman, of Virginia, for the plaintiff. Christopher C. Storm for James T. Bacon & another. George C. Rockas for Carlo Cellai & another.

1 Allred, Bacon, Halfhill & Young, P.C.; Carlo Cellai; and Cellai Law Offices, P.C.

2 Boston Merchant Financial, Ltd. (a United Kingdom company) and Boston Merchant Financial, Ltd. (a Russian company), successor-in-interest to Boston Merchant Financial, Ltd. (a British Virgin Islands company), interveners. 2

WALSH, J. This is an action for legal malpractice.

Plaintiff Halawi Investment Trust, S.A.L. (HIT), a Lebanese

joint stock organization, hired the defendants, Attorney James

T. Bacon, Attorney Carlo Cellai, and their respective law firms

(collectively, the defendants), to recover approximately $1.2

million in funds held by Boston Merchant Financial, Ltd. (Boston

Merchant).3 After Boston Merchant refused to return the funds,

the defendants initiated arbitration proceedings, which were

later dismissed because they were not timely filed.

HIT then filed this legal malpractice action in the

Superior Court, claiming that the defendants were negligent in

failing to timely initiate arbitration proceedings. A judge

allowed the defendants' motion for summary judgment as to

certain of the claims, based on the conclusion that the

plaintiff had failed to establish that Boston Merchant would

have been able to satisfy a judgment for damages in any amount,

and the plaintiff appealed from a separate and final judgment of

dismissal of those claims entered pursuant to Mass. R. Civ. P.

3 Although separate entities, we treat Boston Merchant Financial, Ltd., a British Virgin Islands company, and Boston Merchant Financial, Ltd., a United Kingdom company, as one and the same for the purposes of this appeal as any distinctions between them are irrelevant to our analysis. 3

54 (b), 365 Mass. 820 (1974).4 The narrow issue on appeal is

whether the evidence relating to collectibility was admissible

and, if so, whether it was sufficient to survive a motion for

summary judgment. Answering both questions in the affirmative,

we reverse the entry of summary judgment.

Background. The facts, viewed in the light most favorable

to the nonmoving party, HIT, are as follows. HIT is a joint

stock corporation and Mahmoud Halawi is the sole or majority

owner. In October 2010, HIT entered into an "Introducing Broker

Agreement" (2010 Agreement) with Boston Merchant in which HIT

would invest money on behalf of their investors with Boston

Merchant, who would then enter into foreign trading, contracts

for difference on equities, and other sophisticated financial

transactions. The 2010 Agreement was signed by Paul Belogour,5

the director of Boston Merchant, and Mahmoud Halawi, the

chairman of HIT. It outlined the responsibilities of the

respective parties and provided a broker fee schedule

establishing HIT's compensation for successful referrals.

Notably, the 2010 Agreement required mandatory arbitration of

disputes between the parties and required that arbitration be

4 Certain other counterclaims and cross claims remain pending in the underlying action.

5 We note that the record identifies Paul Belogour also as Pavel Belogour. For our purposes, we will refer to him as Paul Belogour. 4

filed within one year after the facts giving rise to the

arbitration dispute. In 2012, a second agreement was executed

between HIT and Boston Merchant (2012 Agreement). The 2012

Agreement did not change the one-year requirement for

arbitration of disputes.

In 2013, the Department of the Treasury identified Halawi

Exchange Co. (Halawi Exchange), a financial institution

operating outside of the United States, as an entity involved in

laundering profits from drug trafficking for a Hizballah leader

and narcotics trafficker. The Treasury report noted that Halawi

Exchange, as well as several other related entities, were

organized under a holding company known as Halawi Holding

S.A.L., based in Lebanon. Mahmoud Halawi, as we noted earlier,

is the sole or majority owner and senior manager of Halawi

Exchange, Halawi Holding S.A.L., and HIT. The Department of the

Treasury concluded that "Halawi Exchange, its subsidiaries, and

their respective management, ownership, and key employees are

engaged in illicit financial activity." Members of the Drug

Enforcement Administration (DEA) and the Federal Bureau of

Investigation (FBI) had also visited Boston Merchant's office

manager; they were seeking information about possible money

laundering by HIT. After the visit from the DEA and FBI, and

upon learning of the Treasury report, Boston Merchant froze 5

HIT's account and refused to return approximately $1.2 million

in deposited funds.

The defendants were hired to recover the funds; they made

demand on Boston Merchant for return of the HIT funds, sought

relief in the Massachusetts and Federal courts, and ultimately

filed arbitration proceedings in 2014. After the arbitration

proceedings were dismissed as untimely, HIT filed suit against

the defendants alleging legal malpractice.

The defendants moved for summary judgment arguing that HIT

was unable to prove an essential element of their legal

malpractice case: collectibility. In essence, the defendants

argued that even if HIT could prove negligence and causation,

HIT had not provided sufficient admissible evidence that assets

could have been collected from Boston Merchant had the

defendants received a favorable decision for HIT from the

arbitrator.

The only evidence of collectibility was the deposition

testimony of Paul Belogour, who was designated under Mass. R.

Civ. P. 30 (b) (6), as appearing in 489 Mass. 1401 (2022), to

testify about Boston Merchant's financial condition and ability

to pay a potential judgment against it.6

6 Despite numerous requests for production of documents and interrogatories, Belogour did not produce any records that independently established Boston Merchant's profits and losses 6

Viewed in the light most favorable to HIT, Belogour's

testimony was as follows. In 2008, after working in various

financial institutions as an accountant and later as a foreign

exchange trader, Belogour founded Boston Merchant, a foreign

exchange trading company. Despite the fact that Belogour was an

owner and one of three managers during the relevant time period,

he testified that he kept no financial records for the company

and relied entirely on information provided to him by

accountants, who were located in Russia. As to Boston

Merchant's operations, Belogour acknowledged that in order to

properly run Boston Merchant, he and his partners relied on

information from others regarding the company's financial

health. Belogour received information about Boston Merchant's

finances during telephone calls with its accountants in Russia.

Belogour testified that he could not recall the names of the

accountants or the accounting firm, but, despite not remembering

the name of the firm, he knew that it was no longer in business.

He did not recall ever receiving any final closing documents

from the accountants about Boston Merchant's financial health.

Belogour testified that he was unaware of Boston Merchant's

assets during the relevant years, 2013 through 2016, and, when

and did not provide answers to interrogatories about its financial condition. 7

asked, could not recall its liabilities during that period.

Belogour testified that Boston Merchant received balance sheets

and profits and losses between 2013 and 2016 and that he

received this information in the form of spreadsheets. Belogour

did not retain a copy of the spreadsheets and was unaware of

what occurred with this information. When asked if Boston

Merchant kept a journal of its assets or liabilities or any

electronic form of accounting, Belogour replied that he did not

believe so.

Nonetheless, when asked specifically about the ability to

pay a judgment, Belogour testified that in his opinion Boston

Merchant would have been able to satisfy a potential judgment of

$1.2 million.7 When asked what he based this statement or

opinion on, he responded, "Verbal, over the phone by the Russian

accountants." Belogour was asked, "Was that question actually

asked to the Russian accountants?" Belogour replied, "Yes," and

stated that the numbers provided by the accountants led him to

believe that the company had more than $1.2 million to pay a

hypothetical judgment. Counsel for HIT pressed on, asking

Belogour whether his understanding of Boston Merchant's ability

to pay $1.2 million reflected "equity, as in assets, minus

liabilities." Belogour responded, "Correct." Finally, the

7 Specifically, he responded "yes" to the question with respect to December 31, 2013, and December 31, 2014. 8

following exchange occurred between counsel for Mr. Bacon and

Belogour:

Q.: "Has your testimony about [Boston Merchant's] ability to pay a hypothetical 1.2-million judgment been based only upon oral information provided to you by [Boston Merchant's] accountant?"

A.: "That's correct."

Q.: "Nothing else?"

A.: "I don't recall."

Q.: "The only thing you recall that you base your testimony on today is oral conversations with [Boston Merchant's] accountant, correct?"

The judge ultimately allowed summary judgment based on her

conclusion that Belogour's testimony about collectibility, based

largely on information from unnamed Russian accountants, was

inadmissible hearsay. The motion judge also found Belogour's

testimony was not entitled to any consideration because he

lacked personal knowledge about the assets and liabilities of

Boston Merchant, did not have access to the financial records,

and relied on the unnamed Russian accountants, whom he believed

"managed pretty well the numbers for me."

Discussion. 1. Standard of review. Summary judgment is

appropriate if the pleadings, discovery responses, and

affidavits, if any, "show that there is no genuine issue as to

any material fact and that the moving party is entitled to a 9

judgment as a matter of law." Mass. R. Civ. P. 56 (c), as

amended, 436 Mass. 1404 (2002). "We review a grant of summary

judgment de novo[,] . . . viewing the evidence in the light most

favorable to the nonmoving party" (quotation and citation

omitted). Juliano v. Simpson, 461 Mass. 527, 529-530 (2012).

When the moving party does not bear the burden of proof at

trial, the absence of a triable issue may be shown by the

submission of evidence that negates an essential element of the

plaintiff's case or by a showing that "the party opposing the

motion has no reasonable expectation of proving an essential

element of that party's case." Kourouvacilis v. General Motors

Corp., 410 Mass. 706, 716 (1991). In ruling on a motion for

summary judgment, "[t]he court is not to pass on the credibility

of the witnesses or on the weight of the evidence." Zaleskas v.

Brigham and Women's Hosp., 97 Mass. App. Ct. 55, 61 (2020),

quoting Attorney Gen. v. Brown, 400 Mass. 826, 832 (1987).

Under Mass. R. Civ. P. 56 (e), 365 Mass. 824 (1974),

affidavits in support of or opposition to a motion for summary

judgment shall be made on personal knowledge and "shall set

forth such facts as would be admissible in evidence, and shall

show affirmatively that the affiant is competent to testify to

the matters stated therein."8

8 The rule also permits affidavits to be supplemented by depositions, answers to interrogatories, or further affidavits. 10

2. Prima facie case of legal malpractice. In a legal

malpractice action, the plaintiff must establish that the

attorney failed to exercise reasonable care and skill in

handling the matter for which the attorney was retained, that

the plaintiff suffered a loss, and that that attorney's

negligence was the proximate cause of that loss. See Fishman v.

Brooks, 396 Mass. 643, 646-647 (1986). Where the alleged "loss"

is in the form of a lost judgment, the plaintiff need not prove

that the entire judgment would have been recovered absent the

lawyer's negligence; the plaintiff need only prove that he

"'could have collected something' on the judgment." Shimer v.

Foley, Hoag & Eliot LLP, 59 Mass. App. Ct. 302, 311 (2003),

quoting Jernigan v. Giard, 398 Mass. 721, 723 (1986). The

requirement of proof of collectibility is "derive[d] from the

requirement that the plaintiff demonstrate that the attorney's

negligence caused him a loss, 'that he probably would have

obtained a better result had the attorney exercised adequate

skill and care'" (citation omitted). Shimer, supra. See id. at

312-313 (plaintiff's proffer that he received payments from

company for consulting services after alleged breach, his

subsequent employment with competitor, and plaintiff's own

market studies about company's revenues sufficient evidence of

collectibility to defeat summary judgment motion). See also

Poly v. Moylan, 423 Mass. 141, 148 (1996), cert. denied, 519 11

U.S. 1114 (1997) (evidence of defendant's income insufficient to

establish collectibility of judgment without assessment of

debts).

To survive a motion for summary judgment, HIT must have

produced evidence that it could have collected "something" from

Boston Merchant. See Poly, 423 Mass. at 148. In other words,

HIT was not required to show that Boston Merchant had the funds

to pay the entire $1.2 million judgment, only that Boston

Merchant could have paid some portion of it. We conclude that

it did so.

Although we agree with the judge's analysis that, standing

on its own, the testimony offered by Belogour, which in essence

repeated information from an unnamed Russian accountant about

the financial health of Boston Merchant, would be inadmissible

hearsay,9 we conclude that Belogour's testimony also included

admissible lay opinion about Boston Merchant's financial

condition at the relevant time, including his admissible opinion

that Boston Merchant would have been able to pay a $1.2 million

judgment. See Hlatky v. Steward Health Care Sys., LLC, 484

9 The rule against hearsay prohibits the admission of out- of-court statements offered in evidence to prove the truth of the matter asserted in the statement, see Mass. G. Evid. § 801(c) (2023), unless the admission of the statement is allowed pursuant to "(a) case law, (b) a statute, or (c) a rule prescribed by the Supreme Judicial Court." Mass. G. Evid. § 802 (2023). 12

Mass. 566, 588 (2020) (Gants, C.J., concurring in part and

dissenting in part); Winthrop Prods. Corp. v. Elroth Co., 331

Mass. 83, 85 (1954); McCormick v. Travelers Indem. Co., 22 Mass.

App. Ct. 636, 637 (1986). Under the principles set forth in

Mass. G. Evid. § 701 (2023), a lay witness may provide opinion

testimony so long as it is "(a) rationally based on the

witness's perception; (b) helpful to a clear understanding of

the witness's testimony or in determining a fact in issue; and

(c) not based on scientific, technical, or other specialized

knowledge within the scope of [Mass. G. Evid. § 702]."

Generally, a corporate officer or owner's testimony about

the value of real property is admissible opinion testimony if

that corporate officer has firsthand knowledge of the property.

See generally Blais-Porter, Inc. v. Simboli, 402 Mass. 269, 273

(1988). This type of testimony is admissible not because of the

witness's label or designation as being an "owner," but rather

because of the witness's firsthand knowledge of the company's

financial status. Id. at 272. See Menici v. Orton Crane &

Shovel Co., 285 Mass. 499, 503 (1934).

More recently, in Spinosa v. Tufts, 98 Mass. App. Ct. 1,

11-12 (2020), we addressed the admissibility of a business

owner's opinion of the company's value offered to support the

jury's award for breach of contract. In that case, we held that

opinion testimony of an owner of a small business was admissible 13

because the judge properly found that the owner was sufficiently

aware of the business's contracts and its liabilities. Id. at

11.

Here, viewing the facts in the light most favorable to HIT,

as we must, Belogour's opinion testimony regarding Boston

Merchant's ability to pay a judgment was sufficiently based on

his personal knowledge and therefore admissible evidence.

Belogour was the owner, founder, and manager of Boston Merchant,

a high-risk, sophisticated foreign exchange trading company.

Prior to founding Boston Merchant, Belogour was an experienced

accountant and foreign exchange broker. In addition to his role

as a manager at Boston Merchant, and his prior experience and

knowledge in finances, Belogour testified that his opinion was

based on information from accountants, and although he no longer

had spreadsheets in his possession, the spreadsheets were

regularly prepared including profits and losses, which were

available online for his review.

As to Belogour's own personal knowledge of the operations

of Boston Merchant, he signed the 2010 and 2012 Agreements

between the company and HIT, giving rise to a fair inference

that he had personal knowledge of the inner workings and details

of the company. While he could not approximate the assets and

liabilities of the company from 2013 through 2016, he testified 14

that his understanding of its ability to pay was based on

consideration of assets and liabilities.

In short, HIT has provided admissible opinion testimony

about Boston Merchant's ability to pay a judgment based on the

deposition testimony of Belogour and as such the grant of

summary judgment was error.10 While the evidence is admittedly

thin, as noted in Shimer, 59 Mass. App. Ct. at 314, even thin

evidence is sufficient to defeat summary judgment. "A toehold,

however, is enough to survive a motion for summary judgment."

Id., quoting Marr Equip. Corp. v. I.T.O. Corp. of New England,

14 Mass. App. Ct. 231, 235 (1982). Here, HIT has produced such

a toehold, which is sufficient to defeat summary judgment. The

separate and final judgment, dated June 13, 2023, is vacated,

and the case is remanded to the Superior Court for proceedings

consistent with this opinion.11

So ordered.

10We note that the factual background of this case is unique, and the decision is centered on the admissibility of testimony regarding collectibility. The parties have not briefed, and we do not address, whether, despite what is stated in the 2010 and 2012 Agreements, Boston Merchant is otherwise legally precluded from returning funds to a company with ties to money laundering.

11The defendants' requests for appellate attorney's fees are denied.