USCA1 Opinion
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
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Nos. 95-1061
95-1145
95-1570
95-1648
CIGNA FIRE UNDERWRITERS COMPANY, ET AL.,
Plaintiffs, Appellees, Cross-Appellants,
v.
MACDONALD & JOHNSON, INC.,
Defendant, Appellant, Cross-Appellee.
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APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Frank H. Freedman, Senior U.S. District Judge]
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Before
Selya, Circuit Judge,
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Bownes, Senior Circuit Judge,
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and Boudin, Circuit Judge.
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John B. Stewart, with whom Edward V. Leja and Moriarty, Donoghue
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& Leja, P.C. were on brief for CIGNA Fire Insurance, et al.
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F. Michael Joseph, with whom Joseph, St. Clair & Cava was on
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brief for MacDonald & Johnson, Inc.
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June 28, 1996
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BOWNES, Senior Circuit Judge. Before us are
BOWNES, Senior Circuit Judge.
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appeals by both parties after two jury trials. CIGNA Fire
Insurance Company ("CIGNA") is a large insurance
conglomerate. MacDonald & Johnson, Inc., ("M&J") is an
independent insurance agent that sold, inter alia, CIGNA
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insurance. CIGNA sued M&J for breach of contract alleging
failure to remit insurance premiums due it by M&J. M&J
brought a counterclaim against CIGNA alleging: breach of
contract; intentional interference with contractual
relations; intentional interference with economic gain; and
violation of Mass. Gen. L. ch. 93A, 11, and 93A generally.
After a four-day trial, the jury returned special
verdicts:
Judgment for the defendant on plaintiffs'
claim of breach of contract.
Judgment for the defendant against the
plaintiffs on its counterclaim alleging
breach of contract with damages awarded
in the amount of $780,000.00.
Judgment for the defendant against the
plaintiffs on its counterclaim alleging
interference with contractual relations
with damages awarded in the amount of
$500,000.00.
Adding interest, the total award to M&J came to
$1,544,106.73. The district court found for CIGNA on
M&J's claimed violations of Mass. Gen. L. ch. 93A.
After a hearing, the district court set aside the
jury verdict and ordered a new trial.
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After another four-day trial the second jury found
in favor of M&J and awarded it damages in the amount of
$250,000.00. Judgment for M&J, including interest, came to
$321,333.28. Early in the second trial, the district judge,
based on a stipulation by the parties, ruled that M&J had
breached its contract with CIGNA and that the amount due
CIGNA was $169,798.14. Adding interest to this resulted in a
judgment for CIGNA in the sum of $219,888.60. The judge
denied both parties' post-trial motions.
Before starting our exposition of the evidence and
analysis of the issues, we state the standard of review that
controls our assessment of the district court's decision to
set aside the jury verdicts and order a new trial in the
first case and decline to do so the second time around. Fed.
R. Civ. P. 59(a) provides in pertinent part:
(a) Grounds. A new trial may be
(a) Grounds.
granted to all or any of the parties and
on all or part of the issues (1) in an
action in which there has been a trial by
jury, for any of the reasons for which
new trials have heretofore been granted
in actions at law in the courts of the
United States;
The Court has described the scope of the rule as
follows:
The motion for a new trial may invoke the
discretion of the court in so far as it
is bottomed on the claim that the verdict
is against the weight of the evidence,
that the damages are excessive, or that,
for other reasons, the trial was not fair
to the party moving; and may raise
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questions of law arising out of alleged
substantial errors in admission or
rejection of evidence or instructions to
the jury.
Montgomery Ward & Co. v. Duncan, 311 U.S. 243, 251 (1940).
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First Circuit precedent is clear.
A district court may set aside a
jury's verdict and order a new trial only
if the verdict is so clearly against the
weight of the evidence as to amount to a
manifest miscarriage of justice. See,
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e.g., Lama v. Borras, 16 F.3d 473, 477
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(1st Cir. 1994). A trial judge's refusal
to disturb a jury verdict is reversed
only for abuse of discretion.
Federico v. Order of Saint Benedict in Rhode Island, 64 F.3d
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1, 5 (1st Cir. 1995). See also Fleet Nat'l Bank v. Anchor
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Media Television, Inc., 45 F.3d 546, 552 (1st Cir. 1995).
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There can be no doubt that the district court here
understood the constraints applicable to setting aside a
verdict and ordering a new trial. The new trial ruling
states, inter alia:
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A jury verdict may not be set aside as a
matter of law under Fed. R. Civ. P. 50(b)
except on a "determination that the
evidence could lead a reasonable person
to only one conclusion." Acevedo-Diaz v.
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Aponte, 1 F.3d 62, 66 (1st Cir. 1993)
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(quoting Hiraldo-Cancel v. Aponte, 925
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F.2d 10, 12 n.2 (1st Cir. 1991)).
I.
I.
ISSUES COMMON TO BOTH TRIALS
ISSUES COMMON TO BOTH TRIALS
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The evidence adduced at both trials was essentially
the same. CIGNA has raised two issues on appeal which are
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common to both trials:
(1) Whether the district court erred in refusing
to grant its motions for judgment as a matter of law on M&J's
breach of contract claim at the conclusion of both trials.
(2) Whether the district court erred in ruling
that M&J's claims "were not barred or diminished" for its
failure to exhaust its administrative remedies provided under
Mass. Gen. L. ch. 175, 163.
Submission of M&J's Breach of
Submission of M&J's Breach of
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Contract Claim to the Jury
Contract Claim to the Jury
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The question, of course, is whether there was
sufficient evidence for M&J's breach of contract claim to be
decided by the juries. The relevant evidence which was
substantially the same for both trials is summarized as
follows. Frank Lombard, president and owner of M&J,
testified that M&J encountered serious financial problems
when the Bank of New England collapsed causing M&J's line of
credit to terminate on May 30, 1991. Lombard testified that
it was usual for M&J, and other insurance agencies, to use
bank loans to meet its premium obligations to insurance
companies for premiums owed by the insureds. In other words,
the agency would carry its clients by borrowing money from a
bank, pay the premiums due the company and wait for payments
from the clients. The collapse of the Bank of New England
stripped M&J of any cash reserves. Lombard testified that
other insurance companies with whom M&J did business agreed
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to accept monthly installment premium payments or extended
the due date for the payment of premiums.
Another factor that impacted on M&J's financial
condition was the loss of its biggest insurance account, F.L.
Roberts Co. ("Roberts"). Premiums on this account amounted
to between $800,000.00 and $1,000,000.00 a year. Roberts was
a large wholesaler and retailer of petroleum products and
operator of service stations and car washes in southern New
England.
The evidence discloses the following sequence of
events. Lombard was an insurance consultant for Roberts, not
an agent, from 1979 through 1986. In late 1986, Roberts did
not have a carrier for 1987. Lombard suggested that Roberts
try to obtain insurance coverage for a three-year period with
the premiums being determined on the basis of the carrier's
expenses and Roberts' losses. Under such a program the
insured, who paid a deposit premium initially, might be owed
refunds by the carrier at the end of the insurance year or
vice versa. The amount due either the carrier or Roberts
would be determined each year. In January of 1987, such a
program was entered into between Roberts and CIGNA for three
years with M&J acting as agent. The amount of premiums due
would be determined in September 1988, 1989, and 1990. In
July or August of 1990 Lombard calculated that CIGNA owed
Roberts $200,000.00 under the program. He contacted CIGNA on
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September 30, 1990, and was told that it would look into it.
Lombard called the CIGNA department in charge of the program
and was reprimanded for doing so. A new program was set to
go into effect in January of 1991. The down payment required
by CIGNA from Roberts was $250,000.00. Roberts informed
Lombard that it would not pay the $250,000.00 unless it was
credited with the $200,000.00 refund. Laurie Scanlan, who
worked in the special risk division of CIGNA, acknowledged
that CIGNA owed Roberts money under the program, but would
not pay it because she asserted that Roberts also owed a
surcharge of $56,000.00. Lombard told Scanlan the surcharge
was not part of the insurance program. She told him to
collect it. He refused.
An inter-office CIGNA memo states its position:
Per our discussion, the following
strategy will be utilized in solving the
F.L. Roberts FVC surcharge dispute.
Number one, Insured Meeting. Set up a
meeting with F.L. Roberts and invite the
agent.
Number two, Program Intent. Discuss
the need for the surcharge in vague
terms. Provide the proposal for the '89
and '90 years to document the stated
surcharge, in parentheses, '87 and '88:
FVC not mentioned. Close parentheses.
Number 3, CIGNA's Needs. If we cannot
collect the surcharge, we cannot be a
market for such coverages.
Number 4, Payment Intentions. After
discuss needs for surcharge, determine if
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F.L. Roberts is willing to pay the FVC
surcharge.
Number five, Refusal to Pay. Legally,
we cannot enforce the payment of the FVC
surcharge. Therefore, back-off if they
refuse to pay. But we should then
seriously consider non-renewal.
Hopefully, we can satisfy our insured
and collect the surcharge at the same
time. Good luck.
M&J expected a proposal from CIGNA for the 1992
Roberts insurance program. Scanlan was supposed to work up
the figures. Lombard received a letter from Scanlan on
December 16, stating that CIGNA would not negotiate renewal
terms unless CIGNA was paid the 1991 premiums due. The
letter further stated that CIGNA would issue cancellation
notices the next day, but if Roberts paid CIGNA within ten
days, the notices would be rescinded. Roberts' insurance was
cancelled as per the letter. Lombard immediately faxed to
CIGNA a statement by CIGNA showing a credit due Roberts of
$28,903.58 as of December 20, 1991. After the fax, CIGNA
reinstated Roberts' insurance.
CIGNA sent a renewal proposal for 1992 that cost
about $500,000.00 more than the prior program. Lombard was
given until noon the next day to make up his mind. He found
the proposal totally unacceptable. Lombard tried to work out
an alternative program with CIGNA. With the permission of
Joann White of CIGNA, he issued temporary binders effective
January 1, 1992. Scanlan notified Roberts that the temporary
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policies were not valid. Lombard received a letter from
Scanlan that a new agent, Palmer Goodell Insurance, would be
Roberts' new broker unless Lombard was notified otherwise by
the close of business on January 17. No such notification
was received. M&J's commissions on the Roberts account
amounted to about $80,000.00 per year.
The third aspect of the evidence involved two
unexecuted promissory notes from M&J to CIGNA. As M&J's
financial problems increased, it approached CIGNA and asked
to pay the premiums due in twelve regular monthly
installments. CIGNA told M&J in September of 1991 that it
would draw up a promissory note providing for payment of the
past due premiums in regular monthly installments. The note
was brought to Lombard by Charles Glaser on February 6, 1992.
Lombard approved it orally, but did not sign it because the
word "draft" was written across the top of it. This note had
a principal sum of $115,507.05. During his discussion with
Glaser, Lombard told him about the Roberts account. Glaser
asked Lombard what he was planning to do. Lombard replied,
"I don't know, I'm seeking a legal remedy." A second note
was presented to Lombard on March 23 by Robert Purdy. The
principal was $105,324.14, but the payment terms and interest
were the same as the first note.1 This note, however,
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1. There is no explanation in the record as to the
difference between the principal in each note.
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included a waiver and release of all claims that M&J might
have against CIGNA. Lombard, still smarting because of the
loss of the Roberts account, refused to sign the note. Remmy
Martens, a marketing official for CIGNA, who had dealt with
Lombard for an appreciable length of time, told Purdy at the
time the waiver and release were added to the note that,
based on his knowledge of Lombard, Purdy would have
difficulty getting Lombard to sign the note as redrafted.
CIGNA cancelled its agency contract with M&J
forthwith after Lombard refused to sign the note. It shut
down all of M&J's computers wired into the CIGNA net. It put
all of the policies heretofore handled by M&J on direct
billing; i.e., premiums were paid directly to CIGNA.
M&J notified CIGNA that the forthwith cancellation
was prohibited by Massachusetts law, which it was. Mass.
Gen. L. ch. 175, 163 prohibits the cancellation of an
agency contract without 180 days notice.2 After CIGNA
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2. No company shall cancel the authority
of any independent insurance agent for
fire or casualty insurance, or both, if
said agent is not an employee of said
company and no company shall modify a
contract with such an agent unless the
company gives written notice of its
intent to cancel such agent or its intent
to modify such contract at least one
hundred and eighty days before the
proposed effective date of any such
cancellation or modification.
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checked the Massachusetts statute, it deferred the
cancellation for 180 days.
We rule that there was sufficient evidence from
which a jury could find that CIGNA breached the agency
contract with M&J. The evidence provided two grounds for
such a finding. One, that the "forthwith" cancellation was
contrary to Massachusetts law, of which CIGNA must be
presumed to have knowledge. It also could be found that
CIGNA cancelled its agency contract with M&J by refusing to
honor the binders that one of its officials (White) had
authorized.
The Application of Mass. Gen. L. ch. 175, 163
The Application of Mass. Gen. L. ch. 175, 163
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This issue does not merit extended discussion.
CIGNA claims "that the unexhausted administrative remedy
available under M.G.L. ch. 175, Sec. 163 eclipsed or
diminished M&J's claim for damages." CIGNA brief at 37.
First, we do not understand what the terms "eclipsed or
diminished" mean in the context of this case. The statute
provides in pertinent part:
Except as otherwise provided herein, any
agent receiving notice of such
cancellation, modification or expiration
MAY, within fifteen days after receipt
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thereof, make a written demand for
reference to three referees of the
question as to whether or not such
cancellation, modification or expiration
will so affect the renewal, continuation
or replacement of any policies placed
with the company through the efforts of
the agent, or the services needed by any
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policyholder doing business with the
company as a result of the efforts of the
agent, as to justify renewal or
continuation of any policies then in
effect having been placed with such
company by such agent.
(Emphasis added.)
It cannot be reasonably doubted that the statute is
permissive. M&J had no duty to invoke it.
CIGNA has cited no cases holding even tangentially
that the statute applies in a situation similar to the one
that confronts us. The two cases it cites are completely
inapposite; they involve different statutes and different
claims. We have been unable to find any cases in this
Circuit or in Massachusetts requiring an agent to invoke
Mass. Gen. L. Ch. 175 163 prior to asserting claims against
an insurance company, and CIGNA has cited none. CIGNA's
argument is without merit.
II.
II.
THE FIRST TRIAL
THE FIRST TRIAL
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The district court ordered a new trial for three
reasons. It ruled that the jury finding that M&J had not
breached its contract with CIGNA to pay premiums as due "is
against the clear weight of the evidence and enforcing it
would result in a miscarriage of justice." The court found
that the jury "rendered an improper 'sympathy' verdict."
The court found that the amount awarded M&J on its
breach of contract claim was "outrageous." It held that M&J
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"failed to introduce evidence at trial that established its
entitlement to over $700,000 in damages."
The court set aside the jury verdict awarding
$500,000.00 to M&J for intentional interference by CIGNA with
M&J's contractual relations with Roberts. It ruled: that
"there was no evidence of a contract between M&J and
Roberts;" that "even if there was a contract . . . there was
no evidence that CIGNA knowingly induced Roberts to break
that contract," and that M&J failed to show that even if
there was a contract and interference with it by CIGNA, M&J
"failed to show that CIGNA's interference was improper in
motive or means."
The court concluded:
In fine, after considering the jury's
verdict in conjunction with its ruling on
CIGNA's breach of contract claim, above,
the Court surmises that the jury's
decision on the MacDonald & Johnson
breach of contract claim "could only have
been a sympathy" verdict. See Phav v.
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Trueblood, Inc., 915 F.2d at 767. In
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addition, because the issues of liability
and damages are so interwoven both issues
must be re-tried.
M&J, as would be expected, objects strenuously to
the district court's rulings and findings. We discuss them
seriatim.
The Jury Verdict that M&J did not
The Jury Verdict that M&J did not
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Breach its Contract with CIGNA
Breach its Contract with CIGNA
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The question is, could the evidence lead a
reasonable person to only one conclusion. Acevedo-Diaz v.
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Aponte, 1 F.3d 62, 66 (1st Cir. 1993). We think so. As the
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district court pointed out in its memorandum opinion, the
evidence was clear and not disputed by M&J that it owed CIGNA
about $111,000.00 in premiums. This evidence came not only
from CIGNA but from the testimony of John Januska, the
comptroller and assistant treasurer of M&J. He stated that
there was no question that $111,000.00 was due CIGNA in July
of 1991. And although strictly speaking it was not evidence,
counsel for M&J told the jury in his opening statement that
premiums due CIGNA had not been paid.
In its appellate argument, M&J seeks to shift the
focus from the agency contract to the unexecuted promissory
notes. It contends that the notes constituted a modification
of the agency contract and that both parties agreed to
payment of the overdue premiums in monthly installments.
Lombard testified that he agreed to the terms of the first
note and that CIGNA did also. CIGNA says that the first note
was only a tentative proposal for Lombard's consideration and
therefore the note was not signed by the parties. Lombard
refused to sign the second note, the one with the added
waiver and release. Lombard's assumption that he would be
given an opportunity to pay the premiums owed CIGNA in
monthly installments may have caused him not to pursue other
options for payment, but it is not a valid basis for finding
either a modification of the agency contract or a new
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contract between the parties. Such a finding is foreclosed
by the two unexecuted promissory notes. The district court
did not err in ruling that the jury's verdict was contrary to
the evidence and upholding it would result in a miscarriage
of justice.
Moreover, there is another reason for upholding the
district court on this issue. Early in the second trial the
parties stipulated that judgment would be entered for CIGNA
against M&J on CIGNA's breach of contract claim in the amount
of $169,798.14 plus interest. By so doing, M&J waived any
objections to CIGNA's contract claim in the first trial.
The Amount of Damages Awarded on M&J's
The Amount of Damages Awarded on M&J's
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Breach of Contract Claim Against CIGNA
Breach of Contract Claim Against CIGNA
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The jury awarded M&J $780,000.00 on its breach of
contract claim. The court set this aside because M&J's
evidence failed to establish that it was entitled to over
$700,000.00 in damages and because it was a "sympathy"
verdict. Lombard estimated that he lost a little over
$200,000.00 as a result of the termination of the agency
contract by CIGNA. He managed to salvage $30,000.00 to
$40,000.00, making a net loss of $160,000.00. In addition,
Lombard testified that he lost $161,158.00 on his commercial
accounts, $39,046.00 on "Market Dyne" Business, and a
$215,490.00 loss was sustained on personal accounts. The
loss of commissions on the Roberts account came to
$80,000.00, and there was a loss of profit sharing with CIGNA
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amounting to $44,000.00. Lombard testified that his salary
dropped about $60,000.00 a year after the CIGNA termination.
These figures, even if taken at face value and with no
allowance for what appears to be double counting, total
$699,694.00, not including the reduction in Lombard's salary.
The suit was brought in the name of M&J so we do not think
that Lombard's reduction in salary is a proper item to be
considered. Thus, the total amount of damages, taking
Lombard's testimony at face value, did not, as the district
court pointed out, exceed $700,000.00.
It was not error for the district court to set
aside as excessive the breach of contract damages awarded
M&J. We point out that the court found that the verdict on
damages for M&J was infected by the jury's complete disregard
of the evidence on CIGNA's breach of contract claim. This
appears to be a sensible assessment of the first jury's
verdict. The second jury was not so influenced.
The Jury Award of $500,000.00 for CIGNA's
The Jury Award of $500,000.00 for CIGNA's
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Intentional Interference with
Intentional Interference with
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M&J's Contractual Relationship with Roberts
M&J's Contractual Relationship with Roberts
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The district court correctly applied Massachusetts
law to a claim for intentional interference with contractual
relations. The party making the claim must prove four
elements: (1) that there was a contract with a third party;
(2) that defendant knowingly induced that party to break the
contract; (3) that defendant's interference was intentional
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and improper in motive or means; and (4) that the claimant
was harmed by defendant's action. Wright v. Shriner's
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Hospital for Crippled Children, 412 Mass. 469, 476, 589
________________________________
N.E.2d 1241, 1245 (1992); see also G.S. Enterprises, Inc. v.
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Falmouth Marine, Inc., 410 Mass. 262, 272, 571 N.E.2d 1363,
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1369 (1991); United Truck Leasing Corp. v. Geltman, 406 Mass.
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811, 812, 551 N.E.2d 20, 21 (1990).
Our reading of the record confirms the ruling of
the district court that there was no contract between Roberts
and M&J. A long-standing business relationship does not
become a contractual relationship automatically, as M&J seems
to argue. The last insurance program issued to Roberts by
CIGNA through M&J was for a term of three years. None of the
parties had a contractual obligation to continue the
insurance coverage after its term expired. The evidence
suggests strongly that Roberts decided to use a broker other
than M&J because it would be less expensive. There was also
evidence that one of the owners of the new agency was a
neighbor of the president of Roberts. We need go no further
than the lack of a contract between Roberts and M&J to uphold
the ruling of the district court setting aside the jury
verdict awarding M&J $500,000.00 for intentional interference
with a contractual relationship by CIGNA.
At the trial the court reserved to itself the
decision on the claim by M&J against CIGNA for violations of
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Mass. Gen. L. ch. 93A. It found in favor of CIGNA. M&J
moved for a new trial. Our review of the record reveals no
basis for reversing the judgment of the district court. We
do not find it necessary to delve into the nuances of chapter
93A law. Suffice it to say that the sparsity of the evidence
was a firm basis for the court to conclude that M&J had
failed to meet its burden of proof on its 93A claims.
Denial of M&J's Motion to Amend
Denial of M&J's Motion to Amend
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Count III of its Counterclaim
Count III of its Counterclaim
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This issue requires some exposition. Count III of
M&J's counterclaim was entitled, "Intentional Interference
with Economic Gain." In a pretrial memorandum and order
dated February 17, 1993, the district court said:
Defendant's third counterclaim against
CIGNA admittedly is mislabeled, but this
problem is not fatal. The Court will
interpret the cause of action as one for
intentional interference with
advantageous business relations, a claim
recognized by the Massachusetts courts.2
Here, too, defendant has pleaded the
requisite elements.
The footnote stated: "Defendant shall amend its
counterclaim within ten days, substituting the correct
nomenclature." Inexplicably, M&J did not amend the
counterclaim as ordered.
At a pretrial conference on the day the trial
started, the court pointed out to M&J's counsel that the
counterclaim had not been amended as ordered. The attorney
said: "I thought that was right in there." The court
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replied, "No." The judge's law clerk then said, "According
to the documents, that was never filed." The attorney
responded by saying, "Okay." No objection was taken nor was
permission requested to amend the counterclaim nunc pro tunc.
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After the conclusion of the trial, M&J moved to
amend its counterclaim. The motion was denied as untimely,
but the court said:
In the event that this case is re-
tried, the Court will reconsider
MacDonald & Johnson's request to amend
its pleadings to include a claim for
intentional interference with
advantageous business relations.
Six days prior to the second trial, M&J filed a
motion to amend their counterclaim to include a claim for
intentional interference with advantageous business
relations. The court denied the motion on timeliness
grounds, also noting that the pleadings failed to allege
facts to support the claim, that CIGNA presented no evidence
at the first trial (nor offered any at the second) to support
the inference that CIGNA knowingly induced Roberts to break
its contract with M&J or that any interference by CIGNA was
improper.
We review a denial of leave to amend for abuse of
discretion. A district court, in denying such leave, may
properly consider a party's undue delay, repeated failures to
cure deficiencies in the pleadings, and the futility of the
proposed amendment. Foman v. Davis, 371 U.S. 178, 192
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(1962). Without deciding whether CIGNA had presented evidence
at the first trial sufficient to enable a jury to find an
intentional interference with advantageous business
relations, we hold that the district court acted within its
discretion in denying the motion to amend.
The district court told M&J before the first trial
that its complaint should be amended if M&J wanted it
considered; M&J failed to do so. It was proper for the judge
to deny leave to amend after the first trial where counsel
was instructed to amend the complaint, failed to do so, and
failed to correct this error when it was pointed out by the
court. Having left an opening for M&J to try again, the
court could well find that M&J had failed to exercise proper
diligence because it waited virtually until the eve of trial
before submitting its motion to amend. Under these
circumstances, we will not disturb the ruling of the district
court.
The Second Trial
The Second Trial
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As already explained, the second jury trial was
limited to M&J's breach of contract claim against CIGNA. M&J
moved for a new trial, which was denied. Both parties object
to the damages award so we start with that.
Damages
Damages
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CIGNA attacks the damages on two grounds: that the
evidence should not have been admitted because it was based
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on hearsay and speculation and that the award was too high.
M&J asserts that the award was too low because the court
improperly limited M&J's damages to the period from the
initial date of cancellation of the agency contract, to
October 15, 1992, the extended date of cancellation required
under Massachusetts law.
Before discussing the claims of the parties, we
rehearse the evidence on damages as reported in the second
trial transcript. The evidence on damages came in through
the testimony of Frank Lombard. He testified essentially as
follows. Up to 1992, M&J's average commissions on premiums
it received was "in the $250,000 a year range." After the
cancellation, clients of M&J who were insured by CIGNA were
sent letters notifying them that M&J's contract with CIGNA
had been cancelled and all premiums due were to be paid
directly to CIGNA. Most of these clients did not renew their
policies with M&J. Lombard kept a record of all such
clients. From the date of the initial cancellation, April 2,
1992, to October 15, 1992, premiums from the affected clients
aggregated $1,720,495.00; M&J's loss in commissions totalled
$201,294.00. This was broken down into three categories:
commercial commissions -- $175,138.00; Market Dyne
commissions -- $13,281.00; and personal commissions --
$12,875.00. In addition, M&J lost its annual profit sharing
income from CIGNA of $12,871.00. Lombard further testified
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21
that the commission loss to the end of the year would have
been $215,393.00.3 Lombard testified that loss of
commissions was the same as loss of profits and that M&J had
a renewal rate of 93% on insurance policies purchased through
it.
He started to testify about future loss of profits
when there was an objection followed by a bench conference.
The court reminded counsel for M&J that it had limited
damages to October 15, 1992. M&J's counsel made an offer of
proof that damages would be $215,000.00 in lost commissions a
year plus loss of profit sharing of $56,000.00 for a total of
$271,000.00 a year "ad infinitum."
We start our analysis of M&J's objection to the
court's ruling on damages with the observation that it is
obvious that an "ad infinitum" claim for damages has no basis
in law and confounds common sense. Confining our analysis,
however, to the claim by M&J that the court's ruling that no
damages could be awarded after October 15, 1992, was error,
we point out that the transcript of the jury instructions
shows that no such instruction was given. The court left it
entirely up to the jury to determine the period of time for
which damages could be awarded:
In considering any claim for loss of
anticipated profits resulting from a
____________________
3. These amounts are considerably lower than the items of
damages claimed in the first trial.
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breach of contract, you should consider
the length of time that parties had a
right to expect to receive the benefits
of the contract.
If you determine the contract was only
for a certain period of time, or could be
terminated by notice to the other party
after a certain period, you may only
award damages for losses incurred during
that limited period of time.
CIGNA did not object to the failure of the court to
limit the time period for awarding damages.
M&J argues that this unexpected volte-face by the
__________
court on damages prevented it from introducing more extensive
evidence on damages. The answer to this is that Lombard
testified: "Your [sic] damages are, our loss of commission
both for 1992, and these people, based on our experience,
would have renewed their insurance each year and these
customers are gone." It is hard to see what additional
evidence could have been introduced. This sum of $271,000.00
for annual lost profits was in evidence for the jury to
consider and there was no restriction in the charge limiting
the period of damages. We have read the final argument for
M&J carefully and there is no discussion in it of any time-
period limitations on damages. The attorney for M&J, without
objection, stated, "a whole year's commission was $215,000,
not 201." Based on the evidence before the jury and the
court's instructions, we find that M&J was not prejudiced by
the court's bench ruling that damages could not be awarded
-23-
23
after October 15, 1992, because this ruling was not conveyed
to the jury.
We are not impressed by CIGNA's objections that the
evidence on damages was based on speculation and hearsay and
should have been excluded. As the court pointed out,
Lombard's testimony was based on his own records and
experience in the insurance business. That the testimony was
self-serving went to its credibility not its admissibility.
Lombard was subjected to rigorous cross-examination on
damages and CIGNA introduced testimony through experts that
contradicted Lombard's testimony. The jury's verdict of
$250,000.00 in damages for M&J strikes us as a reasonable
assessment of the evidence. Moreover, even if Lombard's
testimony was hearsay in part, it did not affect the verdict.
The $250,000.00 award could only have been for the year 1992.
As to what happened to M&J's clients in 1992, Lombard had
first-hand information. He testified as follows:
A. I kept track from the day this event
occurred in March of 1992. I was the one
in charge. I was the one that talked to
the people that got the letter from
CIGNA. I was the one that handled all the
commercial accounts, so I knew who was
affected by that action.
Any violation of the hearsay rule was de minimis.
__________
CIGNA's other objection that the award was too high
does not fare any better. CIGNA argues that Lombard
testified only as to lost revenues but ignored the other side
-24-
24
of the ledger -- savings in ongoing expenses -- thus, the
damages were higher than what normally would be the case.
Lombard did testify specifically, however, that M&J's
expenses did not contract after the loss of the Roberts
account but continued at the same level. He testified that
no one was terminated, and that expenses continued at the
same rate. Lombard was cross-examined intensively on this
point but did not give ground. It was well within the
province of the jury to believe Lombard's testimony.
Our rulings and findings on damages negate CIGNA's
argument that its motion for a remittitur should have been
allowed.
The Conduct of the Judge
The Conduct of the Judge
________________________
M&J's main attack on the jury verdict is a two-
pronged condemnation of the conduct of the district judge.
It asserts that the judge should have recused himself from
presiding over the second trial because of bias and prejudice
against M&J. It also accuses the judge of secretly
communicating with the jury during its deliberations. These
are serious charges.
Recusal
Recusal
_______
In its motion for recusal filed prior to the second
trial, M&J states three specific reasons for recusal:
1. The very nature of a retrial order is
such that it should be considered by one
other than the original trial judge.
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25
2. At the pretrial conference held on
March 13, 1994, Judge Freedman stated in
open court that he thought that the
Defendant, Plaintiff in counterclaim,
Frank Lombard, was insincere.
3. At the pretrial conference held on
March 13, 1994, Judge Freedman stated in
open court that if a jury finds similarly
on retrial, that he would order a third
trial.
-26-
26
In its brief, M&J has expanded its reasons:
The trial judge not only stated his
bias, but allowed it to infect his
rulings. As indicated in prior arguments
in this brief, he took away verdicts in
favor of M & J after the first trial even
though there was ample evidence to
support them. In ruling on these motions
he denied the existence of evidence of
damages which was clearly before the
jury. He failed to apply proper law in
finding against M & J for the claim
arising out of the loss of the F.L.
Roberts account. He failed to adhere to
the rules of civil procedure regarding
notice pending and amendments to
pleadings. He found against M & J on the
c. 93A count without making any findings
of fact to support his decision.
M&J's Brief at 42-43.
28 U.S.C. 455(a) provides:
(a) Any justice, judge, or magistrate
of the United States shall disqualify
himself in any proceeding in which his
impartiality might reasonably be
questioned.
We turn to the case law to determine when the statute is
implicated. In this Circuit the question is:
whether the charge of lack of
impartiality is grounded on facts that
would create a reasonable doubt
concerning the judge's impartiality, not
in the mind of the judge himself or even
necessarily in the mind of the litigant
filing the motion under 28 U.S.C. 455,
but rather in the mind of the reasonable
man.
United States v. Arache, 946 F.2d 129, 140 (1st Cir. 1991)
________________________
(quoting United States v. Cowden, 545 F.2d 257, 265 (1st Cir.
_______________________
1976), cert. denied, 430 U.S. 909 (1977)). See also Town of
_____ ______ ___ ____ _______
-27-
27
Norfolk v. United States Army Corps of Eng'rs, 968 F.2d 1438,
_____________________________________________
1460 (1st Cir. 1992); United States v. Lopez, 944 F.2d 33, 37
______________________
(1st Cir. 1991).
In In Re Allied-Signal, Inc., 891 F.2d 967 (1st
__________________________
Cir. 1989), Judge Breyer, now Justice Breyer, made a number
of observations that are pertinent here: The court of
appeals will not reverse a district judge's decision to sit
unless such decision "cannot be defended as a rational
conclusion supported by a reasonable reading of the record."
(quoting In Re United States, 666 F.2d 690, 695 (1st Cir.
____________________
1981)). Id. at 970. He amplified:
___
When considering disqualification, the
district court is not to use the standard
___
of Caesar's wife, the standard of mere
suspicion . . . that is because the
disqualification decision must reflect
not only the need to secure public
__________
confidence through proceedings that
appear impartial, but also the need to
_________
prevent parties from too easily obtaining
the disqualification of a judge, thereby
potentially manipulating the system for
strategic reasons, perhaps to obtain a
judge more to their liking.
Id.
___
We end our case review with a quote from El Fenix
________
de Puerto Rico v. The M/Y Johanny, 36 F.3d 136, 140 (1st Cir.
_________________________________
1994).
No permissible reading of subsection
455(a) would suggest that Congress
intended to allow a litigant to compel
disqualification simply on unfounded
innuendo concerning the possible
________
partiality of the presiding judge.
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We start our analysis by noting that there is no
rule of federal procedure that requires a different judge to
preside over a new jury trial ordered by the original trial
judge. M&J has cited no case to this effect and we have
found none. Absent a Local Rule that so provides (and
Massachusetts has none), this is a matter within the
discretion of the trial judge. Although there may be
circumstances in which a new judge should preside over the
second trial, such substitution is not the usual practice.
We find nothing in the record here suggesting circumstances
that would make the trial judge think twice about presiding
over the new trial.
Because we have affirmed the rulings and findings
of the district court setting aside the verdicts in the first
trial and ordering a new trial, it would be pointless to
discuss the asseverations made by M&J at pages 42 and 43 of
its brief. Our affirmance of the rulings and findings of the
district court scotches any bias or prejudice claim on this
basis.
This leaves for consideration the comments made by
the judge at the pre-trial hearing on May 13, 1994. The
record reads as follows.
THE COURT: Well, Mr. Joseph,
without even thinking F.L. Roberts what
is your client earnestly, sincerely and
so forth believe he's entitled to on the
breach of contract on the counter-claim?
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MR. JOSEPH: He is, believes he's
entitled to the jury verdict on the
counter-claim.
THE COURT: $500,000?
MR. JOSEPH: Oh, indeed.
THE COURT: There's no way to move
if that's his thinking.
MR. JOSEPH: Well, that is his
thinking.
THE COURT: Well, if that's his
thinking then you have no authority to do
anything.
MR. JOSEPH: Well, I have the authority.
THE COURT: Then, we'll have to talk
trial date and go from here.
MR. JOSEPH: All right, sir.
THE COURT: And I have to advise you
in advance that if a second jury went as
far as the first jury went as far as
$500,000, the money, I'd take that away
as well. You have to know you're not
going to get it. I don't care what you
did. At least not from this Judge. You
could always take an appeal and see if
you could get another trial. That would
be up to the first circuit.
MR. JOSEPH: Okay.
THE COURT: I was hoping we might be
able to be sincere in our thinking and go
somewhere. Your client is not sincere in
my eyes.
MR. JOSEPH: Judge, I really must
disagree with you and I insist my client
is very sincere. Perhaps if you don't
think he's sincere you should recuse
yourself.
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THE COURT: No, I'm saying if he
thinks a jury verdict should be given to
him if he's not willing to accept and go
with another trial, I frankly don't think
another jury would go anywhere near that
figure. If they give anything at all.
I'm not even convinced he, they would
ever do that.
This pre-trial hearing was called by the judge in
an attempt to settle the case. We see nothing in the
comments of the judge that would create a reasonable doubt
concerning the judge's impartiality in the mind of a
reasonable person.
The Alleged Secret Communication
The Alleged Secret Communication
________________________________
by the Judge with the Jury
by the Judge with the Jury
__________________________
M&J has alleged that the trial judge, without
advising counsel, responded in the negative to a question by
the jury asking whether it could award damages of more than
$240,000.00 to M&J. This alleged secret communication
between the judge and jury first surfaced in a conversation
between Gary W. Lavallee, foreman of the jury, and Frank
Lombard, president of M&J, at a local restaurant three or
four weeks after verdict and judgment in the second trial.
The jury foreman subsequently executed a sworn affidavit
which stated:
AFFIDAVIT OF GARY W. LAVALLEE
_____________________________
I am Gary W. Lavallee. My business
address is 82 Main Street, West
Springfield, Massachusetts.
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31
I was the foreman of the jury in the
case of CIGNA vs. MacDonald and Johnson
Insurance Agency, Inc. in November 1994.
Based on our recent conversa-
tion regarding your jury award,
we the jury sent two questions
out to Judge Freedman
requesting guidance. One
question specifically asked if
we could award damages over and
above the $240,000 you had
illustrated on the blackboard,
to justify for a loss of
renewal income. His reply was
that we couldn't.
During our deliberation, the whole
jury was in complete agreement to
awarding additional damages based on loss
of renewal income.
Signed under the pains and penalties of perjury this
1st day of March 1995.
_______
\s\ Gary W. Lavallee
_______________________________
Gary W. Lavallee
The other question asked by the jury poses no
problem. It stated in writing:
(1) Are we allowed to tack on (or
provide) interest to amount of damages
that MacDonald is asking for?
If so, can we charge 8%?
After consulting with counsel the judge replied in
writing:
Interest cannot be added to any verdict
by the jury.
Judge Freedman.
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32
The allegation by the jury foreman of a secret
communication was never squarely resolved on the merits
because the district court ruled in a motion to strike the
affidavit that it had been obtained in violation of an
explicit rule prohibiting interviews by counsel, litigants or
agents except under the supervision of the district court.
See United States v. Kepreos, 759 F.2d 961, 967 (1st Cir.),
___ _________________________
cert. denied, 474 U.S. 901 (1985). We concluded that a
_____ ______
complete record was necessary for a fair determination of
this issue and that the district court should determine
whether there was any private communication as alleged by the
jury and, if so, the circumstances surrounding the
communication.
We, therefore, issued an order retaining
jurisdiction and
remanding to the district court for the
limited purpose of determining whether
the alleged private communication
occurred and, if so, in what
circumstances. A new district judge will
be assigned by the chief judge of the
district court for the limited purpose of
conducting this proceeding.
Judge Douglas Woodlock was assigned by Chief Judge
Tauro of the U.S. District Court of Massachusetts to conduct
the proceeding. On May 2, Judge Woodlock took testimony from
the jury foreman, Lavallee, two district court security
officers, a deputy U.S. Marshal, and the courtroom deputy
clerk to Judge Freedman during the trial.
-33-
33
On May 6 testimony was taken from six other jurors.
One of the jurors had left the state and no attempt was made
to obtain her testimony. Testimony was also taken on the
same day from Frank Lombard, president of M&J, and the
courtroom deputy clerk for the proceeding. At the conclusion
of this evidentiary hearing; Judge Woodlock informed the
parties of his intention to give Judge Freedman an
opportunity to state his recollection of the allegations in
the Lavallee affidavit. Counsel was advised that after
reviewing Judge Freedman's statement they would have an
opportunity to interrogate him.
In the meantime, counsel had advised Judge Woodlock
that Judge Freedman's law clerk at the time of the trial,
Kenneth B. Walton, might have relevant evidence to offer. On
May 21, Mr. Walton's evidence was taken. At the conclusion
of this hearing the parties informed Judge Woodlock that they
sought no other testimony and that they did not wish to
interrogate Judge Freedman.
Judge Woodlock made the following ultimate finding:
Based upon my review of the materials
of record in this case and the evidence
adduced at the evidentiary hearings
pursuant to my assignment, I find as a
matter of fact that after the jury
retired to begin its deliberations in
this case on November 17, 1994, and
before it returned with its verdict,
Judge Freedman had no secret
communication with the jury outside the
presence of counsel. The only
communication Judge Freedman had with the
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34
deliberating jury involved the receipt of
a jury question concerning interest,
which he shared with counsel, and
responded to in writing, pursuant to his
standard practice regarding such
inquiries.
We have reviewed carefully the record of the
evidentiary hearings held by Judge Woodlock and the detailed
subsidiary findings he made. We unhesitatingly affirm his
ultimate finding and his underlying subsidiary findings.4
III.
III.
CONCLUSION
CONCLUSION
__________
The judgments of the district court in both trials
are affirmed.
affirmed
________
No costs to either party.
No costs to either party.
_________________________
____________________
4. In view of Judge Woodlock's findings, we need not address
the question of whether the initial contacts between Lombard
and Lavallee, and the subsequent securing of the affidavit,
violated the mandate of Kepreos, 759 F.2d at 967.
_______
Accordingly, we express no opinion on that question.
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