Cigna Fire Underwriters Co. v. MacDonald & Johnson, Inc.

UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT

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.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Frank H. Freedman, Senior U.S. District Judge]

Before

Selya, Circuit Judge,

Bownes, Senior Circuit Judge,

and Boudin, Circuit Judge.

John B. Stewart, with whom Edward V. Leja and Moriarty, Donoghue

& Leja, P.C. were on brief for CIGNA Fire Insurance, et al.

F. Michael Joseph, with whom Joseph, St. Clair & Cava was on

brief for MacDonald & Johnson, Inc.

June 28, 1996

BOWNES, Senior Circuit Judge. Before us are
BOWNES, Senior Circuit Judge.

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

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).

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,

e.g., Lama v. Borras, 16 F.3d 473, 477

(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

1, 5 (1st Cir. 1995). See also Fleet Nat'l Bank v. Anchor

Media Television, Inc., 45 F.3d 546, 552 (1st Cir. 1995).

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:

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.

Aponte, 1 F.3d 62, 66 (1st Cir. 1993)

(quoting Hiraldo-Cancel v. Aponte, 925

F.2d 10, 12 n.2 (1st Cir. 1991)).

I.
I.

ISSUES COMMON TO BOTH TRIALS
ISSUES COMMON TO BOTH TRIALS

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

Contract Claim to the Jury
Contract Claim to the Jury

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,

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

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

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

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

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.

Trueblood, Inc., 915 F.2d at 767. In

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

Breach its Contract with CIGNA
Breach its Contract with CIGNA

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

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

Breach of Contract Claim Against CIGNA
Breach of Contract Claim Against CIGNA

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

Intentional Interference with
Intentional Interference with

M&J's Contractual Relationship with Roberts
M&J's Contractual Relationship with Roberts

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

Hospital for Crippled Children, 412 Mass. 469, 476, 589

N.E.2d 1241, 1245 (1992); see also G.S. Enterprises, Inc. v.

Falmouth Marine, Inc., 410 Mass. 262, 272, 571 N.E.2d 1363,

1369 (1991); United Truck Leasing Corp. v. Geltman, 406 Mass.

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

Count III of its Counterclaim
Count III of its Counterclaim

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.

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

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

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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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

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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

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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.

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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

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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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28

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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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.

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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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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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