St. Paul Fire & Marine Insurance v. Ellis & Ellis

United States Court of Appeals
For the First Circuit

No. 00-1318

ST. PAUL FIRE AND MARINE INSURANCE COMPANY,

Plaintiff, Appellant,

v.

ELLIS & ELLIS and JAMES N. ELLIS, JR.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. George A. O'Toole, U.S. District Judge]

Before

Torruella and Lipez, Circuit Judges,

and Stearns, District Judge.*

Richard R. Eurich, with whom Richard W. Jensen, Thomas C.
Foley and Morrison, Mahoney & Miller, L.L.P. were on brief for
plaintiff, appellant.
Michael P. Angelini, with whom James P. Hoban and Bowditch
& Dewey, L.L.P. were on brief for defendant, appellee.

August 29, 2001
* Of the District of Massachusetts, sitting by designation.
 LIPEZ, Circuit Judge. St. Paul Fire & Marine Insurance

Company appeals from the entry of judgment as a matter of law on its

claims that defendants James Ellis and Ellis & Ellis engaged in common

law fraud, unfair trade practices as proscribed by Mass. Gen. Laws ch.

93A, and statutory fraud in violation of § 14 of the Massachusetts

workers' compensation statute during Ellis's representation of David

Formoso in pursuing a claim for Workers' Compensation benefits from St.

Paul. Although the issue of St. Paul's burden of proving the element

of damages in its fraud claim presents some complexity because of the

workers' compensation context, we nonetheless agree with St. Paul that

the trial court erred in granting defendants' motions for judgment as

a matter of law. Consequently, we vacate the judgment of the district

court.

I.

We recite the evidence presented at the trial in some detail

because the outcome of this appeal turns, in part, upon the proper

construction of that evidence. Since 1981, James Ellis has been an

attorney specializing in workers' compensation law. At the time of the

events underlying this case, he was a partner with his brother in the

firm of Ellis & Ellis, where he managed the workers' compensation

department. The present case arises from Ellis's representation of one

person who was employed at two different jobs under two different

names: Denis Milan and David Formoso. During 1989, this individual,

-3-
while maintaining his separate identities, had two work-related

injuries, one at each place of employment. To reduce some of the

inevitable confusion regarding these dual identities, we will refer to

Denis Milan only when discussing his claim for the first accident at

the Victory Button Company. Because it appears uncontradicted that

David Formoso is the correct name of this individual, we will use that

name in all other instances.

The first accident occurred on March 25, 1989 at the Victory

Button Company. Denis Milan, a worker at the factory, claimed an

injury to his lower back after he reached up to pull some hangers.

Doctors placed that injury at the L5-S1 location. Milan sought

workers' compensation benefits for this injury and filed a claim with

Victory Button's insurer, Cigna Insurance Company. The second accident

occurred approximately eight months after the first, on November 17,

1989, at the Westford Regency Hotel. David Formoso, who worked as a

dishwasher at the hotel, claimed to have injured his back during a

fall. Doctors examining Formoso determined that this injury was also

at the L5-S1 location in his lower back. Formoso also sought benefits

for this alleged injury, submitting a workers' compensation claim to

the Massachusetts Department of Industrial Accidents on December 22,

1989. This claim was referred to St. Paul, Westford Regency's insurer.

Ellis represented Formoso in both claims.

-4-
 Although Formoso was claiming a causal relationship between

his back injury and the fall at the Westford Regency Hotel, the prior

accident at the Victory Button Company--with its injury to the same

part of the back--was never disclosed to St. Paul. Not surprisingly,

the parties dispute the significance of this nondisclosure. Ellis, who

testified as a hostile witness during St. Paul's case-in-chief, claimed

ignorance of the concealed identity until five months after the

Westford Regency Hotel accident. He did not disclose this dual

identity because of his belief that Formoso was still entitled to

benefits and his concern that disclosure would jeopardize Formoso's

ability to remain in this country.1 St. Paul took a darker view of

Ellis's conduct, describing a fraudulent scheme to obtain workers'

compensation benefits. We, of course, must view the evidence in the

light most favorable to St. Paul because of the standard of review

applicable to this appeal. So viewed, the evidence discloses a

fraudulent scheme to obtain workers' compensation benefits.

A. Formoso's Deceit

Three months after the Victory Button Company accident, Milan

began a course of treatment for his injury. His prognosis at that time

was poor, with at least one of his doctors indicating that Milan would

suffer a total disability unless and until surgery was performed. That

1 Formoso appears to have been an undocumented alien, and there
was evidence that, as Milan, his legal status had already been called
into question.

-5-
surgery never occurred. Indeed, Milan's doctors were unanimous in

concluding that he had suffered a disabling injury that prevented him,

at least temporarily, from returning to work. These doctors, however,

were apparently never told that during the same period that they

concluded he could not work, Milan was working, as Formoso, at the

Westford Regency Hotel as a dishwasher.2 Moreover, Formoso took another

job at Malu Construction in the fall of 1989, again while still under

a diagnosis of disability from his doctors. Thus, during the time when

Milan was diagnosed as totally disabled, Formoso was in fact performing

two other jobs. In other words, the injury to Milan, though serious

enough to keep Milan from working, had no corresponding effect on

Formoso's ability to work.

Indeed, Formoso apparently only lost his ability to work when

he suffered an accident as Formoso at the Westford Regency Hotel.

Nonetheless, there was a basis in the evidence for questioning whether

that accident actually resulted in any injury. Dr. Robert Bates, a

chiropractor, treated Milan from August 10, 1989, to April 6, 1990,

three times a week. Though this time period included the Westford

Regency Hotel accident on November 17, 1989--and therefore should have

included some loss of function corresponding to that injury--Dr. Bates

2 Ellis disputes this, claiming that Milan/Formoso only began
working at the Hotel in October of 1989. The hotel owner, however,
testified that Formoso was a steady employee from March of 1989 until
the accident in November of 1989.

-6-
testified that Milan showed a "fairly consistent" improvement in

condition. "There were . . . waxes and waning of symptoms, in other

words, be a little better, a little worse; but overall he got a little

bit better through the treatment."

Moreover, Dr. Bates put Milan through a series of circuit

training exercises designed to improve muscle strength in his back.

Dr. Bates kept logs of these exercises. These logs showed that between

November 17 and December 4, 1989, and again between December 4, 1989

and February 2, 1990, Milan increased the weights he used on these

machines as well as the number of repetitions he performed. In

contrast, during the same period, Formoso was seen by Dr. Param Singh

(on November 28, 1989), Dr. Roland Caron (on December 29, 1989) and Dr.

Bernard Stone (on February 28, 1990). Dr. Singh reported that Formoso

was experiencing low back pain that was "moderate to severe in

intensity, constant in nature, aggravated by movements of the spine, by

prolonged ambulation, prolonged standing, or any physical exertion."

Dr. Caron saw surgery as an option and opined that Formoso "is totally

disabled at the present time" with a "guarded" prognosis. Dr. Stone

confirmed the reports of low back pain and recommended surgery as a

realistic option because Formoso's symptoms were "not improving." Dr.

Bates, however, considered Milan's progress on the circuit training

exercises from November 17, 1989 to February 2, 1990, as indicative of

a "positive result."

-7-
 This evidence reveals a striking disjunction during the same

time frame between Milan's improving conditions and Formoso's

supposedly severe back problem. Indeed, the medical histories of Milan

and Formoso are like those of two different people. When Milan

suffered a debilitating injury, Milan needed to stop work while Formoso

kept working. Likewise, when Formoso fell at the hotel, he exhibited

severe symptoms while Milan showed steady progress in his

rehabilitation. It is undisputed, however, that Milan and Formoso are

the same person. What reconciles the contradictions is a scheme to

defraud St. Paul. Before the accident at the hotel, Formoso knew--from

his treatment as Milan--that the objective indicators of injury, such

as x-rays, would be consistent with a lower back injury like the one he

had already suffered at the Victory Button Company.3 He knew the

symptoms the doctors would expect from that injury. To fabricate a

claim for workers' compensation benefits he only needed an accident at

the hotel that he could claim resulted in symptoms identical to those

he was already experiencing because of his prior injury. He could then

convince doctors that there was a causal connection between his

symptoms and that accident by claiming to have no prior back injuries.

Whether the accident at the hotel was a mere fortuity or was

manufactured makes no difference. The jury could have concluded that

3 Formoso had also been injured in the same part of his back
in 1987.

-8-
Formoso recognized his opportunity and, using the symptoms from his

Victory Button Company injury, proceeded to claim benefits from St.

Paul despite the absence of any actual injury during the fall at the

hotel.

B. Ellis's complicity in Formoso's deceit

Ellis's representation of Milan began at some point after the

Victory Button accident and continued until July of 1990 when that

claim was finally settled. Ellis's representation of Formoso began at

least in November of 1989 and continued until July of 1994.4 Ellis

claimed that he did not learn that his office was representing one

person with different claims under two different names until March 23,

1990, when Formoso came into his office and confessed to his dual

identity. There was contrary evidence, however. There was testimony

that Ellis himself admitted in a June 1994 hearing on Formoso's claim

that he knew of the dual identity as early as December of 1989.

Furthermore, one of Ellis's former associates testified that Ellis met

personally with every new client during the initial intake process.

Accordingly, the jury could have concluded that Ellis knew from the

4 The evidence is conflicting as to when representation of
Formoso began. Ellis claimed representation did not begin until
shortly before the December 1989 filing of the workers' compensation
claim for the Westford Regency Hotel accident. Nonetheless, Ellis's
business records indicate that his office was meeting with Formoso on
his claim as early as November 28, 1989.

-9-
moment he began representing Formoso that he was also representing him

in a different claim under the name of Denis Milan.

Although at trial Ellis would only admit to an awareness that

Formoso was "reluctant" to tell doctors of his prior medical history,

the evidence supports an inference that Ellis knew that Formoso would

falsify his medical history by failing to disclose to doctors examining

him after the hotel accident the prior accident at the Victory Button

Company. Furthermore, although Ellis claimed that attorney-client

confidentiality prevented him from revealing Formoso's dual identity to

St. Paul, nothing in the record reveals that he ever sought to ensure

that his analysis of that ethical issue was correct. Ellis never

shared Formoso's confidences with attorneys at his own firm. Indeed,

Ellis testified that during the entire period of his representation of

both Milan and Formoso, he was the only person in his office who knew

of the dual identity.

Also, Ellis's management of the workers' compensation

department at his firm is entirely consistent with the actions of a man

engaged in a fraudulent endeavor seeking to avoid exposure. Ellis

controlled the flow of information in the workers' compensation

department of his law firm. His method of assigning attorneys to files

ensured that those attorneys were never able to gain a complete picture

of any given case. Files were assigned randomly each week, with Ellis

giving each attorney only enough information to allow that attorney to

-10-
deal with the specific matter at issue. Ellis handled all of the mail

and controlled its dissemination. In short, Ellis's method of managing

the practice of his department reveals a man afraid of his subordinates

getting enough information to form a complete picture of the

department's activities.

Likewise, Ellis went to great lengths to ensure that Formoso

never had to appear before the Department of Industrial Accidents as

Milan. Though claimants would normally attend hearings on the

settlement of a claim, Milan did not attend a hearing on the settlement

of his claim against Cigna. Instead, Ellis submitted an affidavit

dated May 10, 1990 indicating that Milan was a resident of Mamaroneck,

New York with no intent to return to Massachusetts. On May 16, 1990,

however, Formoso was in Massachusetts receiving a medical evaluation

connected with the hotel accident.

In addition to actively concealing the dual identity, Ellis

consistently used others as a buffer between himself and the creation

and dissemination of false information in furtherance of Formoso's

claim. Formoso's doctors incorporated the false medical history in

their reports, thus unknowingly creating false reports that Ellis then

used to convince St. Paul to pay benefits. Having assisted Formoso in

the creation of these false reports, Ellis then used his associates,

all of whom were in the dark about the true state of affairs, to

unknowingly pass along that false information to St. Paul. In short,

-11-
there was abundant evidence suggesting that Ellis was a willing

participant in a scheme to obtain benefits fraudulently from St. Paul.

C. The St. Paul claim and the history of this case

St. Paul began making payments on the Formoso claim shortly

after receiving it in December of 1989 and continued to honor the claim

until June of 1994. During that period, Formoso was seen by numerous

doctors, including several performing Independent Medical Examinations

(IMEs) on behalf of St. Paul. With one exception, none of these

doctors also saw Milan.5 Without exception, none were told of the prior

injury. These doctors, including Formoso's own, created reports that

were forwarded to St. Paul. In fact, Ellis's office routinely

forwarded the medical reports it received on Formoso's condition

despite Ellis's knowledge that those reports contained false

information regarding Formoso's medical history. Indeed, Ellis

testified that he never tried to dissuade Formoso from lying to

doctors. All of these reports attributed Formoso's symptoms to the

only accident the doctors knew of: the accident at the hotel.

5 Dr. Richard Hawkins saw both Milan and Formoso.
Specifically, Dr. Hawkins saw Formoso on March 13, 1990 and produced a
report for St. Paul. Like all of the medical reports forwarded to St.
Paul, this one contained no reference to the earlier Victory Button
accident. On the other hand, Dr. Hawkins saw Milan on March 27, 1990
and produced a report, forwarded to Cigna, that did not reflect the
later Westford Regency accident. According to these two reports,
Formoso, who was reported as weighing 220 pounds with a height of 6'1",
lost both weight and height before being seen as Milan, described as
weighing 195 pounds with a height of 5'10". The significance of these
oddities is unclear.

-12-
 St. Paul relied on these reports and their causation

determinations until 1994, when it filed a motion for discontinuance to

stop its payments to Formoso. At a conference on that motion on June

10th, Ellis admitted that he had known that Milan and Formoso were the

same person from either December, 1989 or January, 1990. The

discontinuance was eventually granted.6 During the period of coverage,

St. Paul paid $181,856.727 on the Formoso claim.

Approximately six months after the June conference, St. Paul

filed the present action in the district court, alleging numerous

counts against Ellis and Ellis & Ellis.8 Specifically, St. Paul alleged

that both Ellis and his firm in their representation of Formoso

committed common law fraud; engaged in unfair trade practices in

6 St. Paul initially based its motion on an IME indicating an
improvement in Formoso's condition, but later added allegations of
fraud. Although the record is not entirely clear on this point, it
appears that the Department approved the discontinuance of benefits
solely because of Formoso's improvement rather than fraud.
7 This figure represented $140,888.75 in indemnity payments,
$15,356.45 in payments to physicians, $2,420.00 in payments for
Independent Medical Examinations, $10,023.70 in investigative costs,
$1,237.36 in miscellaneous payments, and $11,930.46 in payments to law
firms.
8 St. Paul also named as defendants Debra Kagan, Robert,
Marquis, and Richard Surrette, all attorneys employed by Ellis & Ellis,
as well as William Russel, a workers' compensation litigation
administrator at the firm, Anthony Ranauro, a claims administrator at
the firm, Joan Trottier, a registered nurse employed by the firm, and
David Formoso. Formoso was never served and appears to no longer
reside in the country. The remaining six defendants entered into a
settlement with St. Paul in July of 1997, pursuant to which they were
dismissed from the case.

-13-
violation of Mass. Gen. Laws ch. 93A §§ 2, 3, & 11; committed statutory

fraud in violation of Mass. Gen. Laws ch. 152 § 14(2); and acted

negligently. Hotly contested from the outset, the case went to trial

before a jury in April of 1998 and lasted ten days. At the conclusion

of St. Paul's case-in-chief, the defendants moved for judgment as a

matter of law on all counts. The court granted these motions from the

bench. St. Paul filed a motion for reconsideration, which the court

denied in a written memorandum expanding upon its earlier reasoning.

St. Paul now appeals.

II.

We review the grant of motions for judgment as a matter of

law de novo. Collazo-Santiago v. Toyota Motor Corp., 149 F.3d 23, 27

(1st Cir. 1998). Under the familiar standard of review, such motions

may be granted only if the evidence, when taken in a light most

favorable to the non-movant, "is so one-sided that the movant is

plainly entitled to judgment, for reasonable minds could not differ as

to the outcome." Gibson v. City of Cranston, 37 F.3d 731, 735 (1st

Cir. 1994); see also Logue v. Dore, 103 F.3d 1040, 1043 (1st Cir.

1997). "In carrying out this analysis the court may not take into

account the credibility of witnesses, resolve evidentiary conflicts,

nor ponder the weight of the evidence introduced at trial."

Figueroa-Torres v. Toledo-Davila, 232 F.3d 270, 273 (1st Cir. 2000)

-14-
(quoting Irvine v. Murad Skin Research Labs., Inc., 194 F.3d 313,

316-17 (1st Cir. 1999)).

On appeal, St. Paul contends that the district court

misapplied the burden of proof on its fraud claim and misapprehended

the evidence on the ch. 93A and ch. 152 claims. We address each of

these three arguments in turn.

A. Fraud

We begin our analysis with an examination of the

Massachusetts common law of fraud. The specific fraud alleged was the

misrepresentation of Formoso's medical history and alternate identity.

"To sustain a claim of misrepresentation, a plaintiff must show a false

statement of a material fact made to induce the plaintiff to act,

together with reliance on the false statement by the plaintiff to the

plaintiff's detriment." Zimmerman v. Kent, 575 N.E.2d 70, 74 (Mass.

App. Ct. 1991); see also Restatement (Second) of Torts § 525 (1976);

Rood v. Newberg, 718 N.E.2d 886, 892 (Mass. App. Ct. 1999). On the

first of these elements (that Ellis made a false statement of material

fact designed to induce St. Paul to act) there was ample evidence that

Ellis gave St. Paul medical reports which he knew falsely indicated

that there was only one injury.9 The focus of the trial court's

9 Ellis himself effectively conceded that the prior injury was
a material fact. Materiality depends upon "whether 'a reasonable man
would attach importance [to the fact not disclosed] in determining his
choice of action in the transaction in question.'" Zimmerman, 575
N.E.2d at 75 (quoting Rogen v. Ilikon Corp., 361 F.2d 260, 266 (1st

-15-
decision and of the parties' arguments on appeal is upon the issues of

reliance and damages.

1. Reliance

In concluding that St. Paul had failed to meet its burden on

this issue, the district court ruled that St. Paul had failed to adduce

any evidence showing that it had relied upon the lack of evidence of a

prior back injury in approving Formoso's claim for workers'

compensation benefits. St. Paul counters with the claim that the

record contains ample evidence to prove its reliance on the

misrepresentations. We agree. Under Massachusetts law, in order to

prove reliance upon a misrepresentation, it is not necessary to prove

that the false representations were "the sole or predominating motive

that induced the victim to part with his money or property." Nat'l

Shawmut Bank v. Johnson, 58 N.E.2d 849, 852 (Mass. 1945); see also

Restatement (Second) of Torts § 546 cmt. b (1976) (noting that

causation in fact exists if "the representation has played a

substantial part, and so has been a substantial factor, in influencing

his decision"). St. Paul only had to show that the false

representation "alone or with other causes materially influenced [it]

Cir. 1966)) (alteration in original). Ellis admitted that a prior
injury was of importance to the question of causation that was central
to Formoso's claim against St. Paul. Moreover, Dr. Metzmaker
explicitly testified that the existence of a prior accident and injury
and its concomitant impact upon the onset of pain and other symptoms
was material to the determination of that issue of causation.

-16-
to take the particular action that the wrongdoer intended [it] should

take as a result of such representations and that otherwise [it] would

not have taken such action." Nat'l Shawmut Bank, 58 N.E.2d at 852;

Golding v. 108 Longwood Ave., Inc., 91 N.E.2d 342, 344 (Mass. 1950);

Butler v. Martin, 142 N.E. 42, 43 (Mass. 1923).

When measured against this standard and with due appreciation

for the circumstantial evidence adduced in this case, St. Paul provided

more than enough evidence to allow a jury to conclude that Formoso's

misrepresentations about his medical history were a substantial factor

in its acceptance of Formoso's claim for benefits. Elaine Young was a

decision maker with primary authority for the handling of the Formoso

claim so long as total expenditures did not exceed $150,000. She

testified explicitly to her responsibilities in handling claims. As

part of those responsibilities, she would "obtain medical documentation

of the person's disability, verify that the accident did happen, and .

. . schedule IMEs and make payment if necessary--if seemed deemed [sic]

suitable." Her decision to make payments necessarily involved an

evaluation of medical reports, particularly their determinations about

disability, injury, and causation. Young testified that when deciding

whether payments were appropriate, she explicitly relied upon medical

reports produced by IMEs. Only if those reports contained

discrepancies or problems that were readily apparent from the report

itself would she question their medical determinations. Indeed, the

-17-
evidence of Young's reliance upon these reports was bolstered by her

testimony that she never had any doubts during her handling of the

Formoso claim that an injury had occurred at the Westford Regency

Hotel. This lack of doubt is unremarkable given that none of the

reports contained any evidence that would have supported a contrary

conclusion.

Young's evidence was bolstered by the testimony of Betty

Clark, who was Young's subordinate, and by Ellis himself. Clark

testified that she would make recommendations about how to proceed

after conducting her own review of the records. She continued to

recommend payment of Formoso's claim because she never saw "any medical

documentation to file for a discontinuance." Ellis acknowledged that

insurers take into account medical records and the representations

about causation when making decisions in the course of a claim:

Q. In circumstances where there is an ongoing
claim for a back injury, isn't it true that those
are the circumstances where an insurer, like St.
Paul, would base some of their decisions on these
reports?

A. Some of their decisions.

This evidence is sufficient to have allowed the jury to conclude that,

although not the only factor in St. Paul's decision to pay benefits,

the falsified medical history contained in the medical reports was a

factor in that decision.

-18-
2. Damages

In ruling that St. Paul failed to carry its burden of proving

that it was damaged by the misrepresentations, the district court said

that St. Paul had to "show that had the information about a prior

injury been revealed, it would have relieved St. Paul of an obligation

to pay for the injuries resulting from the" hotel accident. To carry

this burden, the court reasoned, St. Paul needed to adduce evidence--

which, in this context, would need to be expert medical testimony--

demonstrating that the hotel accident either did not result in an

injury or resulted in an injury that was "fleeting and temporary." We

disagree with this analysis.

The court did not appreciate the manner in which the workers'

compensation context of this case affects the relative burdens of the

parties on the damages element of St. Paul's fraud claim. To be sure,

under Massachusetts law, "[t]he burden of proving fraud by a

preponderance of the evidence rests on the party alleging it."

Connolly v. Rochester Shoe Tree Co., 1994 WL 879515 at *2 (Mass. Super.

Ct. Nov. 8, 1994) (citing Cereghino v. Giannone, 142 N.E. 153 (1924)).

This burden extends to all elements of St. Paul's claim, including

damages. Ellis notes correctly that St. Paul did not have the

authority to deny benefits unilaterally. Thus, even if it had chosen

to contest Formoso's claim because of its discovery of the

misrepresented facts, the Department of Industrial Accidents could

-19-
still have required St. Paul to cover Formoso's claim. If that had

occurred, St. Paul would not have been damaged by the

misrepresentation.

Nonetheless, it does not follow that because St. Paul's

decision to deny the payment of benefits could be overruled by a state

agency, it also bore a burden to prove in this fraud action, as Ellis

claims, that "as a result of the failure to disclose Formoso's prior

injuries, it was required to pay workers' compensation benefits that it

would not otherwise have been obligated to pay under the worker

compensation laws." In order to understand why St. Paul's burden does

not extend so far, it is first necessary to examine its burden on

damages absent this workers' compensation anomaly.

a. Detrimental reliance

Once St. Paul provided evidence that it relied upon the

misrepresentation, it needed to show that this reliance was detrimental

in order to prove that it was damaged. Zimmerman, 575 N.E.2d at 78

("[A] plaintiff must show a false statement of a material fact made to

induce the plaintiff to act, together with reliance on the false

statement by the plaintiff to the plaintiff's detriment.") (emphasis

added). Here, St. Paul could meet that requirement by demonstrating

that it would have contested Formoso's right to compensation if his

complete history had been disclosed. Nat'l Shawmut Bank, 58 N.E.2d at

852; Matthews v. Bliss, 39 Mass. 48 (1839) ("If the false suggestion

-20-
had no influence, if the plaintiff[] . . . would have done the same

thing . . . if such representation had not been made, then it was not

a motive to the act.").

Although the district court fairly noted that St. Paul did

not provide expert medical testimony directly on this point, the record

contained sufficient circumstantial evidence to enable St. Paul to

prove that it would have contested Formoso's right to payment if it had

known his full medical history. As noted, Clark testified that the

incomplete medical reports did not give grounds for seeking a

discontinuance. The jury would have been entitled to conclude that at

least some of those reports would have been different if the doctors

examining Formoso had been told that he had a prior injury at the

Victory Button Company. For instance, one of the doctors that St. Paul

hired to perform an IME, Dr. Metzmaker, testified that determining

causation was a significant part of his responsibilities in examining

Formoso. According to Dr. Metzmaker, medical history was important to

that determination because the onset of pain provided a significant

clue as to the cause of the injury. Because Formoso concealed a prior

injury to the same part of the back, all of the evidence of the onset

of pain given to Dr. Metzmaker and the other doctors indicated that

this pain began after the Westford Regency Hotel accident. The jury

would have been entitled to conclude that, based upon the importance of

pain in determining causation, at least some of the medical reports

-21-
would have reached a different conclusion about the cause of Formoso's

symptoms, thus giving St. Paul the evidence it needed to discontinue

payment.

Ellis's disclosure of the Victory Button Company accident

also would have allowed St. Paul to discover the prior treatment,

Formoso's dual identity, and the scheme to defraud St. Paul. It is

inconceivable that St. Paul would have continued to pay benefits to

Formoso under those circumstances. Thus, the evidence before the jury

was more than sufficient to demonstrate that St. Paul's reliance upon

the false representations was detrimental. Put another way, St. Paul

proved that it was damaged by the payment of money it would not have

chosen to pay if Ellis had disclosed Formoso's full medical history.

b. St. Paul's workers' compensation obligations

We next turn to the question of whether the workers'

compensation context increases St. Paul's burden beyond this showing of

detrimental reliance. We first look to St. Paul's obligations under

the workers' compensation laws. The existence of a second injury with

a causal relationship to the accident at the Westford Regency Hotel is

central to the issue of whether St. Paul was required to pay benefits

to Formoso. Under Massachusetts workers' compensation law, when an

employee suffers an accident that exacerbates a pre-existing injury or

that causes a new injury at the same location as a prior injury, full

responsibility for that injury rests with the insurer providing

-22-
coverage for the second accident and not with the insurer who was

responsible for the prior injury. Thus, "[w]here an employee . . . has

suffered a series of compensable injuries, he has a right to be paid

compensation by the insurer on the risk at the time of the most recent

injury shown to have a causal connection with his present incapacity."

Falcione's Case, 26 N.E.2d 308, 309 (Mass. 1940); see also Tassone's

Case, 116 N.E.2d 126, 127 (Mass. 1953); Evans's Case, 13 N.E.2d 27, 29

(Mass. 1938). Applying this principle to the present case, if Formoso

was actually injured or if a prior injury was aggravated during the

Westford Regency Hotel accident, then St. Paul would have been required

to pay benefits despite its attempts to disclaim coverage.

It does not follow, however, that because St. Paul would have

been required to pay benefits if there were a second injury, it also

had the burden of proving the absence of such an injury. Indeed,

Massachusetts law is squarely to the contrary. "It has uniformly been

held by this court that the burden of proof remains throughout the

trial on the [employee] to establish his case on all the evidence where

liability is denied, or the amount to be recovered is in issue." In re

Ginley, 138 N.E. 719, 720 (Mass. 1923); see also In re Quigley, 10

Mass. Workers' Comp. Rep. 291, 1996 WL 143444 at *2 (Mass. Dept. Ind.

Acc. March 27, 1996) ("It is established law that the employee has the

burden of proving medical causation and every other element of her

claim."). This allocation of burdens remains the same whether an

-23-
insurer has denied benefits outright or has filed a motion for

discontinuance. In re Quigley, 1996 WL 143444 at *2 ("The burden of

proving benefit entitlement does not shift; in a discontinuance

proceeding, it continues to rest on the employee."). Thus, whenever

there is an issue of the assignment of causation for an injury to a

specific accident, the employee bears the burden of establishing that

causation. Id.

If St. Paul had discovered the fraud and contested Formoso's

right to receive benefits, therefore, Formoso would have borne the

burden of proving his entitlement to those benefits. We conclude that

the Massachusetts courts would not shift this burden to the insurer in

a later action alleging fraud. Indeed, Ellis has provided no argument

explaining why the burden should shift and so increase the insurer's

proof beyond a showing of detrimental reliance. Nor could he. Ellis's

argument for burden shifting on the damages issue only arises once the

insurer has demonstrated all of the other essential elements of a fraud

that spared Formoso and Ellis the burden of proving the claim for

benefits in a workers' compensation proceeding. Allowing the burden to

shift to the insurer in this fraud action despite that avoidance would

only serve to reward fraudulent wrongdoing. Given the striking

similarities between the injuries alleged to have resulted from both

the Victory Button and the Westford Regency Hotel accidents, along with

the other facts of this case, that burden may have been a difficult one

-24-
for Formoso and Ellis to surmount in a workers' compensation

proceeding. We decline to reward such fraud by shifting this burden to

St. Paul. Of course, it remains open to Ellis, if he chooses to do so,

to shoulder the burden of proving, as a defense to the damages claim in

this fraud case, that despite his wrongdoing, St. Paul would still have

been required to pay the benefits it paid to Formoso.10 Cf. Lorber v.

Beebe, 407 F. Supp. 279, 289 (S.D.N.Y. 1976).

Our conclusion on this point is bolstered by the

Massachusetts cases analyzing burdens of proof in case within a case

attorney malpractice actions. In these actions, once some form of

negligence has been shown on the part of the defendant attorney in the

malpractice action, the issue of the defendant's ultimate liability for

damages turns upon whether his or her negligence affected the result in

the prior action. The burden of proof, however, does not shift between

the prior action and the action for malpractice. "The factual issues

once involved in the underlying action are presented to the trier of

fact in the [malpractice] case with the burden of proof placed

precisely as it was in the underlying action itself." Glenn v. Aiken,

10 Here, in the proof of Ellis's defense to St. Paul's
allegations of fraud, expert medical testimony becomes a central issue.
Medeiros v. San Toro Mfg., 7 Mass. Workers' Comp. Rep. 66, 1993 WL
117449 at *2 (Mass. Dept. Ind. Acc. April 6, 1993) ("The basic question
presented here is whether there is a causal relationship between the
second injury and the subsequent period of incapacity. Because such
causal relation is a matter beyond the common knowledge and experience
of the ordinary layman, expert medical testimony is required.").

-25-
569 N.E.2d 783, 786, 787 (Mass. 1991). Thus, if a plaintiff in the

malpractice action (the status comparable to St. Paul's in this case)

would not have borne the burden of proof in the underlying action, that

burden does not shift to it. Instead, the negligent defendant (the

status comparable to Ellis's in this case) bears the burden of showing

that its negligence produced no loss to the plaintiff because, even if

there had been no negligence, the underlying action would have achieved

the same result. Glidden v. Terranova, 427 N.E.2d 1169, 1171 (Mass.

App. Ct. 1981) ("[S]ince the client had no obligation 'to prove his

case' in the underlying action (he could have simply required the

plaintiff to prove his case), he should not shoulder the burden of

proving a defense in the malpractice action." (quoting Nolan, Tort Law

§ 182 at 297)); see also Deerfield Plastics Co. v. Hartford Ins. Co.,

536 N.E.2d 322, 324 (Mass. 1989) (reaching the same conclusion

regarding burdens in a dispute over an insurer's unreasonable

settlement of a workers' compensation claim). This principle is

entirely consonant with our conclusion that the burden of proof

regarding Formoso's legal entitlement to benefits did not shift to St.

Paul when it filed this fraud action against Ellis.

B. The Chapter 93A claims

St. Paul also appeals from the entry of judgment as a matter

of law on its count alleging violations of Mass. Gen. Laws ch. 93A §§

2, 3 & 11 (ch. 93A). "Chapter 93A 'created new substantive rights by

-26-
making conduct unlawful which was not unlawful under the common law or

any prior statutes.'" Schubach v. Household Finance Corp., 376 N.E.2d

140, 142 (Mass. 1978) (quoting Commonwealth v. DeCotis, 316 N.E.2d 748,

755 n.8 (Mass. 1974)). Chapter 93A proscribes "those engaged in trade

or commerce from employing '[u]nfair methods of competition and unfair

or deceptive acts or practices' in business transactions." Commercial

Union Ins. Co. v. Seven Provinces Ins. Co., 217 F.3d 33, 40 (1st Cir.

2000) (quoting Mass. Gen. Laws ch. 93A, § 2). The standard for

behavior that falls within the ch. 93A proscription is notably

imprecise, encompassing any actions that "attain a level of rascality

that would raise an eyebrow of someone inured to the rough and tumble

of the world of commerce, have an extortionate quality that gives it

the rancid flavor of unfairness, or fall within at least the penumbra

of some common-law, statutory, or other established concept of

unfairness." Id. (internal quotations and citations omitted); see also

St. Gobain Indus. Ceramics, Inc. v. Wellons, Inc., 246 F.3d 64, 73 (1st

Cir. 2001) (noting that ch. 93A "does not contemplate an overly precise

standard of ethical or moral behavior" (quoting Arthur D. Little, Inc.

v. Dooyang Corp., 147 F.3d 47, 55 (1st Cir. 1998)); Spencer v. Doyle,

733 N.E.2d 1082, 1087 (Mass. App. Ct. 2000) (noting that ch. 93A claims

are neither wholly contractual or tortious, but "may encompass conduct

which amounts to . . . misrepresentation").

-27-
 Though ch. 93A provides a broad remedy, it is only directed

at conduct that occurs in the course of trade or commerce. "[U]nfair

or deceptive acts or practices" therefore can only form the basis of a

ch. 93A claim if those acts "are perpetrated in a business context."

Lantner v. Carson, 373 N.E.2d 973, 977 (Mass. 1978); see also First

Enters., Ltd. v. Cooper, 680 N.E.2d 1163, 1165-66 (Mass. 1997) (holding

that because actions relating to an internal business dispute were not

intended to influence an external marketplace, the plaintiffs had

failed to show the "trade or commerce" required to maintain a ch. 93A

claim); Greater Boston Legal Servs. Inc. v. Haddad, 1999 WL 513885 at

*2 (Mass. Super. Ct. May 3, 1999). This "trade or commerce"

requirement was the basis for the district court's entry of judgment as

a matter of law. Rather than focusing upon the alleged unfairness of

Ellis's acts, the court instead found that any allegedly unfair acts

were not performed in a business context: "In this case, any

representations made by the defendants to St. Paul were pursuant to a

legal action, namely the adversarial workers' compensation litigation

in which Formoso's benefits were determined." Therefore, the court

concluded that "Chapter 93A is inapplicable."

We disagree with the court's characterization of the events

at issue here. To be sure, the "adversarial workers' compensation

litigation" formed a backdrop to Ellis's actions. The jury could have

easily concluded, however, that those actions were not vigorous

-28-
advocacy in pursuit of Formoso's workers' compensation claim. Instead,

the jury could have found that Ellis used the workers' compensation

litigation to add a veneer of legitimacy to a fraudulent scheme to dupe

St. Paul into paying benefits to which Formoso was not entitled. Such

a scheme affects trade or commerce and can be a basis for ch. 93A

liability. See Coggins v. Mooney, 1998 WL 156998 at *5 (Mass. Super.

Ct. April 3, 1998), affirmed sub non Miller v. Mooney, 725 N.E.2d 545

(Mass. 2000) (holding that lawyer can be liable under ch. 93A "to a

nonclient or to an adversary of its client, if it joins its client in

marketplace communications to the adversary rather than merely relays

its client's positions; and if those marketplace communications

knowingly or carelessly turn out to be false, misleading, and

harmful"); JRJ Constr. Co. v. R.W. Granger & Sons, Inc., 1999 WL 706717

at *14 (Mass. Super. Ct. July 29, 1999) (finding that architect had

engaged in trade or commerce when it allegedly made bad faith decision

when resolving disputes over the scope of a subcontractor's obligations

under building contract).

C. The Chapter 152 § 14 claims

Finally, we turn to St. Paul's challenge to the district

court's entry of judgment on the ch. 152 § 14(2) claims. Section 14(2)

prohibits fraud in workers' compensation proceedings. The statute was

amended by the Massachusetts Legislature in 1991 to make its scope more

-29-
explicit.11 In the pre-amendment version, section 14(2) specifically

referenced fraud by a party.12 That language was replaced in 1991 so

that section 14(2) prohibited fraud by "a party, including an attorney

or expert medical witness acting on behalf of an employee or insurer."

Mass. Gen. Laws ch. 152 § 14(2). Approved on December 23, 1991, this

amendment was effective upon passage. "This new amendment was deemed

substantive, applying only to 'all fraudulent activity occurring after

11 The current version of section 14(2) provides in pertinent
part:
If it is determined that in any proceeding within the
division of dispute resolution, a party, including an
attorney or expert medical witness acting on behalf of an
employee or insurer, concealed or knowingly failed to
disclose that which is required by law to be revealed,
knowingly used perjured testimony or false evidence,
knowingly made a false statement of fact or law,
participated in the creation or presentation of evidence
which he knows to be false, or otherwise engaged in conduct
that such party knew to be illegal or fraudulent, . . . the
party shall be assessed, in addition to the whole costs of
such proceedings and attorneys' fees, a penalty payable to
the aggrieved insurer or employee, in an amount not less
than the average weekly wage in the commonwealth multiplied
by six.
Mass. Gen. Laws ch. 152 § 14(2). The revision to section 14(2) also
vested jurisdiction for such actions in the Department of Industrial
Accidents. Old section 14(2) had placed jurisdiction exclusively in
the Superior Court.
12 Old section 14(2) provided in pertinent part:
If it is determined that any party has brought, prosecuted,
or defended proceedings with the intent to defraud, the
party shall be assessed, in addition to the whole costs of
such proceedings and attorney's fees, a penalty, payable to
the aggrieved insurer or employee, in an amount not less
than the average weekly wage in the commonwealth multiplied
by three.

-30-
the effective date of this act.'" Murphy v. Trans World Airlines, 11

Mass. Workers' Comp. Rep. 94, 1997 WL 49706 at *3 (Mass. Dept. Ind.

Acc. January 31, 1997), overruled on other grounds by Murphy's Case

(Mass. App. Ct., slip op. 2000-P-491 March 10, 2000) (quoting St. 1991

ch. 398, § 104). Because the conduct here both preceded and continued

beyond the effective date of the act, the district court considered St.

Paul's section 14(2) claims under both pre- and post-amendment

versions.

The district court concluded that the pre-amendment version

could not apply to Ellis's conduct prior to December 23, 1991, a ruling

that St. Paul does not challenge on appeal. Instead, the district

court focused upon the language in amended section 14(2) limiting

liability to those cases in which fraud is perpetrated "in any

proceeding within the division of dispute resolution." Mass. Gen. Laws

ch. 152 § 14(2). After correctly noting the paucity of case law

construing section 14(2), the court turned to the decisions of the

Department of Industrial Accidents, reasoning that it should be guided

by decisions by the agency charged with administering chapter 152.

Specifically, it relied upon the Department's interpretation of section

14(2) in Murphy, 1997 WL 49706, in which the Department concluded that

fraud was only actionable under section 14(2) if it occurred during one

of the "four stages of proceedings at the Department: conciliations,

conferences, hearings, and appeals at the reviewing board." Id., 1997

-31-
WL 49706 at *4. Applying this limited definition of proceeding, the

court ruled that "it also appears there were no false statements in the

course of any proceedings and, at the very least, not after the

amendment in '91 by these defendants."

The district court confirmed this approach in its written

memorandum denying St. Paul's motion for reconsideration. It also

dealt with a slightly different issue: whether the Department's

decision in Pirelli v. Caldor, Inc., 11 Mass. Workers Comp. Rep. 380,

1997 WL 434137 (Mass. Dept. Ind. Acc. July 25, 1997) would extend

section 14(2) liability to Ellis for the false statements Formoso made

to the various doctors who examined him. The court rejected this

argument, concluding that "[t]here was no evidence during the trial

that the defendants advised, encouraged, or counseled Formoso to make

false statements to the medical examiners."

On appeal, the section 14(2) issue has become more

complicated because the principal case the district court relied on,

Murphy, 1997 WL 49706, has been overruled by a single justice of the

Massachusetts Court of Appeals in Murphy's Case (Mass. Ct. App., slip

op. 2000-P-491 March 10, 2000) (reasoning that the Department's

definition of "proceeding" "read[s] the scope of G.L. c. 152 § . . .

14(2) too narrowly"). Although Murphy's Case indicates that the term

"proceeding" is to be given a broad reading, it offers little guidance

on any limitations on that reading. Conceivably, the term could apply

-32-
to the entire course of a workers' compensation claim, extending from

the initial claim of benefits to their final termination, with only

activities occurring before December 23, 1991 excluded.

Although Murphy's Case creates some ambiguity in

Massachusetts law regarding the definition of "proceeding" in section

14(2), we do not have to resolve that ambiguity. Whatever its

parameters, the Murphy's Case definition is broader than that adopted

by the Department in Murphy v. Trans World Airlines, and we conclude

that the record would allow a finding of section 14(2) liability even

under the Department's more restrictive definition. In applying the

Murphy decision, the Department has clarified the scope of section

14(2) liability. Such liability can be grounded upon evidence that the

accused party has "participated in the creation or presentation of

evidence which he knows to be false," combined with a showing that this

false evidence was admitted into evidence at one of the four

proceedings identified in Murphy v. Trans World Airlines. Pirelli,

1997 WL 434137 at *2 ("Pirrelli knowingly prepared the [false] Employee

Earnings Report which was entered into evidence at the hearing. . . .

That by itself is sufficient for the imposition of § 14(2).");13 Carucci

13 The district court appears to have misread Pirelli in
concluding that it applied only to false statements made to medical
examiners. The false statements in that case, though made to a medical
examiner, supported section 14(2) liability because they caused the
creation of a false report that was then entered into evidence at a
proceeding.

-33-
v. S & F Concrete, 13 Mass. Workers' Comp. Rep. 405, 1999 WL 1241233 at

*5 (Mass. Dept. Ind. Acc. December 13, 1999) ("[The employee's]

provision of false information about his work status to doctors, whose

reports were then entered into evidence at the hearing, is likewise a

'participat[ion] in the creation . . . of evidence which he [knew] to

be false.'").

Contrary to the district court's conclusion, the record

contains evidence that would support the conclusion that Ellis

participated in the creation of false evidence that was later admitted

in a proceeding before the Department. In the late fall of 1993, Dr.

Arthur Safron performed an IME on Formoso. In connection with that

examination, he created a report on November 27, 1993. That report

indicated that Formoso "specifically denies any pre-existing back

problem." Ellis admitted that he knew that Formoso's statement was

false, and a jury would be entitled to conclude that Ellis knew that

Formoso would make such false statements when examined by doctors.

Despite his knowledge of this false report, Ellis took no action to

prevent its use in a Department proceeding, and on February 27, 1994,

this report was entered into evidence during a conciliation related to

St. Paul's motion for a discontinuance. Under the interpretation of

the statute provided by the Department, this is sufficient evidence to

ground liability under 14(2).

III.

-34-
 In conclusion, we note that St. Paul also argues in the

alternative that the district court abused its discretion by placing

limitations upon the testimony of three of St. Paul's witnesses and

then entering judgment as a matter of law against it because of the

insufficiency of its evidence. Having concluded that St. Paul’s

evidence was sufficient without the testimony of these three witnesses,

we decline to address this alternative argument.

Judgment vacated. Remanded for further proceedings
consistent with this decision.

-35-