McCORMICK v. FESTIVA DEVELOPMENT GROUP, LLC (Me. 7-29-2010)

The conduct giving rise to the petitioner's disbarment is affirmative proof that he lacked at the time the moral qualifications to practice law, Matter of Centracchio, 345 Mass. 342, 346 (1963), and he bears the heavy burden of establishing that he presently meets those moral and competency qualifications. See Matter of Prager, supra at 92. In judging whether he is fit to serve as an attorney, the court looks to (1) the nature of the original offense for which the petitioner was disbarred; (2) the petitioner's character, maturity, and experience at the time he was disbarred; (3) the petitioner's occupation and conduct in the time since his disbarment; (4) the time elapsed since the disbarment; and (5) the petitioner's present competence in legal skills. Matter of Daniels, 442 Mass. 1037, 1038 (2004), quoting Matter of Prager, supra. This test allows the court to weigh the circumstances concerning the petitioner's misconduct against his subsequent actions that show rehabilitation. See Matter of Prager, supra at 95. No one factor is considered dispositive. See Matter of Allen, supra at 421-422.

In the reinstatement proceedings before the board, the hearing panel paid particular attention to the standards and factors that bear on readmission articulated above. Its findings and recommendations, as adopted by the board, are entitled to deference, although they are not binding on this court. Id. at 421.

The hearing panel began by focusing on the petitioner's mis-conduct that, as reflected in the indictments to which he pleaded guilty, occurred in 1990 and 1992 when he forwarded information he knew to be false to insurers in order to win settlements for two of his personal injury clients. The hearing panel also assessed the environment in which this conduct occurred. While the law firm eventually bore his name, the petitioner was new to the practice of law when he joined the firm in 1986. The firm was established by his father and tightly controlled by his more experienced older brother, James Ellis, Jr., both of whom were also indicted for fraud and conspiracy., As the prosecutor made clear to the judge at the petitioner's plea and sentencing, the petitioner's conduct paled in comparison to that of his brother, and he was a considerably less significant actor in the crimes committed at the Ellis law firm, playing a supporting role in the frauds that the firm's clients and James Ellis, Jr., perpetrated on insurers.

Balanced against the conduct to which he pleaded guilty, the hearing panel considered the petitioner's postdisbarment activities that included the parenting of his children at home while his wife worked, his efforts to become a teacher, his coaching endeavors on four of his town's youth teams, and his many charitable activities through his church and other organizations. Based on the evidence it received, the hearing panel found that the petitioner had reformed himself. See Matter of Waitz, 416 Mass. 298, 305 (1993). He acknowledged his misconduct and the dishonor it had brought to the profession, himself, and his family, and was credible in his expressed remorse and insights into what would be necessary to restore himself to an honorable practice. Most particularly, he understood that he could not again practice with family members or within their sphere of influence. In sum, the hearing panel found that the petitioner had established that he presently was of "good moral character, committed to serving his family and community."

The hearing panel also found that the petitioner had demon strated the competency and learning required for admission to practice law. In addition to taking and passing the multistate professional responsibility examination, the petitioner had taken a number of Massachusetts continuing legal education courses and had undertaken to keep current in his legal reading sufficient to assist him in transitioning into the practice of law in specialty areas different from those in which he practiced at Ellis Ellis. More particularly, the petitioner, on reinstatement, intends to focus his practice on immigration law, Social Security disability law, District Court criminal defense, and debt collection, areas of practice in which he has arranged for mentors to assist him. The petitioner has also secured two experienced attorneys with whom he is acquainted to act as his ethical advisers.

Perhaps the most challenging hurdle for the petitioner to overcome is the effect and perception of his reinstatement on the public and the bar. Matter of Daniels, 442 Mass. 1037, 1038 (2004), and cases cited. In this regard, the hearing panel took note not only of his postdisbarment conduct and testimony, but also of a number of letters sent from neighbors, work supervisors, and an attorney regarding the petitioner's current, rehabilitated reputation in the community. In addition, in recommending reinstatement, the hearing panel suggested certain conditions, none of which has been objected to by the petitioner, and all of which were adopted by the board. These conditions are directed toward assuring the public that the petitioner is prepared and capable of reentering the practice of law and steering clear of the problems of his past. Specifically, the panel recommended the following conditions:

"(1) prior to reinstatement, the petitioner shall take a course recommended by bar counsel concerning the proper method of handling an [Interest on Lawyers Trust Account (IOLTA)] account; (2) the petitioner shall sign an agreement with bar counsel to have his IOLTA account audited for a period of two years at his cost, and shall use for his law practice accounting and auditing an accountant other than Mr. Kyriakis (or any member of his firm), who has been and continues to be his father's accountant; (3) for a period of five years, the petitioner shall not engage in practice with any family member or former member of the Ellis Ellis firm, or the James N. Ellis, Sr. Associates firm, nor shall he employ in his law practice any employee of his father's firm or his sister's office employees; (4) the petitioner shall not engage in any personal injury or workers' compensation cases, and shall not represent any family members for a period of five years; (5) the petitioner shall purchase and maintain malpractice insurance in a minimum of $1,000,000 per claimant with a deductible not to exceed $10,000 for a period of five years; and (6) within the next two years, the petitioner shall take forty hours of [continuing legal education] courses in the areas of the law in which he intends to practice."

We agree with these conditions. They convey in part the message that the petitioner's reinstatement is decidedly not a reopening of the disgraced law practice of Ellis Ellis. They also confirm the seriousness with which the board and this court take their obligation to assure the protection of the public interest above all else.

Having demonstrated to the board that he possesses the current moral qualifications and learning to practice law, and that his admission to the bar would not be detrimental to the public interest, the petitioner is reinstated with the aforementioned conditions.

So ordered.

As sales representatives, Keller and Ying were responsible for selling timeshare units. Id. ¶ 5. As Rangeley employees, they sold units at the Rangeley Lake property. Id. As Festiva employees, they sold points that could be used for stays with the Festiva Adventure Club. Id. Although members of the Festiva Adventure Club could use their points to stay at various locations, most of the clients who purchased time shares from Keller and Ying were local clients who were interested only in staying at the Rangeley Lake property. Id.

Keith McMullen was Keller's and Ying's manager when Festiva purchased Rangeley and remained their manager after the sale, although he resigned approximately one month later. Id. ¶ 6. Rangeley's dress code required business attire. Id. ¶ 7. The dress code remained the same after the sale to Festiva. Id. Upon information and belief, Keller's and Ying's compensation schedule did not change after the sale. Id. They continued to work in the same building after the sale. Id. Upon information and belief, Rangeley and Festiva used the same marketing company to schedule appointments for the sales representatives. Id. ¶ 8.

The only change in Keller's and Ying's job duties after the sale was that they were required to perform cleaning duties when employed by Festiva. Id. ¶ 9. When Keller and Ying were hired by Rangeley, they were required to spend a weekend at Rangeley Lake Resort to familiarize themselves with the product. Id. ¶ 10. When new sales representatives were hired by Festiva to work in the Portland office, they were required to spend a weekend at Rangeley Lake Resort, as well. Id.

Rangeley seeks severance from the instant action on two bases: that it was misjoined, given insufficient connections to Festiva to pass the "transactional relatedness" test, and that requiring it to litigate this matter with the much larger Festiva would cause it serious hardship and prejudice. See Motion at 1-6.

The plaintiffs and Festiva oppose the motion, arguing that a severance decision is premature at this stage of the proceedings and, in any event, Rangeley fails to make a persuasive case for severance on either proffered basis. See Festiva's Opposition at 2-6; Plaintiffs' Opposition at 3-8.

Rangeley relies on Don King Prods., Inc. v. Colon-Rosario, 561 F. Supp.2d 189 (D.P.R. 2008), for the proposition that it is appropriate to examine the following factors in determining whether the transactional relatedness test is met: (i) whether the defendants were alleged to have acted in concert. (ii) whether the only connection between them is that they are alleged to have violated the same law, (iii) whether they are likely to have different defenses, and (iv) whether different evidence will apply to each defendant. See Motion at 4-5; Don King, 561 F. Supp.2d at 192. It argues that none of these factors weighs in favor of its continued joinder. See Motion at 4-5; Defendant Rangeley Lake Resort Development Company, LLC's Reply to Defendant Festiva's Opposition to Rangeley's Motion To Sever Pursuant to Fed.R.Civ.P. 21 ("Reply") (Docket No. 81) at 2-7.

The plaintiffs and Festiva correctly point out that the test of transactional relatedness is broader and more flexible than Rangeley suggests. See Plaintiffs' Opposition at 5; Festiva's Opposition at 2 n. 1; Mosley v. General Motors Corp., 497 F.2d 1330, 1333 (8th Cir. 1974) ("`Transaction' is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship. Accordingly, all `logically related' events entitling a person to institute a legal action against another generally are regarded as comprising a transaction or occurrence.") (citations and internal quotation marks omitted); Montgomery v. STG Int'l, Inc., 532 F. Supp.2d 29, 35 (D.D.C. 2008) ("Rule 20(a)'s first prong is met if the claims are logically related. This is a flexible test where the impulse is toward entertaining the broadest possible scope of action consistent with fairness to the parties.") (citations and internal punctuation omitted); John S. Clark Co. v. Travelers Indem. Co. of Ill., 359 F. Supp.2d 429, 437-38 (M.D.N.C. 2004) (same; "joinder of claims, parties and remedies is strongly encouraged") (citation and internal quotation marks omitted); 7 Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice and Procedure § 1653, at 409 (3d ed. 2001) ("Instead of developing one generalized test for ascertaining whether a particular factual situation constitutes a single transaction or occurrence for purposes of Rule 20, the courts seem to have adopted a case-by-case approach. As stated by one district court judge: there can be no hard and fast rule, and . . . the approach must be a general one of whether there are enough ultimate factual concurrences that it would be fair to the parties to require them to defend jointly the several claims against them[.]") (citations, footnotes, and internal punctuation omitted).

As the plaintiffs note, Don King is distinguishable. See Plaintiffs' Opposition at 5 n. 3. In Don King, the only connection among the 37 defendants was that they were alleged to have pirated one or more of three boxing-match shows aired at different times. See Don King, 561 F. Supp.2d at 190. The court understandably considered whether any other factual concurrence, for example, the existence of concerted action or common evidence, might fulfill the transactional relatedness test. In this case, by contrast, Rangeley sold its timeshare business to Festiva, and Festiva continued that business, albeit with alterations. Festiva represents that the evidence will show that it entered into a contractual relationship with Rangeley on September 2, 2008, that specifically addresses the legal liabilities arising out of the plaintiffs' and putative class members' employment. See Festiva's Opposition at 1.

As Festiva argues, see id. at 2, defendants' status as predecessor and successor corporations can suffice to meet the transactional relatedness test, see, e.g., Kolosky v. Anchor Hocking Corp., 585 F. Supp. 746, 749-50 (W.D. Pa. 1983) (permitting joinder of a successor corporation as a defendant when plaintiffs adduced undisputed evidence that the successor had continued the same disputed employment practices as its predecessor, and only the successor could provide the prospective relief requested). In this case, as in Kolosky, the remedies sought include injunctive relief in the form of an order directing the defendants to cease and desist from activities found to be in violation of state laws, see Third Amended Complaint at 13, and the plaintiffs allege that Festiva continued the same objected-to wage and hour practices as its predecessor, Rangeley, see id. ¶¶ 1-4. To the extent that Rangeley is found liable, injunctive relief seemingly could be had only against its successor, Festiva.

For these reasons, the complaint sets forth a scenario in which the transactional relatedness test would be met. Further, the plaintiffs indicate that they intend to undertake discovery bearing on the issue of the interrelatedness, contractually or otherwise, of Festiva and Rangeley. See Plaintiffs' Opposition at 3, 7. In these circumstances, severance based on an asserted failure to meet the transactional relatedness test accordingly is premature. See, e.g., Helm, 2010 WL 2219722, at *1 ("[I]n light of plaintiffs' representation that they need further time to conduct additional discovery for the purpose of renewing their motion for class certification, the Court believes that granting severance at this time would be premature."); Montgomery, 532 F. Supp.2d at 36 (severance was premature when the plaintiffs had alleged a possible basis to meet Rule 20(a)'s requirements and had not yet had the benefit of discovery); Lane v. Tschetter, Civil Action No. 05-1414 (EGS), 2007 WL 2007493, at *7 (D.D.C. July 10, 2007) (same).

In any event, even assuming arguendo that the Don King factors apply, Rangeley falls short of making a persuasive case that severance is appropriate at this stage of the proceedings:

1. Concerted Action. Rangeley maintains that there is no allegation of concerted action. See Motion at 5; Reply at 4-5. However, the complaint can be construed to make such an allegation. See Third Amended Complaint ¶ 26 ("Upon information and belief, Defendants have operated under a scheme to deprive these employees of appropriate minimum wage and overtime compensation by failing to properly compensate them for all hours worked."). Rangeley also contends that in fact there was no tie between its conduct and that of its successor, with sales representatives having worked pursuant to separate and unrelated compensation agreements and under entirely different working conditions for each defendant. See Motion at 5; Reply at 5. Yet, the plaintiffs dispute that fact, adducing evidence, for purposes of opposing the instant motion, that sales representatives' working conditions and terms did not materially change upon the sale of Rangeley's timeshare business to Festiva, see Keller Decl.; Ying Decl., and indicating that they intend to explore in discovery (i) the nature and terms of the sale from Rangeley to Festiva, (ii) the origins of the classification systems of Rangeley and Festiva, and (iii) the relatedness between the two companies, see Plaintiffs' Opposition at 3. Any conclusion that there was no concerted action therefore is premature. See, e.g., Helm, 2010 WL 2219722, at *1; Montgomery, 532 F. Supp.2d at 36; Lane, 2007 WL 2007493, at *7.

2. Connection Between Defendants. Rangeley argues that there is no connection between itself and Festiva other than that they both are alleged to have violated wage and hour laws. See Motion at 5; Reply at 5-6. That is incorrect. Festiva bought Rangeley's timeshare business and continues to operate it from the same location as Rangeley did. Moreover, as noted above, the plaintiffs allege that Festiva continued Rangeley's objectionable wage and hour practices, see Third Amended Complaint ¶¶ 1-4, adduce evidence that this was the case, see Keller Decl.; Ying Decl., and represent that they intend to explore, through discovery, the contractual and other possible connections between Rangeley and Festiva, see Plaintiffs' Opposition at 3. Festiva, as well, asserts that "there are many points of contact between Rangeley and Festiva with respect to the Plaintiffs at issue in this case" that "will be established in discovery." Festiva's Opposition at 5. By virtue of Festiva's purchase of Rangeley's timeshare business, there is a greater connection between the two defendants than mere allegation that they violated the same laws. Moreover, the plaintiffs and Festiva represent that they intend through discovery to explore in detail the precise nature of the interconnections between the two. Any finding that the defendants lack sufficient connection to satisfy the transactional relatedness test therefore is premature. See, e.g., Helm, 2010 WL 2219722, at *1; Montgomery, 532 F. Supp.2d at 36; Lane, 2007 WL 2007493, at *7.

3. Differences in Defenses. Rangeley maintains that because the defendants are separate entities that used sales representatives at different times pursuant to separate agreements and practices, the defenses of Rangeley and Festiva necessarily will be different. See Motion at 5-6; Reply at 2-3. For example, it states, defenses such as the statute of limitations, independent contractor status, the outside salesperson exemption, the payment or earning by commission, and whether the workers were involved in interstate commerce necessarily will hinge on different facts for each defendant. See Motion at 5-6. However, this point, as well, is contested. Festiva asserts that the majority of legal defenses in this case will be identical. See Festiva's Opposition at 5-6.

Rangeley adds that it has separate and distinct arguments against class certification than those of Festiva and a much higher likelihood of success, particularly with respect to the numerosity requirement. See Motion at 6; Reply at 2. It contends that severing it from a potential class action would simplify the litigation for all parties and prevent the injustice of subjecting it to a class action simply because the plaintiffs, without any reasonable basis, listed it as a co-defendant of the much larger Festiva. See Reply at 2-3. For all of the reasons stated in this decision, Rangeley has not shown that the plaintiffs' naming of it as a co-defendant lacked any reasonable basis. The fact that Rangeley would be in a better position to defend against a class action if severed, standing alone, provides an insufficient basis for severance.

4. Differences in Evidence. Rangeley argues that because the claims against it and Festiva involve different time periods, employment practices, and sales representatives, there will be different evidence as to each defendant. See Motion at 6: Reply at 3-4. It also points out that the products sold are significantly different: It sold timeshare units at a single location, while Festiva sells membership in a club that provides intervals of time at a nationwide network of resort properties. See Motion at 6. However, as noted above, the plaintiffs dispute that Festiva's treatment of sales representatives differed materially from that of Rangeley. Moreover, Festiva employed at least two Rangeley sales representatives, Keller and Ying, following the sale, and Keller and Ying believe that other Rangeley sales representatives continued on with Festiva, as well. See Keller Decl. ¶¶ 3-4; Ying Decl. ¶¶ 3-4. If the plaintiffs are correct, there will be a core of common facts with respect to both Rangeley's and Festiva's treatment of sales representatives. In addition, Keller, Ying, and any other individuals who worked for both entities would be in a position to testify as to the practices of both.

Rangeley argues that, given that it had only 170 or so former sales representatives operating out of one office, requiring it to litigate this matter with Festiva, which has a nationwide operation and hundreds of sales representatives, would work a serious hardship to it and be highly prejudicial. See Motion at 6. It asserts that the claims of most of the plaintiffs will be in regard to Festiva and that it is in an inferior position financially to litigate a massive class action lawsuit in which most of the evidence will have no bearing on the separate claims that former sales representatives may have against it. See id. It maintains that a jury necessarily would be confused by the joining of itself and Festiva as defendants, posing a serious and real danger of irreparable harm to it and its ability to have a fair trial. See Reply at 6. It concludes that fairness and judicial economy dictate that the claims brought against it by its former sales representatives be tried separately from those brought against Festiva. See Motion at 6; Reply at 6-7.

Rangeley offers no evidence of the asserted financial hardship resulting from its joinder in this litigation. Nor is such a hardship otherwise apparent in its conduct of the case thus far. It removed the case to this court and has continued to participate actively in the litigation, for instance, filing a separate motion to dismiss, a separate opposition to the plaintiffs' motion to remand, and now the instant motion to sever. Festiva represents, and Rangeley does not deny, that it did not respond to an invitation to participate in mediation with Festiva and the plaintiffs. See Festiva's Opposition at 6; see generally Reply. Nor is it apparent at this stage of the proceedings, when the plaintiffs' proposed Collective and Maine classes have yet to be approved and their size and precise contours are as yet unknown, that Rangeley necessarily would be prejudiced by its joinder as a defendant in such classes or that jury instructions would be inadequate to prevent juror confusion and any resultant prejudice to Rangeley. For these reasons, Rangeley falls short of demonstrating prejudice sufficient to warrant its severance from the case.

While this finding in itself suffices to deny Rangeley's motion insofar as it is based on asserted prejudice, another factor weighs against its grant. Both the plaintiffs and Festiva raise facially plausible concerns that severing Rangeley would prejudice them. See Plaintiffs' Opposition at 1, 7-8; Festiva's Opposition at 4. The plaintiffs fear additional delay, on the heels of delays attributable to motion practice, as well as the inefficiency and burden of requiring individuals who worked for both Rangeley and Festiva to testify at separate trials. See Plaintiffs' Opposition at 7-8. Festiva fears that, given the plaintiffs' indication that they intend to hold Festiva liable for conduct by Rangeley, Festiva would be obliged to participate in separate litigation against Rangeley, entailing duplication of evidence, testimony, and costs. See Festiva's Opposition at 4. This plausible showing of prejudice likely to result from severance separately counsels against the grant of Rangeley's motion. See Commonwealth Land Title Ins. Co. v. IDC Props., Inc., 482 F. Supp.2d 203, 206 (D.R.I. 2007) ("In deciding whether to sever claims and try them separately, a court should consider a number of factors, including: (1) whether separate trials will help to simplify the issues and avoid confusion; (2) whether separate trials will result in duplication of evidence; (3) whether separate trials will create a risk of inconsistent verdicts; (4) whether separate trials will result in an efficient use of judicial resources; (5) whether separate trials will expedite or delay the proceedings; and (6) the effect on the parties' rights to a jury trial.").

For the foregoing reasons, Rangeley's motion seeking to be severed from the instant action is DENIED on the showing made.

SO ORDERED .

Dated this 29^th day of July, 2010.