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Sgarzi v. Sharkansky & Company LLP

Superior Court of Massachusetts, Suffolk

June 15, 2016

Richard H. Sgarzi et al. [1]
v.
Sharkansky & Company LLP et al No. 134299

          June 15, 2016, Filed

          MEMORANDUM AND ORDER ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND MOTION TO STRIKE REFERENCES TO PRIOR TESTIMONY

          Kenneth W. Salinger, Justice

         The remaining plaintiffs claim that they lost millions of dollars they had loaned to a company called Inofin, Inc., after relying to their detriment on allegedly false representations that Sharkansky & Company LLP in connection with its audit of Inofin's 2005 financial statements. Sharkansky is an accounting firm. Defendant Scott Estabrooks is a certified public accountant (CPA) and a partner in Sharkansky. The third amended complaint asserts claims against both Defendants for (1) aiding and abetting securities fraud, (2) violating G.L.c. 93A, (3) engaging in securities fraud in violation of federal, Massachusetts, and Colorado law, (4) intentional fraud, (5) negligent misrepresentation, and (6) civil conspiracy.

         Defendants now move for summary judgment in their favor on all claims. In responding to Plaintiffs' opposition, Defendants also move to strike testimony that Miriam Hollenbeck gave when deposed by the Securities and Exchange Commission regarding Inofin. The motion to strike is unavailing and must be denied because Ms. Hollenbeck's testimony is admissible as non-hearsay statements by a party's employee on a matter within the scope of her employment, pursuant to the legal rule summarized in Mass. Guide to Evid. § 801(d)(2)(D). The motion for summary judgment must be allowed in part with respect to Plaintiffs' claim for negligent misrepresentation because the undisputed facts show that Defendants did not owe any duty of care to Plaintiffs. This motion must be denied with respect to the other claims, however, because they turn on disputed facts. The record evidence would allow a reasonable jury or judge to find at trial that Defendants had intentionally committed, aided, or conspired to help Inofin perpetrate actionable fraud that caused Plaintiffs to lose the money they had loaned to Inofin.

         1. Motion to Strike Evidence

         Ms. Hollenbeck was subpoenaed to testify by the SEC in connection with its investigation of Inofin, because Hollenbeck was employed by Sharkansky as a certified public accountant and helped conduct its audit of Inofin and related entities. Hollenbeck testified before the SEC under oath in June 2010. During this lawsuit, Hollenbeck was designated by Sharkansky as one of its Rule 30(b)(6) witnesses, and testified in that capacity under oath on behalf of Sharkansky.

         During her 2010 testimony before the SEC, Ms. Hollenbeck was asked the following questions and gave the following answers regarding the Inofin financial statements that Sharkansky had been asked to audit.

Q. Do you recall how Inofin intended to use these financial statements?
A. The Massachusetts Banking Commission, they're required to provide the financial statements to the Commission. And as far as I know, investors who also would request a copy of the financial statements would possibly be looking at the financial statements.
Q. Was there any discussion about the impact your qualified opinion on these two potential readers of the financial statements [sic]?
A. I believe so, but I don't remember the specifics.

         Plaintiffs rely heavily on this testimony in opposing the summary judgment motion, as discussed below.

         Defendants' assertion that Ms. Hollenbeck's SEC testimony is inadmissible hearsay is without merit. When Ms. Hollenbeck testified under oath before the SEC she was employed by Sharkansky and was testifying about matters within the scope of that employment relationship. As a result, her prior testimony is not hearsay because it is being offered by Plaintiffs in this action against Sharkansky " as an admission by a party opponent" under the principles summarized in Mass. Guide to Evid. § 801(d)(2)(D). Commonwealth v. Keo, 467 Mass. 25, 39, 3 N.E.3d 55 & n.20-21 (2014); accord Ruszcyk v. Secretary of Pub. Safety, 401 Mass. 418, 422-23, 517 N.E.2d 152 (1998). Defendants' assertion that Hollenbeck's 2010 testimony is inadmissible because she was subpoenaed and testified before the SEC as an individual, and not as an authorized representative of Sharkansky, is without merit. The Supreme Judicial Court has rejected the prior common-law rule that statements are not admissions by a party opponent unless the declarant had " authorization to speak " for the party, and replaced it with the modern rule that statements by a declarant who had " authorization to act " are admissible if they concern matters within the scope of the declarant's employment or other authorization to act for the party. See Keo, supra, at 39-40 n.21, quoting Ruszcyk, supra, at 420 n.3. It appears to be undisputed that Hollenbeck was authorized to act on Sharkansky's behalf in connection with its audit of Inofin's financial statements. As a result, her testimony regarding that assignment and work is admissible and may be considered in connection with the pending motion for summary judgment.

         2. Motion for Summary Judgment

          A claim cannot be resolved on a motion for summary judgment where " a reasonable jury could return a verdict for the nonmoving party." Dennis v. Kaskel, 79 Mass.App.Ct. 736, 741, 950 N.E.2d 68 (2011), quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). For this reason, in evaluating the motion for summary judgment the Court " must . . . draw all reasonable inferences" from the evidence presented " in favor of the nonmoving party, " as a jury would be free to do at trial. Godfrey v. Globe Newspaper Co., Inc., 457 Mass. 113, 119, 928 N.E.2d 327 (2010). A request for summary judgment must be denied where a claim turns on disputed issues of fact or on disputed inferences from admitted facts. See Molly A. v. Commissioner of Dept. of Mental Retardation, 69 Mass.App.Ct. 267, 284, 867 N.E.2d 350 (2007) (" summary judgment cannot be granted if the evidence properly before the motion judge reveals a genuine issue of ...


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