SurTan Manufacturing Co. v. Flagship Insurance Agency, Inc.

• Court: Massachusetts Appeals Court
• Decided: February 27, 2023
• Docket: AC 21-P-1144
• Status: Published

Opinion

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21-P-1144 Appeals Court

SURTAN MANUFACTURING CO. & others1 vs. FLAGSHIP INSURANCE AGENCY, INC., & another.2

No. 21-P-1144.

Barnstable. December 6, 2022. – February 27, 2023.

Present: Sullivan, Hand, & Walsh, JJ.

Practice, Civil, Motion to amend. Res Judicata. Insurance Company. Insurance, Fire. Fire.

Civil action commenced in the Superior Court Department on March 27, 2020.

A motion to dismiss was heard by Gregg J. Pasquale, J.

Raymond H. Tomlinson, Jr., for the plaintiffs. Timothy O. Egan for the defendants.

HAND, J. Plaintiffs Richard Surabian, individually, and

Steven Surabian, individually and as trustee of the Richard

1 Richard Surabian, individually, and Steven Surabian, individually and as trustee of the Richard Surabian Irrevocable Trust.

2 Brian J. Breton. 2

Surabian Irrevocable Trust, appeal from a judgment dismissing

their complaint against defendants Flagship Insurance Agency,

Inc. (Flagship), and Brian J. Breton as barred under the

doctrine of claim preclusion. The dismissal was based on the

fact that the Surabians, in a prior related action, were denied

leave to amend to add Flagship and Breton as defendants. We

conclude that the denial of the Surabians' motion to amend in

the prior related action did not constitute res judicata under

the doctrine of claim preclusion, and that the Surabians'

complaint was improperly dismissed on that basis.

We summarize the facts alleged in the complaint, which we

accept as true in reviewing the allowance of the motion to

dismiss, and supplement those facts with the procedural history

of the Surabians' motion to amend. See Baby Furniture Warehouse

Store, Inc. v. Meubles D&F Ltée, 75 Mass. App. Ct. 27, 28 n.1

(2009). See also Jarosz v. Palmer, 436 Mass. 526, 530 (2002).

The Surabians operated SurTan Manufacturing Co. (SurTan),3 a

wholesale manufacturer and retailer of leather goods and

apparel, in a building owned by the Richard Surabian Irrevocable

Trust. On February 23, 2016, a fire of nonsuspicious origin

3 SurTan was a plaintiff in both actions, and also joined the Surabians' motion to amend, but SurTan did not file a notice of appeal from the judgment dismissing the complaint in this action. 3

caused extensive damage to the building and its contents. At

the time of the loss, the building and its contents were insured

by a commercial property and casualty policy that American

European Insurance Company (AEIC) had issued to SurTan. SurTan

purchased the policy through Flagship, an insurance agency, and

Breton, an executive vice-president of Flagship.

On February 20, 2018, the Surabians brought an action

against AEIC, Flagship, and others (original action) for damages

related to the insurance claims handling of the fire loss.4

Flagship responded to the complaint with a motion to dismiss,

and in June 2018 the Surabians agreed to a voluntary dismissal

of Flagship, without prejudice, pursuant to Mass. R. Civ. P. 41

(a) (1), 365 Mass. 803 (1974).

The original tracking deadlines in that action required the

Surabians to file any motions to amend the pleadings by July 23,

2018. An August 2019 scheduling order extended several of the

case's tracking deadlines, but not the deadline for filing

motions to amend the pleadings. On February 4, 2020, the

Surabians filed a motion to amend to add Flagship and Breton as

defendants, asserting the discovery of new evidence. That

motion was denied. The order denying the motion to amend

explained that permitting the Surabians to amend would "result[]

4 The original action did not name Breton as a defendant. 4

in undue delay and negate[] the [August 2019] scheduling

order. . . . Having considered the lateness, delay, prior

opportunity to name Flagship and . . . Breton, as well as the

unfair prejudice, the motion is denied." On March 27, 2020, the

Surabians brought this action (present action), asserting

substantially the same claims against Flagship and Breton as the

Surabians had sought to assert through their motion to amend.

The present action was dismissed in March 2021 before any

judgment entered in the original action.5

As noted, the focus of this appeal is whether the denial of

the Surabians' motion to amend in the original action resulted

in claim preclusion as to the present action. Although there is

no traditional "final judgment on the merits" in the original

action, Flagship and Breton argue that some Federal courts have

held that the denial of a motion to amend can nonetheless give

rise to res judicata on a claim preclusion theory, and they urge

us to adopt the same rule. The Surabians offer several reasons

to distinguish the Federal cases on which Flagship and Breton

rely, including that in those cases, "the parties to the second

action were identical to that of the first action, and the

denial of the motion to amend in the prior action [occurred

5 Indeed, it does not appear from the record that judgment had entered in the original action at the time this appeal was briefed. 5

after] a 'final' judgment on the merits." We need not decide

whether we would follow the Federal cases as a matter of State

law because, for the reasons that follow, we agree with the

Surabians that the Federal cases on which Flagship and Breton

rely do not apply in the present circumstances.

As the Surabians suggest, claim preclusion in its classic

formulation applies where "(1) there was a final judgment on the

merits in the prior adjudication; (2) the party against whom

preclusion is asserted was a party (or in privity with a party)

to the prior adjudication; and (3) the issue in the prior

adjudication was identical to the issue in the current

adjudication." Kobrin v. Board of Registration in Med., 444

Mass. 837, 843 (2005), quoting Tuper v. North Adams Ambulance

Serv., Inc., 428 Mass. 132, 134 (1998). As we have noted, the

record does not reflect an entry of final judgment in the

original action.

Although it is true that some Federal courts have held

"that denial of leave to amend constitutes res judicata on the

merits of the claims which were the subject of the proposed

amended pleading," Korn v. Paul Revere Life Ins. Co., 83 Mass.

App. Ct. 432, 437 (2013), quoting Hatch v. Trail King Indus.,

Inc., 699 F.3d 38, 45-46 (1st Cir. 2012), the defendants

misunderstand the applicable "rule." Those cases typically

involve the following circumstances: a plaintiff seeks leave to 6

amend to assert new claims against a defendant already in the

case,6 leave is denied, and the plaintiff brings a second action

against the same defendant.7 See Northern Assur. Co. of Am. v.

Square D Co., 201 F.3d 84, 87-88 (2d Cir. 2000) (collecting

cases). See also Hatch, supra at 41-43. Accord Korn, supra at

433-434, 435-438 (applying Federal law). Under Federal law,

claim preclusion bars the second action in those cases because

it bars not only "claims that were brought and decided in a

prior litigation," but also "all other claims relating to the

same transaction against the same defendant that could have been

brought at that time" (emphasis added). Northern Assur. Co. of

Am., supra at 87.

In these Federal cases, the denial of leave to amend, even

when based on procedural grounds, functions as "a proxy" for a

final judgment because it signifies the moment the plaintiffs

6 At the times relevant to this appeal -- when the Surabians moved to amend their complaint in the original action and during the pendency of the present action -- neither Breton nor Flagship was a party to the original action. Breton had never been named as a party, and the Surabians had voluntarily dismissed Flagship without prejudice from the original action.

7 Each of the cases on which the judge relied, and each case on which the defendants rely on appeal, follow this pattern. See Korn, 83 Mass. App. Ct. at 433-434; Shahidi v. Michael, 2005 Mass. App. Div. 152. See also Hatch, 699 F.3d at 41-43; Professional Mgt. Assocs., Inc. v. KPMG LLP, 345 F.3d 1030, 1032 (8th Cir. 2003), cert. denied, 540 U.S. 1162 (2004); EFCO Corp. v. U.W. Marx, Inc., 124 F.3d 394, 397 (2d Cir 1997); Qualicare- Walsh, Inc. v. Ward, 947 F.2d 823, 826 (6th Cir. 1991). Accord Gonsalves v. Bingel, 194 Md. App. 695, 697 (2010). 7

have foregone the ability to bring additional claims against a

given defendant related to the same transaction or occurrence

that gave rise to the claims against that defendant in the

initial action. Northern Assur. Co. of Am., 201 F.3d at 88.

"[T]he bar is based on the requirement that the plaintiff must

bring all claims at once against the same defendant relating to

the same transaction or event." Id. Thus, in these cases, the

denial of leave to amend in the initial action has been given

preclusive effect under Federal law even before the entry of

final judgment in that action. See Arrigo v. Link, 836 F.3d

787, 799 (7th Cir. 2016) (endorsing trial court's conclusion

that failing to give claim preclusive effect to denial of leave

to amend initial complaint to bring additional claims against

existing defendant and allowing plaintiff to bring same claims

in second action "would serve no purpose" as dismissal of second

action would inevitably follow entry of judgment in initial

action).

Here, there was no "final judgment on the merits" in the

original case. Accordingly, the classic formulation of the

Federal approach, claim preclusion based on the denial of a

motion to amend, does not apply. See Northern Assur. Co. of

Am., 201 F.3d at 87 ("While denial of leave to amend a complaint

may have preclusive effect in some cases, claim preclusion is

unavailable here because the claims sought to be added to the 8

first suit were against an independent party and were not

required to be brought in that suit"). The Federal cases on

which Flagship and Breton rely likewise fail to support their

argument because those cases are factually distinguishable from

this one. Unlike the circumstances described in the Federal

cases, in the present action, the Surabians sought leave to

assert new claims against defendants who were not parties to the

As counsel for Flagship and Breton acknowledged at oral

argument, rather than seeking leave to amend their complaint in

the original action, the Surabians could have brought a new and

separate action against Flagship and Breton.8 As we have

explained, denial of the Surabians' motion to amend did not

preclude a second action.9 See Northern Assur. Co. of Am., 201

8 Had they done so while the original action was pending, they could then have moved to consolidate the two suits, thereby avoiding the claim preclusion issue raised in this appeal. A holding that the denial of the Surabians' motion to amend constituted res judicata on a theory of claim preclusion would therefore amount to a trap for the unwary.

9 In their appellate brief, Flagship and Breton did argue that Breton, as an officer of Flagship, had a close and significant relationship with Flagship warranting the application of nonmutual claim preclusion under Federal law. See, e.g., Silva v. New Bedford, 677 F. Supp. 2d 367, 372-373 (D. Mass. 2009), aff'd, 660 F.3d 76 (1st Cir. 2011), cert. denied, 566 U.S. 906 (2012). Without deciding whether such a doctrine even exists under Massachusetts law, a question we do not reach, even under the defendants' formulation the issue would be whether Flagship and Breton had a close and significant relationship with AEIC or the other defendants in the original 9

F.3d at 88-89 (plaintiffs have "as many causes of action as

there are defendants to pursue" [citation omitted]). See also

Silva v. New Bedford, 677 F. Supp. 2d 367, 371 (D. Mass. 2009),

aff'd, 660 F.3d 76 (1st Cir. 2011), cert. denied, 566 U.S. 906

(2012) ("Courts have . . . distinguished cases where amendment

was sought to add a new defendant rather than simply new

claims").10

Flagship and Breton also contend that we should affirm on

the alternative basis that the Surabians failed to state

"plausible" claims for relief.11 These arguments were raised

below, and the Surabians also sought leave to amend if the

motion judge found their claims deficient in any manner.

However, the motion judge did not rule on whether the Surabians

action, not whether Flagship and Breton had a close and significant relationship with each other.

10It is of no consequence that the Surabians named Flagship as a defendant in the original action, as Flagship had been dismissed, without prejudice, well before the Surabians sought leave to amend and was thus not a party to the original action at that time. See Mass. R. Civ. P. 41 (a) (1) (voluntary dismissal filed before service by adverse party of answer or motion for summary judgment acts as adjudication on merits only "when filed by a plaintiff who has once dismissed in any court of the United States or of this or any other state an action based on or including the same claim").

11To the extent that the defendants' formulation of the threshold showing required under Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754 (1974), differs from that articulated in Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), nothing turns on the distinction. 10

stated plausible claims for relief, having instead ruled that

the complaint was barred by claim preclusion. Given the

parties' emphasis on the claim preclusion issue in their briefs

on appeal and at oral argument, and the unresolved request to

amend, we decline to reach whether the Surabians' "'allegations

plausibly suggest[ed]' . . . an entitlement to relief."

Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008),

quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007).

These arguments may be considered by the motion judge on remand.

See, e.g., Szymanski v. Boston Mut. Life Ins. Co., 56 Mass. App.

Ct. 367, 382 (2002), citing Middleborough v. Middleborough Gas &

Elec. Dep't, 422 Mass. 583, 588 (1996).

The judgment is vacated, and the case is remanded for

further proceedings consistent with this opinion.12

So ordered.

12The Surabians' request for appellate attorney's fees and costs is denied.