Barron v. Fidelity Magellan Fund

• Decision Date: 05 March 2003
• Docket Number: No. 00-P-66.,00-P-66.
• Citation: 57 Mass. App. Ct. 507,784 N.E.2d 634
• Parties: Sean Mitchell BARRON v. FIDELITY MAGELLAN FUND & others.<SMALL><SUP>1</SUP></SMALL>
• Court: Appeals Court of Massachusetts

784 N.E.2d 634

57 Mass. App. Ct. 507

Sean Mitchell BARRON v. FIDELITY MAGELLAN FUND & others.¹

No. 00-P-66.

Appeals Court of Massachusetts, Suffolk.

Argued February 13, 2002.

Decided March 5, 2003.

COPYRIGHT MATERIAL OMITTED

Colette Manoil, Boston, for the plaintiff.

David C. Boch, Boston, for the defendants.

Present: RAPOZA, DREBEN, & MILLS, JJ.²

RAPOZA, J.

The primary issue before us is whether, in the circumstances of this case, the plaintiff, Sean Mitchell Barron (Sean), can recover multiple damages and attorney's fees fron the defendants (collectively, Fidelity) pursuant to G.L. c. 93A, § 9. A judge of the Superior Court concluded that he could not, citing G.L. c. 93A, § 9(3), as amended through St.1987, c. 664, § 3, which limits recovery to actual damages in cases involving "any security." As Sean's c. 93A claim relates to Fidelity's handling of his mutual fund account, the judge concluded that the limitation applies and allowed the defendants' pretrial motion to restrict Sean's claim to his actual damages and to deny him the recovery of attorney's fees. Thereafter, having concluded that Sean could not prove his damages in excess of the amount already paid to him by the defendants and the Commonwealth, the judge allowed the defendants' motion for summary judgment. This appeal followed.

Background. Starting in 1961, both Maurice Barron (Maurice) and his then wife, Rebecca, began investing in various mutual funds in the Fidelity Group. In 1965, Maurice purchased fifty shares of the Fidelity Magellan Fund under the Uniform Gifts to Minors Act (UGMA) for the benefit of his infant son, Sean. At a point, Maurice instructed Fidelity to reinvest, on a continuing basis, any dividends and capital gain distributions in additional shares of the Magellan Fund. As a result, the number of shares in Sean's Magellan UGMA account increased over time.

In 1969, the Barron family moved from one house to another in the town of Randolph and provided their new address to Fidelity. Although the Barrons, including Maurice, continued to receive periodic statements from Fidelity with respect to several of their accounts, at some point Maurice, unbeknownst to him, stopped receiving statements concerning the mutual fund account that he had opened for Sean.³

In 1981, Fidelity deemed Sean's UGMA account to be abandoned, and reported the account to the unclaimed property division of the Department of the State Treasurer pursuant to G.L. c. 200A, § 7, the abandoned property statute. On February 9, 1982, Fidelity transferred the 783.508 shares then in Sean's account to the Commonwealth, as provided in G.L. c. 200A, § 8A. Thereafter, the shares continued to earn dividends, which were reinvested, along with distributions, to purchase additional shares. When no one claimed the shares, which ultimately reached 1,518.48 in number, the Treasurer liquidated them on May 23, 1988. See G.L. c. 200A, § 9.

In early 1994, Sean, then twenty-eight years old, was contacted by a private investigator who asked if he wished to retain her for the purpose of recovering his abandoned property. Sean declined and called Fidelity directly, requesting that the company reinstate his Magellan account. Fidelity refused.

Sean then filed a claim with the Treasurer's division of unclaimed property for the value of his shares as of the date of their liquidation. The Treasurer subsequently issued three checks to Sean, totaling $104,613.65. Sean and his father were not satisfied with the amount paid by the Commonwealth, and they filed an action in Superior Court against several entities associated with Fidelity, as well as against Joseph Malone, the Treasurer and Receiver General of the Commonwealth.⁴ In their complaint, the Barrons requested an accounting and asserted claims not only under c. 93A, but also for negligence, breach of fiduciary duty, and breach of contract.

On November 4, 1997, over two years after suit was filed, Fidelity issued a check in the amount of $152,379.30 to the Barrons, asserting that the amount of the check, combined with the sums previously paid by the Commonwealth, equaled the value of Sean's account as of October 20, 1997.⁵ The total amount received by the Barrons from both the Commonwealth and Fidelity thus came to $256,992.95.

Shortly before the scheduled trial date, Fidelity filed a "Motion for Pretrial Ruling Regarding Plaintiff's Chapter 93A Count" to determine the scope of recovery available to the Barrons in a case relating to "any security." G.L. c. 93A, § 9(3). In its motion, Fidelity essentially asked the court to rule that the Barrons were not entitled to recover either multiple damages or attorney's fees. In support of its claim, Fidelity cited G.L. c. 93A, § 9(3), as in effect on April 4, 1988,⁶ which provides that "recovery shall be in the amount of actual damages" in cases where any method, act or practice is adjudged "unlawful with regard to any security."

The motion was allowed by a Superior Court judge, who concluded that since the case was one relating to securities, the limitation on recovery contained in G.L. c. 93A, § 9(3), applied and barred any claim for either multiple damages or attorney's fees.⁷ As Fidelity had previously conceded liability on the Barrons' c. 93A claim contingent on the judge's ruling that recovery was limited to actual damages, this left only the issue of the extent of those damages for trial.⁸

Fidelity subsequently filed two additional motions: first, a motion in limine seeking to exclude any evidence from the Barrons' expert concerning the valuation of the shares in Sean's mutual fund account and, second, a motion for summary judgment claiming that, without the testimony of their expert, the Barrons could not demonstrate that they were owed anything more than the combined amount already paid to them by Fidelity and the Commonwealth. The motion in limine was allowed, and any evidence from the Barrons' expert was excluded based upon the plaintiffs' failure adequately to answer Fidelity's interrogatories and, later, to supplement the answers they did provide. See Mass. R.Civ.P. 26(e)(1), 365 Mass. 772 (1974).

Although the judge ruled that the Barrons were precluded from presenting expert testimony at trial, she nonetheless considered the affidavit of the Barrons' expert when she ruled on the summary judgment motion. From that affidavit, the judge determined that the Barrons' expert had accepted and used Fidelity's methodology in computing the value of the shares. The only difference between the calculations submitted by Fidelity and those computed by the Barrons' expert was the starting number of shares, with Fidelity asserting that it transferred 783.508 shares to the Commonwealth, and the Barrons claiming the number should have been 1,179.142. The judge, in turn, concluded that the Barrons had no competent evidence to support the starting number used by their expert. Consequently, she deduced, there was no basis upon which the Barrons could prove actual damages in excess of the $256,992.95 that they had already received from Fidelity and the Commonwealth. Accordingly, the judge ruled that there were no disputed issues of material fact left to be resolved at trial. Fidelity's motion for summary judgment was thus allowed, and Sean appealed.⁹

Discussion

A. General Laws c. 93A. Sean alleges that Fidelity committed an unfair and deceptive act or practice when it failed to maintain adequate records of him as a customer and shareholder to the point where it erroneously concluded that he had abandoned his account.¹⁰ As a result, his shares were wrongly surrendered to the Commonwealth and, ultimately, liquidated. Necessarily, at that point, Fidelity stopped purchasing additional shares on his behalf, and, for all practical purposes, his account ceased to exist. The issue presented here is whether G.L. c. 93A, § 9(3), as amended to include matters involving "any security," applies in these circumstances.¹¹

Chapter 93A was enacted in 1967 for the purpose of protecting consumers from unfair and deceptive acts and practices in the conduct of any "trade or commerce." See G.L. c. 93A, § 2(a). Although covering a broad spectrum of business activities, the original statutory definition of "trade" and "commerce" did not refer to any matter involving securities. "In the case of securities transactions . the Legislature did not intend c. 93A to regulate the field." Cabot Corp. v. Baddour, 394 Mass. 720, 723, 477 N.E.2d 399 (1985).

It was not until 1988 that the statute was amended to apply to circumstances involving "any security."¹² In that year, "An Act Providing Increased Protection for Consumers in Securities and Commodities Transactions" was enacted, amending the definition of "trade" and "commerce," as used in G.L. c. 93A, § 2(a), to include the term "any security." St.1987, c. 664, § 3.¹³ Following the amendment, "trade" and "commerce" are now defined to include the "advertising . . offering for sale ... the sale ... or distribution of ... any security." G.L. c. 93A, § 1(b). This expansion of the definition of "trade" and "commerce" permitted consumers initiating an action on their own behalf under G.L. c. 93A, § 9,¹⁴ to assert for the first time, claims that they could not previously have brought under the statute.¹⁵

The shares of the Fidelity Magellan Fund at issue here are securities within the meaning of G.L. c. 93A, § 1(b). See G.L. c. 110A, § 401(k) (term "security" includes any "stock" or "transferable share"). Indeed, Fidelity sold shares in its Magellan Fund directly to the public as well as to its pre-existing customers, such as the Barrons, who purchased additional shares by means of the automatic reinvestment of their dividends and capital gains distributions. The shares in Sean's account, and the manner in which they were purchased, administered, maintained, valued, transferred, and disposed of, are at the heart of the c. 93A claim against Fidelity. Thus, Sean's...