LILY TRANSPORTATION CORP. vs. ROYAL INSTITUTIONAL SERVICES, INC. & others. [Note 1]

DREBEN, J. In early April, 1999, the plaintiff Lily Transportation Corp. (Lily), under the impression that it was contracting with Royal Institutional Services, Inc. (Royal), orally agreed to transport soiled hospital laundry from Philadelphia to Royal's plant in Massachusetts and carry clean laundry back to Philadelphia. After Lily's unpaid bills mounted to more than $150,000, Lily learned that another corporation, Gem Laundry Services, Inc. (Gem), was considered by Royal to be Lily's customer.

Lily thereafter brought this action on numerous counts against Royal, Gem, Mark Liebovitz, and other individuals who were, with Liebovitz, stockholders and principals of Royal and Gem. Following a bench trial, a judge of the Superior Court found against Liebovitz and Royal on a claim of intentional misrepresentation, as well as a claim of wilful and knowing violation of G. L. c. 93A meriting double damages and attorney's fees. He also "pierced" Gem's corporate veil so as to impose liability for its debts on three of its four stockholders, Liebovitz, Mark Johnson, and Shawn Ryan. [Note 3]

This is an appeal by Royal, Liebovitz, Johnson, and Ryan. We affirm the finding of violation of c. 93A by Royal and Liebovitz, including the finding that the violation was wilful and knowing, and we reverse the judgment insofar as it imposes liability on the individual defendants on the theory of piercing Gem's corporate veil. Although the judge also found intentional misrepresentation by Royal and Liebovitz, we do not reach that issue as there cannot be recovery on both c. 93A and intentional misrepresentation.

Since there is a significant difference between the majority of the court and the dissent as to whether the judge was warranted in his c. 93A findings, we will set forth the findings and the supporting evidence in some detail. We preface our discussion

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with the standard of review as explained in Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 509-510 (1997):

"We do not set aside a judge's findings of fact unless they are clearly erroneous. A finding is clearly erroneous only when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. It is the appellant's burden to show that a finding of fact is clearly erroneous. In applying the clearly erroneous standard, [Mass.R.Civ.P. 52(a), as amended, 423 Mass. 1402 (1996),] requires that due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses. We recognize that the judge, who has a firsthand view of the presentation of evidence, is in the best position to judge the weight and credibility of the evidence. The judge's advantage in weighing the testimony is particularly evident in a case involving conflicting testimony, one in which widely differing inferences could be drawn from the evidence, and the drawing of inferences cannot be separated from the evaluation of the testimony itself. As a consequence, we do not review questions of fact found by the judge, where such findings are supported on any reasonable view of the evidence, including all rational inferences of which it was susceptible. So long as the judge's account is plausible in light of the entire record, an appellate court should decline to reverse it. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." (Internal quotations and citations omitted.) (Emphasis supplied.)

1. The findings and supporting evidence as to c. 93A violation. Liebovitz, Johnson, and Ryan are the sole shareholders of Royal, a business that provides laundry services to hospitals in Massachusetts and New Hampshire. In the summer of 1998, with the intention of providing similar services to hospitals in Philadelphia, the three Royal shareholders created Gem, a Pennsylvania limited liability company, together with a fourth shareholder, a corporation, Harbor Hospital Services, Inc. The

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principal of the fourth shareholder was a businessman from Philadelphia, Earl Waxman. [Note 4] Liebovitz, Johnson, and Ryan held their two-third interest in Gem through ownership of a Pennsylvania holding company, Royal of PA, Inc. [Note 5] Waxman's corporation owned the remaining one-third interest in Gem.

Gem's initial capitalization was provided, for the most part, by Fleet Bank (bank) ($1,350,000) through a loan that was guaranteed personally by Liebovitz, Johnson, and Ryan, and, in part, by Royal. Waxman lent Gem another $200,000.

Gem began operating in the fall of 1998, doing business as Harbor Healthcare Laundry Services (Harbor). In the beginning of 1999, Gem became unable to process the volume of laundry required under its contracts with various hospitals in Pennsylvania. Gem contracted with Royal and began sending some of its laundry for cleaning to Royal's Worcester plant, in Massachusetts. A few deliveries were made in January and February of 1999. Transportation to and from Massachusetts for these deliveries was provided by Cardinal Logistics, a Philadelphia firm. When that arrangement proved unsatisfactory, Liebovitz sought to have TransLease, a company with which Royal had an existing contract, provide the transportation services. The TransLease contract had been drafted by Robert Kessler, a man Liebovitz had known for several years while Kessler was employed by TransLease. [Note 6]

In mid-March, 1999, Kessler informed Liebovitz that he was now working for another trucking company, namely, Lily. Shortly thereafter, Liebovitz called Kessler to seek his advice as to whether Royal, which still had unused miles on its TransLease contract, could use the excess mileage to move the laundry "for them" from Philadelphia.

After TransLease declined, Liebovitz again called Kessler and asked him to look at the operation in Philadelphia to see if Lily might have any interest in providing transportation in

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Philadelphia. [Note 7] Liebovitz told Kessler that "we had a new hospital contract starting April first" and that "they were processing linen in Philadelphia the same way they were doing it here in . . . Worcester and Somerville, for hospitals."

Kessler and another Lily employee met Liebovitz at "a building in Philadelphia where they were processing laundry." Asked if there was any "signage" or "[a]nything that identified it," Kessler answered, "Not that I recollect." The judge inferred there were no signs, disbelieving Liebovitz's testimony to the contrary. Although Kessler did not see anything that identified Gem or Harbor, he was told by Liebovitz that the company in Philadelphia was "Harbor." He was never told that Harbor was doing business for a Pennsylvania corporation. Gem was never mentioned.

Liebovitz told Kessler that "they" might have a problem processing laundry in the Philadelphia plant and might have to start moving linen up to Massachusetts to get it processed. He asked Kessler to determine if Lily would be interested.

Kessler understood "they" to be Royal because all his contacts with Liebovitz had been with Royal. He acknowledged that his belief that it was Royal was not from anything Liebovitz "articulated." He made no inquiries because he was "pretty familiar with [Royal's] business," and the Philadelphia operation appeared to be the same as what Royal was doing in Massachusetts. When the trial judge asked Kessler, "Why is it you never clarified who you were dealing with," he replied, "I didn't clarify it, your Honor, because I knew these people very well, I had a great deal of confidence in them, and I would have thought that, if there was another entity they were doing business with, they would have told me."

After discussing the proposal with his "people" at Lily and, after further conversations with Liebovitz, Kessler orally agreed that Lily would provide the requested trucking services from

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Philadelphia to Worcester. Although the first delivery was April 7, pricing was not settled until after a few deliveries, and some schedules were not fixed until they were set by electronic messages (e-mails) sent to Kessler by Liebovitz dated April 29, May 7, and May 10, 1999. Kessler testified that the arrangement was a rather "fluid deal primarily because things were changing from day to day." The three e-mails from Liebovitz to Kessler were from an account entitled "royalofma." The first e-mail was received by Kessler before Lily sent the first bill for its services. That bill was sent to Royal on May 5, 1999.

Liebovitz, upon receiving the first bill, sent it to Harbor in Philadelphia. He also informed the operations manager of Lily that bills were to be sent to Harbor, but a later bill in June was also sent to Royal. Notations in Liebovitz's handwriting appeared on both the May and the June bill. Liebovitz knew from these bills that Kessler and Lily were under the impression that Lily was working for Royal. Nevertheless, Liebovitz did not inform Kessler of the billing change despite his continuing contact with Kessler whenever something new came up, and despite the fact, as Kessler testified, that the two had frequent contact for reasons unrelated to this case. [Note 8]

Believing that Lily was contracting with Royal, Kessler informed Lily's financial officers that he had had substantial dealings with Royal at TransLease and that Royal was a good credit risk. As a result, no investigation of finances of any company was made by Lily other than a Dun & Bradstreet report concerning Royal. Kessler testified that had he known that Lily was billing Harbor -- he did not find this out until August, 1999 -- he would have investigated Harbor's finances. [Note 9]

Although Gem ceased to do business on or about July 23, 1999, [Note 10] and, under the arrangement with the bank, neither Gem

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nor Harbor was permitted to retain Gem's accounts receivable, [Note 11] Liebovitz never informed Kessler of Harbor's (Gem's) demise. [Note 12] As a result, Lily continued to transport laundry to Royal's Massachusetts plants for several weeks, billing a company which Liebovitz knew had no source of income or assets with which to pay for services. All of Gem's assets were pledged as collateral to the bank.

Despite Liebovitz's assiduous avoidance of an explicit statement that Royal was doing business as Harbor, and despite Liebovitz's specific mention of Harbor, the judge found that "Lily had no reason to believe that [Harbor] was anything but a dba or account of Royal." This finding, as well as findings that Liebovitz knew that Kessler would believe that Lily's arrangement was with Royal and that Liebovitz fostered that belief, were supported by a reasonable view of the evidence.

Also warranted are the trial judge's findings that Gem was in a precarious financial state in early April, 1999 when the transportation services commenced, that Liebovitz knew this, and that had Lily investigated, as was its usual practice, it would not have entered into the kind of arrangement that it did. [Note 13]

Harbor's business started in July or August of 1998. It never made a profit. The volume of business grew, but because of labor and other problems, the plant was not working well. Liebovitz testified, "we were probably at forty-four percent [of] the national average" of laundries in productivity. Because of

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its poor production, Liebovitz, Ryan, or Johnson frequently had to come to Philadelphia to monitor the operation. In the beginning of 1999, the company stopped meeting its financial projections although it doubled its volume of business. Royal itself was not being paid by Harbor (and was never paid) for its processing of Harbor's laundry although Harbor was being billed for such services. [Note 14] Liebovitz testified, "we probably cash flowed even through March of '99 and then April, May, and June we started to have some cash flow problems and then stopped doing business in July, early August." Harbor's doors closed on July 23, 1999 because there was "no money for payroll."

An examination of the accounts owed to Lily shows that Harbor was not current in its payments. Although the first bill of May 5 for $11,900 stated that payment was due within seven days, at the end of May, Harbor owed $67,060; at the end of June, $71,990; at the end of July, $112,790; and at the end of August, $151,150. Harbor's last payment was dated July 2.

Unlike the dissent, we consider the following findings by the judge on the c. 93A claim a permissible view of the evidence:

"Royal, through Liebovitz, misled Lily into believing that Royal was contracting with it (and not [Gem,] a financially unsound corporation). The conduct of Liebovitz at the outset of the relationship failed to apprise Lily of the existence of an entity other than [Royal], and his conduct actively encouraged the impression that Royal was the contracting party. The deceptive conduct on the part of both Liebovitz and Royal caused Lily to act differently than it would have otherwise acted."

Similarly, we consider the judge's finding that Liebovitz's conduct was both wilful and knowing a plausible account of the evidence. See Demoulas v. Demoulas Super Mkts. Inc., 424 Mass. at 510.

Accordingly, the judge's conclusion that Royal and Liebovitz were in violation of c. 93A was not erroneous as matter of law.

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"The Legislature originally enacted c. 93A to improve the commercial relationship between consumers and businessmen. By requiring proper disclosure of relevant information and proscribing unfair or deceptive acts or practices, the Legislature strove to encourage more equitable behavior in the marketplace. See Commonwealth v. DeCotis, 366 Mass. 234, 238 (1974). By the addition of [G. L. c. 93A, § 11,] by St. 1972, c. 614, § 2, . . . these protections were extended to persons engaged in trade or commerce in business transactions with other persons also engaged in trade or commerce." Manning v. Zuckerman, 388 Mass. 8, 12 (1983). There was here not only a failure to disclose, but as the judge concluded, Royal, through Liebovitz, actively misled Kessler and Lily into believing that Lily was contracting with Royal. See Wasserman v. Agnastopoulos, 22 Mass. App. Ct. 672, 677-680 (1986); Bump v. Robbins, 24 Mass. App. Ct. 296, 311 (1987), and cases cited; Sargent v. Koulisas, 29 Mass. App. Ct. 956, 957- 958 (1990); 940 Code Mass. Regs. § 3.16(2) (1993); McHugh, Bases for Claims Under Chapter 93A -- Principles of Unfairness and Deception § 2.4, at 2-47 to 2-51, Chapter 93A Rights and Remedies (Mass. Continuing Legal Educ. 1999 & Supp. 2002).

2. Piercing the corporate veil. Lily's complaint also sought to pierce the corporate veil of Gem, a Pennsylvania limited liability corporation, and to look to the assets of the individual defendants, Liebovitz, Johnson, and Ryan, to satisfy the judgment against Gem. In his order the judge stated:

"Judgment shall enter on Count III for Lily against Liebovitz, Johnson and Ryan for the amounts unpaid by Gem in the amount of $159,650 based on their individual conduct in holding out Gem as a viable corporation when it was simply a vehicle for their individual interests."

We do not consider the piercing of Gem's corporate veil proper in the circumstances of this case. The wrongdoing here was not holding out Gem as a viable corporation but rather hiding its existence. That Royal and Liebovitz misled Lily into believing that it was dealing with Royal, rather than Gem, is not a reason to pierce Gem's veil. For that conduct Royal and Liebovitz, as we have determined in part 1 of this opinion, were directly liable

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under c. 93A. Moreover, as set forth in the margin, the relevant factors leading to a piercing of Gem's corporate veil are not present here. [Note 15], [Note 16]

In any event, Johnson and Ryan cannot be held liable. Although they were active in managing Gem, there is no evidence that they participated in misleading Lily. Stockholders who are not involved in the improper transaction or wrongdoing are not liable even when the corporate veil is pierced. See Jefferson Pilot Bdcst. Co. v. Hilary & Hogan, Inc., 617 F.2d 133, 136 (5th Cir. 1980) (applying Alabama law); Lopez v. TDI Servs. Inc., 631 So. 2d 679, 687 (La. App. 1994); Slusarski v. American Confinement Sys., Inc., 218 Neb. 576, 581 (1984).

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See also Pepsi-Cola Metropolitan Bottling Co. v. Checker's, Inc., 754 F.2d 10, 16 (1st Cir. 1985); Aoki v. Atto Corp., 323 B.R. 803, 814 (Bankr. 1st Cir. 2005). Text writers are in accord. See 1 Fletcher, Cyclopedia of the Law of Private Corporations § 41.32, at 645 ("fraud or inequity must be perpetrated by the person or corporation against whom doctrine is invoked; such party must have been an actor in the course of conduct constituting the abuse of corporate privilege"); 1 Blumberg, Stasser, Georgakoupoulos & Gouvin, Blumberg on Corporate Groups §§ 14.05-14.06A, at 14-17 to 14-20 (2d ed. 2005); Brodsky & Adamski, Law of Corporate Officers and Directors: Rights, Duties and Liabilities § 20.12 (2005).

3. Conclusion. The judgment is affirmed against Royal and Liebovitz on the finding of a violation of c. 93A, including the finding of doubling of damages and the imposition of legal fees and costs. The judgment against Liebovitz, Johnson, and Ryan is reversed insofar as it is based on the piercing of Gem's corporate veil.

So ordered.

LAURENCE, J. (concurring in part and dissenting in part, with whom Green, J., joins). I disagree with the majority's conclusion that the finding in the plaintiff's favor on the c. 93A count should be affirmed because, I conclude, the most crucial of the trial judge's findings on that issue are unsupported by the record, and because the mundane business bumbling that occurred in this case was not the sort of inequitable marketplace behavior that G. L. c. 93A, § 11, was intended to discourage and punish. The majority correctly quotes the deferential appellate standard ordinarily applicable when reviewing the factual findings of a trial judge who has seen and heard the witnesses, and I remain mindful that credibility, in particular, "is a preserve of the trial judge upon which an appellate court treads with great reluctance. . . . But it is not forbidden territory. There are exceptional cases 'where [even] such findings have been changed in whole or in part on appeal, because plainly wrong.' " Springgate v. School Comm. of Mattapoisett, 11 Mass. App. Ct. 304, 310 (1981), quoting from Spiegel v. Beacon Participations, Inc.,

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297 Mass. 398, 407-408 (1937). [Note Laurence-1] This is, in my view, such a case because, considering the evidence as a whole, and in light of the evolving body of law under c. 93A involving business transactions, I am left with the definite and firm conviction that the judge's outcome-determinative findings are plainly wrong. [Note Laurence-2]

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On my view of the facts, the majority has erroneously transmuted a garden-variety commercial transaction, arising out of a loosely undertaken oral agreement -- characterized by imperfect communications, questionable assumptions, and informal and slack business practices -- into a wilful, knowing, "assiduous" campaign of deception. As does the majority, I must set forth the evidence in detail to demonstrate the errors I discern.

Counterstatement of factual background. Defendants Liebovitz, Johnson and Ryan are the sole shareholders of Royal, a business based in Southboro that provides laundry services to Massachusetts and New Hampshire hospitals. In the summer of 1998, Liebovitz, Johnson and Ryan, seeking to expand their business into the Philadelphia area, created a separate company

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with a businessman from Philadelphia, Earl Waxman. [Note Laurence-3] This company, Gem, a limited liability corporation formed under Pennsylvania law, lawfully conducted business under the name Harbor Healthcare Laundry Services (Harbor) (see note 8, infra) and planned to provide laundry services to hospitals in the Philadelphia area. Liebovitz, Johnson and Ryan held a two-thirds interest in Gem through a holding company they owned, Royal of Pa., [Note Laurence-4] while Waxman controlled the remaining one-third interest in Gem. Fleet Bank provided a substantial part ($1,350,000) of Gem's initial capitalization, through a loan that was guaranteed in part by Royal and personally by Liebovitz, Johnson and Ryan. Waxman lent Gem another $200,000. Gem and Royal shared the same accountant, who was located in Worcester, but Gem's bookkeeping services were separate from Royal's, and Gem filed its own tax returns. Liebovitz, Johnson and Ryan were each involved at one time or another in the daily management of Gem's operations in Philadelphia.

Gem had begun operating (with a labor force of about 100 employees) under the name Harbor in the fall of 1998. Because, however, of the small size of its Philadelphia facility and the limited capacity of its equipment, as well as unspecified labor problems, it soon discovered that it could not handle the volume of laundry that it had contracted to clean (substantially through Waxman's contacts and auspices) for various hospitals in the Philadelphia area. Gem then entered into a contract with Royal for the use of Royal's plant in Worcester to provide additional laundry cleaning, and Royal billed Gem for those services. The soiled laundry was to be transported from Philadelphia to Massachusetts, cleaned there by Royal, and then transported back to the Pennsylvania hospitals.

The individual defendants initially had Gem enter a written agreement for hauling the overflow laundry to Massachusetts with a trucking company in the Philadelphia area called

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Cardinal, but Cardinal proved unsatisfactory after some trial deliveries. They then sought to secure that transportation through Trans-Lease, the company which had an existing written contractual relationship with Royal for laundry hauling in New England. That contract had been brokered (and, indeed, drafted) by Kessler in September, 1998, when he was employed by Trans-Lease. Sometime in March, 1999, however, Trans-Lease notified Liebovitz that it was not interested in making deliveries from Philadelphia to Massachusetts.

While Liebovitz was attempting to strike a deal with Trans-Lease, Kessler, who had left Trans-Lease in mid-March, 1999, and had gone to work for Lily, a Needham-based trucking corporation with offices around the country, contacted Liebovitz to apprise him of his move to Lily and to offer Lily's services should Liebovitz need them. Liebovitz subsequently called Kessler from Philadelphia to inform him that he had an "operation in Philadelphia" doing linen processing for hospitals in that area and invited Kessler to visit "the operation" to see if Lily might have an interest in providing transportation services. Kessler said that he was going to be in the Philadelphia area as one of his new territories and agreed to meet Liebovitz at his facility there.

Kessler met Liebovitz sometime in late March, 1999, at the building in Philadelphia where the hospital laundry was being processed, 900 Jefferson Street. Liebovitz testified that a sign on the only door to the building read "Harbor Healthcare Laundry Services," although Kessler did not recall seeing a sign. Liebovitz, however, expressly told Kessler at the time that the company doing the laundry at the facility was Harbor Healthcare Services, although he did not mention Gem. Kessler inquired no further about the specific identity or relationships of the company or the operation but simply assumed, based solely on his prior dealing with Liebovitz while at Trans-Lease, that Harbor was Royal's operation in Philadelphia. At no time did Liebovitz say anything suggesting that the Philadelphia operation was owned by Royal or run under Royal's auspices, and Kessler conceded that his assumption that he was doing business with Royal was not the result of anything Liebovitz ever said. Liebovitz informed Kessler that "he" had a written

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transportation contract for trucking services for the Philadelphia operation with a company called Cardinal, in which the parties were clearly stated to be Gem (operating under the name Harbor) and Cardinal, but Kessler never asked to see that contract.

No agreement ensued following Kessler's visit, but soon thereafter, in early April, 1999, Liebovitz called Kessler to tell him that "they" had a large new hospital account in Philadelphia starting late in April. That account had to be processed immediately but its volume was beyond the capacity of the Philadelphia plant for a variety of operational reasons (including labor problems) and therefore had to be transported to Royal's facility in Worcester on a daily basis for processing and then returned to Philadelphia. Liebovitz explained that Cardinal had been used for such hauls but had not worked out and asked Kessler if Lily would be interested in the business. Kessler assumed that by "they" Liebovitz meant Royal, again solely because of his prior dealing with Leibovitz in Massachusetts on the Trans-Lease contract. [Note Laurence-5]

Kessler discussed the proposal with his "people" at Lily and, after further conversations with Liebovitz about scheduling, orally agreed that Lily would provide the requested trucking services from Philadelphia to Worcester, even though no prices were set at that time. Liebovitz provided Kessler with price information based on deliveries to Worcester that Cardinal had recently made under its contract with Gem doing business as Harbor. Although he did not ask to see the Cardinal contract, Kessler assured Liebovitz that Lily's price would not be more

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than Cardinal's and could be firmed up after a few deliveries had been made. Liebovitz believed that the likely price per pound to be set could be supported by the Philadelphia operation until it had resolved its equipment and labor problems and was operating at capacity, which he thought would be within six months. Given the anticipated short-term basis for the arrangement, no written contract -- which would have clearly identified the parties to the agreement -- was entered into, since it was apparently Lily's policy not to do so for agreements of less than a year's duration, and also because of Kessler's view of the arrangement as "a fluid deal . . . [with] things . . . changing from day to day."

Before any deliveries were made, Kessler had to get his superiors at Lily to authorize the agreement, which he identified for them as being with Royal. He spoke with Lily's chief financial officer, who informed him that a credit reference would have to be obtained before Lily would make any deliveries. Kessler, continuing to assume that he was dealing with Royal, told his superiors that he knew the company well, that in the summer of 1998, when he was at Trans-Lease, they had performed a "due diligence" inquiry on the company and that Trans-Lease never had a problem collecting a nickel. Ordinarily Lily would obtain a Dun & Bradstreet rating, a bank reference, and two credit reports for new customers. Based on Kessler's "say so," however, Lily supposedly obtained only a Dun & Bradstreet report on Royal (which, however, was subsequently "lost" and its contents never revealed). Had Kessler known that the contracting party was not Royal, he would not have entered into the contract without further investigation, because without further inquiry he "wouldn't have done business with an entity that I didn't know." [Note Laurence-6]

In early April, 1999, Lily began transporting soiled laundry

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from the Harbor facility in Philadelphia to Worcester and clean laundry back to Philadelphia. On the basis of Kessler's "sayso,"

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Lily's first bill for services was sent on May 5, 1999, to Royal at its Southboro corporate office. When Liebovitz was informed of this, upon Royal's receipt of Lily's invoice, he immediately instructed the Royal clerk to fax the bill to him at Harbor in Philadelphia and by telephone informed his sole operational contact at Lily, Frank Napoli, Lily's operations and dispatch manager, to change the address and the name on the bill to Harbor and to send all bills thereafter to Harbor for payment by Harbor. No other communications during the relevant period mentioned Royal except as the destination of the laundry being hauled from Philadelphia. [Note Laurence-7] On Lily's accounts receivable

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records, the customer was consistently described as "Harbor Healthcare Laundry Svcs."

That bill and all subsequent bills, which were sent by Lily to Harbor by name at its 900 Jefferson Street, Philadelphia facility, were paid by checks bearing the printed account name "Harbor Health Care Laundry Services." Liebovitz did not mention the billing change to Kessler, who was not involved in billing or payment matters for Lily and with whom Liebovitz had no dealings after sealing the deal in early April, except for certain scheduling matters (see note 7, supra) and various contacts on matters unrelated to the trucking arrangement. Liebovitz never explicitly told anyone at Lily that the redirection of billing reflected the fact that Gem (doing business as Harbor) was Lily's customer in the arrangement and not Royal. The redirection of the invoices to a different entity and their consistent payment by that entity did not spur anyone at Lily to inquire about the ostensible change in customer identity or to seek a credit check or investigate the financial or corporate status of Harbor, notwithstanding Lily's purported exigence in checking out the organizations with whom it had business dealings, and Kessler's testimony that, if he had been advised of the billing change, he would have asked for further information about the new entity. [Note Laurence-8]

Lily's bills sent to Harbor in Philadelphia continued to be

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paid for many weeks by checks prominently bearing the name "Harbor Health Care Laundry Services." However, Gem had not prospered as Liebovitz had anticipated, encountered severe cash flow problems, and had to cease doing laundry business on or before July 28, 1999. Kessler was contacted in August, 1999, by Lily's credit people saying that "Royal" had not paid "for some period of time" and owed "a lot of money." Lily, initially uninformed of Gem's cessation of business, continued to make pick-ups and deliveries between Philadelphia and Worcester for a few weeks thereafter, accumulating over $150,000 in unpaid trucking bills under the arrangement. [Note Laurence-9]

Gem ultimately defaulted on all of its loans. When Gem's principal lender, Fleet Bank, sold the collateral that had been pledged to secure Fleet's loans to Gem later in the year, Royal purchased certain of Gem's assets from Fleet for $450,000. This purchase was made pursuant to an August, 1999, liquidation agreement between Fleet Bank and all the defendants. Royal

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and the individual defendants were parties to and signatories on the Gem liquidation agreement. The final amount of Lily's invoices for services to Harbor that remained unpaid was $159,650.

Intentional misrepresentation. Although the majority does not address the judge's findings and conclusions with respect to Lily's count for intentional misrepresentation, it is important to analyze because it underscores the insufficiency of the record to establish any willful and knowing violation of c. 93A. The judge determined that Liebovitz and Royal were liable for intentional misrepresentation to Lily because of Liebovitz's misleading nondisclosure [Note Laurence-10] of the fact that the trucking arrangement was being made not with Royal but with another entity, Gem (doing business as Harbor). That ruling was not, however, supported by the evidence.

To the contrary, review of the record reveals that (a) there was no evidence that Liebovitz "knew" that Kessler would necessarily conclude that Lily would be contracting with Royal -- indeed, the undisputed evidence was that Liebovitz never said anything to Kessler to induce such a conclusion and that Kessler merely assumed it notwithstanding Liebovitz's expressly informing him that the company in Philadelphia Lily would be servicing was Harbor Healthcare Services; (b) there was no evidence that Liebovitz "knew" that the identity of the laundry operator was material to Lily, i.e., that Lily would have refused to enter any trucking contract -- particularly an informal, oral, short-term arrangement as was contemplated -- had it known that the customer was not Royal but Gem (doing business as

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Harbor), either generally or on the ground that Gem was "not a good credit risk" (also an unfounded finding, see note 6, supra), given the uncontradicted testimony that Lily's knowledge of Gem's involvement would have led not to a refusal to do business but to further investigation of the desirability of such business, with results not inferable from the record; and (c) there was no evidence that "it was apparent to Liebovitz that Lily was under the impression that it was working for Royal" (see note 5, supra).

Indeed, there was no evidence that Liebovitz was ever aware that he had conveyed such an "impression" to anyone at Lily, particularly in light of (i) Kessler's repeated concessions that any such "impression" was solely the result of his unarticulated assumption uninfluenced by anything Liebovitz ever said; (ii) Liebovitz's having clearly informed Kessler that the Philadelphia entity entering the trucking arrangement was Harbor; and (iii) Liebovitz's having promptly and emphatically instructed Napoli that the bills were properly to be sent to and paid by Harbor, not Royal.

In short, the record does not establish either culpable knowledge or purpose on Liebovitz's (or Royal's) part, or that the "nondisclosed" information was or would have been deemed by Lily to have been basic or essential to the transaction. [Note Laurence-11] Further, Lily can hardly be said to have justifiably relied on

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Kessler's assumption that it was dealing with Royal and not the Philadelphia entity clearly identified to it (by Liebovitz) as Harbor and as the party which was to be responsible for receiving and paying Lily's bills, particularly given Kessler's admission that had he learned of the change in billing arrangements he "would have . . . asked [for] further information on the [newly identified] company" -- something no one at Lily ever did. Additionally, Lily would be charged under Pennsylvania law with notice that corporations in Pennsylvania were allowed to operate under registered "fictitious" names that might or might not reflect independent corporate identity (see note 8, supra).

The restricted circumstances in which tort liability for intentional nondisclosure may attach are simply not present here, where the parties were (and were represented by) sophisticated businessmen, active and experienced in the area, [Note Laurence-12] dealing at arm's length without any fiduciary or confidential relationships or expectations. See Swinton v. Whitinsville Sav. Bank, 311 Mass. 677, 678-679 (1942); Greenery Rehabilitation Group, Inc. v. Antaramian, 36 Mass. App. Ct. 73, 77 (1994); Wolf v. Prudential-Bache Secs. Inc., 41 Mass. App. Ct. 474, 476-478 (1996). See also Davidson v. General Motors Corp., 57 Mass. App. Ct. 637, 643 (2003) ("A business relationship is not transformed into a fiduciary relationship merely because trust was reposed by one party in the other party"); Central Mass. Television, Inc. v. Amplicon, Inc., 930 F. Supp. 16, 25 (D. Mass. 1996) ("[t]he mere existence of a prior contractual relationship does not, by itself, create a confidential relationship or impose a duty of disclosure").

The c. 93A claim. The judge ruled that Liebovitz (and through

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him Royal) violated G. L. c. 93A by the very same nondisclosure that he held to have constituted intentional misrepresentation -- i.e., that Liebovitz had "misled Lily into believing that Royal was contracting with it (and not a financially unsound corporation) . . . [by] fail[ing] to apprise Lily of the existence of an entity other than [Royal]." [Note Laurence-13] Such conduct was, the judge

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declared, "unethical" and "clearly outside the penumbra of any established concept of fairness." I disagree. Such condemnations are inapt on the facts of this case.

Most fundamentally, although the applicability of c. 93A is in theory not limited by the scope of the common-law action for fraud (at least in cases involving consumer plaintiffs under G. L. c. 93A, § 9, see Slaney v. Westwood Auto, Inc., 366 Mass. 688, 703 [1975]), as matter of law even a consumer plaintiff's claim of violation of c. 93A based solely on an underlying but meritless claim for common-law fraud is itself without merit, Macoviak v. Chase Home Mort. Corp., 40 Mass. App. Ct. 755, 760 (1996), because it "is absorbed in and vanishes with the [meritless] misrepresentation claim." Fernandes v. Rodrigue, 38 Mass. App. Ct. 926, 928 (1995). This is particularly so when

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the c. 93A claim is not by a consumer under § 9 but by a business entity under § 11. See Townsends, Inc. v. Beaupre, 47 Mass. App. Ct. 747, 755 (1999) (§ 11 claim has no merit where it is based on claims for false representation and negligence that had no basis in the record); Private Lending & Purchasing, Inc. v. First Am. Title Ins. Co., 54 Mass. App. Ct. 532, 539-540 (2002) (§ 11 claims which rest entirely on insufficient claims for breach of contract and misrepresentation cannot prevail); Davidson v. General Motors Corp., 57 Mass. App. Ct. 637, 644 (2003) (§ 11 claim fails when it is entirely based on an underlying claim of breach of fiduciary duty that was without merit on the facts); Pembroke Country Club, Inc. v. Regency Savs. Bank, F.S.B., 62 Mass. App. Ct. 34, 40-41 (2004) (claim under § 11 that is "wholly derivative" of a deficient tort claim cannot establish a c. 93A violation); Cummings v. HPG Intl., Inc., 244 F.3d. 16, 25 (1st Cir. 2001); Zuckerman v. McDonald's Corp., 35 F. Supp. 2d 135, 147 (D. Mass. 1999). [Note Laurence-14]

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Even when analyzed under the general standards applicable to c. 93A claims under a "totality of the circumstances" evaluation in a business context (see note 16, infra), the facts of this case do not support a finding of unfairness. The classic statement regarding the considerations to be used in determining whether a practice is to be deemed unfair is whether the practice "is (1) within . . . [an] established concept of unfairness; (2) immoral, unethical, oppressive, or unscrupulous; or (3) causes substantial injury to competitors or other business people." Heller Fin. v. Insurance Co. of N. Am., 410 Mass. 400, 408 (1991). See also Morrison v. Toys "R" Us, Inc., 441 Mass. 451, 457-458 (2004).

The only concept of unfairness that the judge saw in Liebovitz's conduct -- intentional misrepresentation by nondisclosure of material facts -- found no basis in the evidence, as is discussed above, and was a conclusion bereft of explanatory subsidiary findings supported by the record. See Sidney Binder, Inc., v. Jewelers Mut. Ins. Co., 28 Mass. App. Ct. 459, 465-466 (1990). Liebovitz was not shown to have acted knowingly or purposefully to mislead Lily while engaged in a transaction involving commercially sophisticated parties, but at most on this record could be faulted for having been "sloppy," Shepard's Pharmacy, Inc. v. Stop & Shop Cos., 37 Mass. App. Ct. 516, 522 (1994); or having engaged in "incomplete or imperfect

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negotiations," Madan v. Royal Indem. Co., 26 Mass. App. Ct. at 764; or having made "an error of business judgment," Townsends, Inc. v. Beaupre, 47 Mass. App. Ct. at 754; or having exhibited "ineptitude," Churgin v. Hobbie, 39 Mass. App. Ct. 302, 308 (1995); or even possibly having been negligent (although negligence does not in itself translate into a c. 93A violation in a business context in the absence of other conduct involving dishonesty or fraud, Poly v. Moylan, 423 Mass. 141, 151 [1996], cert. denied, 519 U.S. 1114 [1997]; see Swanson v. Bankers Life Co., 389 Mass. 345, 349 [1983]; MacGillivary v. W. Dana Bartlett Ins. Agency of Lexington, Inc., 14 Mass. App. Ct. 52, 59 [1982]). [Note Laurence-15] Moreover, even if the evidence could be construed to charge Liebovitz with at least a suspicion that Lily

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might be confused about the corporate identity or credit-worthiness of the Philadelphia enterprise, " '[e]ven strong suspicions about a problem . . . do not give rise to a disclosure obligation' under G. L. c. 93A." Urman v. South Boston Savs. Bank, 424 Mass. 165, 171 (1997), quoting from Kutner, Chapter 93A Rights and Remedies § 12.25, at 12-14 (1996 & Supp. 1996). See also Underwood v. Risman, 414 Mass. 96, 100 (1993).

As to the remaining classic criteria for unfairness, our analysis of the evidence and the nature of Liebovitz's business conduct with respect to Kessler and Royal -- objectively seen as, at most, informal, incomplete, inattentive, potentially ambiguous or somewhat equivocal -- removes it from the extreme categories of "immoral, unethical, oppressive, or unscrupulous" behavior, see Heller Fin. v. Insurance Co. of N. Am., 410 Mass. at 408, that falls afoul of § 11 because it is conduct "which a businessman would consider reprehensible." Schwanbeck v. Federal-Mogul Corp., 31 Mass. App. Ct. at 414. Contrast Wang Labs., Inc. v. Business Incentives, Inc., 398 Mass. 854, 857-858 (1986) (deliberate interference by an executive with a corporate colleague's position by presenting superiors with inadequate and false information about his performance in order to cause colleague's termination so as to advance executive's own interests); Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 471-474 (1991) (deliberate violation of an agreement in bad faith as a pretext to coerce financial concessions from the other party that deprived the party of the fruits of the agreement); Massachusetts Employers Ins. Exch. v. Propac-Mass, Inc., 420 Mass. 39, 42-43 (1995) (deliberate refusal to cooperate despite contractual obligation to do so, combined with refusal to obtain requisite regulatory authority while engaged in coercive conduct undertaken as leverage to destroy the rights of another party to the agreement while the agreement was still in effect, all while jeopardizing interests of consumers); Linkage Corp. v. Trustees of Boston Univ., 425 Mass. 1, 25-27, cert. denied, 527 U.S. 1015 (1997) (university's executives deliberately and pretextually repudiated binding agreements, usurped plaintiff's business, hired away plaintiff's employees in violation of a contractual prohibition, all in order to promote a purely

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self-serving agenda); Piccicuto v. Dwyer, 32 Mass. App. Ct. 137, 138-139 (1992) (defendant deliberately violated his agreements, made unlawful demands not warranted under the agreements, engaged in campaign to sabotage the plaintiff's business relationships and harassed plaintiff with groundless complaints to police and unjustified eviction actions).

Nor were the circumstances of this single instance of contractual confusion or uncertainty of such general or public policy significance, or of such market-disrupting ramifications, as to "cause[] substantial injury to competitors or other business people." Heller Fin. v. Insurance Co. of N. Am., 410 Mass. at 408. The purpose of c. 93A is "to improve the commercial relationship between consumers and business persons and to encourage more equitable behavior in the marketplace." Poznik v. Massachusetts Med. Professional Ins. Assn., 417 Mass. 48, 53 (1994). That purpose would not be furthered by foisting the heavy burden of liability under § 11 upon a party to an informal contractual relationship that was initially entered into optimistically and deemed mutually favorable to both sides but which unexpectedly turned sour, with financial detriment to both. Such a commonplace casualty of our rough-and-tumble free enterprise system is simply not the type of serious marketplace misbehavior that c. 93A was aimed at. [Note Laurence-16]

The issue of equity underscores a separate error of law infecting the c. 93A judgment. It has long been held, in business cases under the statute, that "[b]alancing the equities in the relationship of the parties [is] a major factor in determining

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unfairness under G. L. c. 93A, § 2." Mechanics Natl. Bank v. Killeen, 377 Mass. 100, 110 (1979). Such a determination requires an examination of the knowledge and bargaining power of the plaintiff, as well as the plaintiff's own conduct and what it reasonably should have known. See Swanson v. Bankers Life Co., 389 Mass. at 349-350; Madan v. Royal Indem. Co., 26 Mass. App. Ct. at 763-764. See also note 15, supra.

The judge's conclusion of a c. 93A violation, however, was not supported by such an examination, particularly in light of the experience and sophistication of Lily's representative, Kessler; the fact that written contracts for transportation were common in the industry and would have identified the contracting parties; the lack of evidence of Gem's being in dire financial straights at the time the contract was entered; the fact that Gem had already succeeded in obtaining a contractual trucking relationship (with Cardinal), which Kessler never bothered to review; Lily's professed, but here disregarded, policy of undertaking complete credit checks on every new entity with which it did business; Kessler's admitted knowledge that the Philadelphia entity which sought Lily's services was called Harbor, not Royal; Lily's knowledge (and acquiescence) early in the relationship that Harbor and not Royal was to be the recipient and payor of its bills; Lily's subsequent receipt and acceptance of all payments for its services from Harbor on Harbor's checks; Kessler's concession that the emergence of a different entity in the relationship should have triggered additional inquiry; and the fact that under Pennsylvania law Lily was on notice that Harbor might be an entity distinct from Royal.

Such a weighing of the equities would, in our view, render Lily's inert assumption that it was only doing business with and would be paid by Royal unreasonable. Compare Greenery Rehabilitation Group, Inc. v. Antaramian, 36 Mass. App. Ct. at 78 (rejecting c. 93A liability in a case where there "was a negotiation and agreement between sophisticated businessmen active in real estate transactions; they were represented by counsel; the buyers made no credit check or inquiry of their own into the financial conditions of Northern Construction, nor did they request the seller to produce such information; they did

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not request a guarantee of the Northern Construction Lease but now seek to exact what in effect would be a guarantee . . . . [T]he judge . . . [could not] impute to the defendants knowledge at the time of the sale that Northern Construction, which had met its obligations under the lease to that date, would soon go into default . . . a predictive insight about the future operations of a going business in relation to changing market conditions [that] would hardly fit under the heading of 'fact' and would seem at most in the nature of opinion"). See Buster v. George W. Moore, Inc., 438 Mass. 635, 650- 651 (2003) ("the plaintiffs' business vulnerabilities were . . . clearly the result of their own conduct . . . [T]he market is a rough and tumble place where a . . . lack of courtesy, generosity, or respect is neither uncommon nor in itself unlawful").

I would, accordingly, reverse the judgment and order that the same be entered for the defendants.