Boender et al v. Hardin et al
Filing
99
Judge Douglas P. Woodlock: MEMORANDUM AND ORDER entered granting 74 Motion for Summary Judgment; granting 77 Motion for Summary Judgment (Woodlock, Douglas)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
JOHN A. BOENDER, III and
S.O. SIMONS, INC.,
Plaintiffs,
v.
SCOTT G. HARDIN, MARK S.
POPADIC d/b/a THE APPRAISER
GUY, LAW OFFICE OF GOULD &
BURKE, PLLC, and WILKINSON
LAW OFFICES, P.C.,
Defendants.
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CIVIL ACTION NO.
10-30061-DPW
MEMORANDUM AND ORDER
July 19, 2012
John A. Boender III and S.O. Simons, Inc., filed this suit
against Scott G. Hardin, Mark S. Popadic (d/b/a The Appraiser
Guy), the Law Office of Gould & Burke, PLLC, and Wilkinson Law
Offices, P.C., claiming malpractice, negligence, negligent
misrepresentation, breach of contract, breach of implied covenant
of good faith and fair dealing, and violations of Massachusetts
General Laws chapter 93A in connection with a real estate
transaction.
Hardin and Wilkinson each filed a motion for
summary judgment.1
1
For the reasons below, I will grant both
The parties stipulated to dismiss with prejudice plaintiffs’
claims against Popadic and Gould & Burke. Dkt. No. 73. Thus,
the only remaining claims in the Complaint are for malpractice
against Wilkinson (Count II) and Hardin (Count III), negligent
misrepresentation against Hardin (Count VI), and a violation of
chapter 93A against Hardin (Count XI).
Hardin’s (Dkt. No. 74) and Wilkinson’s (Dkt. No. 79) motions for
summary judgment.
I.
A.
BACKGROUND
Parties
Plaintiffs Boender, a Maryland resident, and S.O. Simons,
Inc., a Maryland corporation, jointly funded high-risk short-term
loans made to low-credit individuals through Financial Resources
Mortgage, Inc. (“FRM”), a New Hampshire mortgage broker not
subject to this action.
Hardin is a certified real estate appraiser doing work for
Popadic, the owner of The Appraiser Guy, a Massachusetts company
doing real estate appraisals in New England.
Gould & Burke is the New Hampshire law firm that represented
plaintiffs in a number of their loans made through FRM.
Gould &
Burke hired Wilkinson, a Massachusetts law firm wholly owned by
Sarah Wilkinson, a Massachusetts-licensed attorney, to perform
the closing that gave rise to this lawsuit.
B.
Facts
1.
Boender, Simons, and FRM
In 2006, Boender contacted FRM about obtaining a loan for
his business.
During this interaction, Boender learned that FRM
offered outside investors the opportunity to provide financing to
people with poor credit in order to obtain a high rate of return
2
on the loaned capital.
Although Boender did not ultimately use
FRM to fund his own business, he and a friend, Stephen Simons,
decided to begin investing in FRM-brokered private financing
arrangements.2
Prior to the transaction at issue here, Boender and Simons
engaged in approximately four private financing transactions with
high-risk borrowers through FRM.
In total, between 2007 and
2009, Boender invested in approximately fifteen such
transactions, and Simons invested in nineteen.
2.
Hardin Appraises Villeneuve’s Property
In fall 2007, T&M Mortgage Solutions---an unrelated mortgage
company not part of the cast of characters involved in the
transaction giving rise to this suit---was contemplating issuing
a loan to Deborah Villeneuve, the owner of approximately 97 acres
located at 38 Petersham Road in East Templeton, Massachusetts.
In deciding whether to issue the loan, T&M hired Hardin to
perform an appraisal.
On October 4, 2007, Hardin performed the appraisal, and
estimated that Villeneuve’s lot was worth $800,000.
T&M
ultimately decided not to issue a loan to Villeneuve.
2
Simons invested through his company, S.O. Simons, Inc.
3
3.
Plaintiffs Research Funding a Loan to Villeneuve
In November 2007, one month after Hardin performed the
appraisal for T&M and T&M decided not to make a loan to
Villeneuve, Villeneuve approached FRM about obtaining a loan.
FRM collected a package of information about Villeneuve, her
husband, their company Vilco Construction, Inc., and the land she
proposed to use as collateral.
The package included Villeneuve’s
loan application and background and credit history; tax returns
for Villeneuve, her husband, and their company; and a copy of
Hardin’s appraisal of Villeneuve’s 97 acres.
Neither of the plaintiffs paid any money for Hardin’s
appraisal, nor had they communicated with him in any way while he
appraised Villeneuve’s property.
Indeed, neither the plaintiffs
nor Hardin had ever heard of the other in 2007.
While the
plaintiffs received a copy of Hardin's appraisal through FRM,
Hardin never gave his written consent that it could be
distributed to them.3
3
Paragraph 10 of the Statement of Limiting Conditions and
Appraiser Certification in Hardin’s appraisal stated:
The appraiser must provide his or her prior written
consent before the lender/client specified in the
appraisal report can distribute the appraisal report
. . . to anyone other than the borrower; the mortgagee
or its successors and assigns; the mortgage insurer;
consultants; professional appraisal organizations; any
state or federally approved financial institution; or
any department, agency, or instrumentality of the
4
FRM approached plaintiffs with Villeneuve’s loan
application, and presented them with the information package.
The proposed loan was for $335,000, secured by the 97 acre parcel
in East Templeton, and FRM recommended that the terms of the loan
be a 14% annual interest rate and a one-year balloon.
According to the information package provided by FRM to the
plaintiffs, Villeneuve’s income derived from draws from her
construction company in the amount of $2,700 per month.
Her
household’s adjusted gross income in 2005 was $31,284, and in
2006 was $25,770.
Other than the property, Villeneuve’s only
asset was a boat.
The information package revealed that Villeneuve had
significant debts at the time of her application.
Her credit
report stated that she had a loan for the boat in the amount of
$65,885, a car loan for $36,195, and credit card debt in the
amount of $23,372.
All save $11,000 of the debt had been
incurred in the few months prior to Villeneuve’s application.
At the time of her loan application, Villeneuve’s monthly
minimum payments on her debt amounted to $1,823.
The loan she
United States or any state or the District of Columbia
. . . . The appraiser’s written consent and approval
must also be obtained before the appraisal can be
conveyed by anyone to the public through advertising,
public relations, news, sales, or other media.
5
requested from the plaintiffs proposed a monthly payment of
$3,969, for a total of $5,792 in monthly minimum debt payments on
$2,700 of monthly income.
4.
Plaintiffs Provide Loan to Villeneuve
Even though Villeneuve’s monthly debt payments with the
proposed loan would amount to more than double her entire
household’s monthly income, plaintiffs decided to make the loan,
and retained the law firm of Gould & Burke to draw up the closing
documents.
On November 19, 2007, Boender and Simons sent checks
totaling $335,000 to Gould & Burke, along with a letter from
Boender (dated May 2007) outlining conditions for providing the
funds to Villeneuve.4
Two of the conditions in that letter are
relevant here: one instructed Gould & Burke to obtain personal
guarantees on the loan from Villeneuve and her husband, and the
other instructed Gould & Burke to pay all “current” real estate
taxes at the time of closing.
The loan servicer, CL&M, Inc., was
to pay the future real estate taxes from funds that would be held
in escrow.
On November 30, 2007, the plaintiffs authorized Gould &
Burke to release the $335,000 to CL&M for the Villeneuve loan.
4
The conditions were part of a boilerplate letter Boender sent
to Gould & Burke for all of the plaintiffs’ private financing
transactions. There is no evidence in the record detailing
whether the conditions had been fulfilled in prior transactions.
6
Those funds were held in escrow while an issue with the title to
the 97 acres was resolved.
In February 2008, Gould & Burke hired Wilkinson to close the
Villeneuve loan and clear title to the property, because Gould &
Burke was not licensed in Massachusetts.
Gould & Burke drafted
all of the loan documents and provided closing instructions to
Wilkinson, listing the documents necessary to complete the
Villeneuve loan.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
That list was as follows:
Commercial Construction Loan Agreement
Addendum to Loan Agreement
Promissory Note
Mortgage, Security Agreement and Assignment of
Rents and Leases
Collateral Assignment of Rents and Leases
Payment Letter/Draw Request
Compliance Agreement
Correction Agreement Limited Power of Attorney
Request for Information - TIN
Name/Signature Affidavit
Affidavit of Encumbrance
Borrower’s Acknowledgement [sic]
The closing instructions did not request that Wilkinson
obtain the Villeneuves’ personal guarantees on the loan.
The May
2007 directives letter from the plaintiffs to Gould & Burke was
not included or referenced in the documents sent to Wilkinson,
and there is no evidence that the letter was ever sent to
7
Wilkinson or that Wilkinson was otherwise put on notice of its
existence or terms.5
On February 20, 2008, Wilkinson closed the transaction with
Villeneuve according to the closing instructions given by Gould &
Burke.
At the time of closing, there were $160,000 in past taxes
due on the property, which were paid out of the available funds.
On February 26, 2008, Gould & Burke notified plaintiffs that
the transaction had closed, and attached the closing documents.
Nothing in the closing documents said that personal guarantees
had been obtained from the Villeneuves.
The closing documents
also made clear that Wilkinson, not Gould & Burke, had performed
the closing.
CL&M invited plaintiffs to contact it or Gould & Burke if
they had any questions or concerns about the closing.
Simons
responded on March 21, 2008, that he had “some concerns,” but
those concerned typographical corrections to the closing
documents---the loan was in his name, but should have been in his
company’s name; his ownership with Boender was as tenants in the
5
An attorney from Gould & Burke said he would ordinarily check
closing documents to make sure that the closing had complied with
a client’s instructions. That attorney, however, could not
remember whether or not he had done so in this instance. Sara
Wilkinson repeatedly stated at her deposition that no such
instructions were ever communicated to her, and no written
instructions with the personal guarantee requirement are in the
record.
8
entirety, but should have been as tenants in common; the loan
documents had the wrong contact information for him on them; and
a mortgage assignment was missing from the packet of closing
documents he had received.
Neither Simons nor Boender complained
to CL&M or Gould & Burke that the closing documents did not
include the Villeneuves’ personal guarantees, or that Wilkinson,
not Gould & Burke, had executed the closing documents.
5.
Villeneuve Defaults
CL&M made payments on the loan out of the funds held in
escrow until October 8, 2008.
After October 8, Villeneuve failed
to make any monthly payments.
On December 29, 2008, Gould &
Burke alerted Villeneuve that she was behind on her payments for
the months of November and December.
6.
The Aftermath
In January 2009, Villeneuve told Boender that the Fish and
Wildlife Department had offered to purchase their 97 acre
property for $280,000 based on an independent appraisal it had
completed.
Plaintiffs grew concerned that Villeneuve could not
repay the loan, and that the value of the property was less than
the value of the Promissory Note, so they sought to sell the
property.
With the agreement of Villeneuve, the plaintiffs
arranged the sale of the 97 acres in spring 2011 for $190,000.
9
C.
Proceedings
On March 30, 2010, plaintiffs filed their complaint against
the defendants.
On January 31, 2012, plaintiffs stipulated to
dismiss with prejudice their claims against Popadic and Gould &
Burke.
On March 2, 2012, Hardin and Wilkinson each filed
separate motions for summary judgment.
II.
STANDARD OF REVIEW
A movant is entitled to summary judgment when “the movant
shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.”
R. Civ. P. 56(a).
Fed.
“A dispute is genuine if the evidence about
the fact is such that a reasonable jury could resolve the point
in the favor of the non-moving party,” and “[a] fact is material
if it has the potential of determining the outcome of the
litigation.” Farmers Ins. Exch. v. RNK, Inc., 632 F.3d 777, 782
(1st Cir. 2011) (citation omitted).
However, “conclusory
allegations, improbable inferences, and unsupported speculation”
are insufficient to create a genuine issue of material fact to
survive summary judgment.
Sullivan v. City of Springfield, 561
F.3d 7, 14 (1st Cir. 2009) (quotation and citation omitted).
As I must, I “view the facts in the light most favorable to
the party opposing summary judgment.”
F.3d 9, 10 (1st Cir. 2011).
10
Rivera–Colón v. Mills, 635
III.
HARDIN’S MOTION FOR SUMMARY JUDGMENT
The basic question before me on Hardin’s Motion for Summary
Judgment may be stated concisely:
may a private lender recover
economic losses from an appraiser, in the absence of privity of
contract, under the theories of negligence or negligent
misrepresentation?
Plaintiffs assert three causes of action against Hardin.
Count III alleges that Hardin committed malpractice and was
negligent in his appraisal of Villeneuve’s property; Count VI
alleges that Hardin made negligent misrepresentations to the
Plaintiffs relative to the value of the property; and Count XI
alleges that Hardin violated chapter 93A by engaging in unfair
and deceptive practices.
A.
I address each in turn below.
Malpractice/Negligence
Plaintiffs’ negligence claim against Hardin fails.
To prove
a negligence claim, a plaintiff must show that a defendant owed
him a duty, breached that duty, and that the defendant’s breach
was the but-for and proximate causation of some resulting harm to
the plaintiff.
2009).
Brown v. United States, 557 F.3d 1, 3-4 (1st Cir.
Whether a defendant owed a plaintiff a duty of care is a
legal question amenable to summary judgment.
Id. at 4.
Under the so-called “economic loss” rule, when a party seeks
to recover pecuniary or economic loss, as the plaintiffs do here,
11
the party must have had a contractual relationship with the
defendant.
See Aldrich v. ADD Inc., 770 N.E.2d 447, 454 (Mass.
2002) (“It has been a long-standing rule in this Commonwealth, in
accordance with the majority of jurisdictions that have
considered this issue, that ‘purely economic losses are
unrecoverable in tort and strict liability actions in the absence
of personal injury or property damage.’” (citation omitted)).6
Here, there was no contractual relationship between Hardin
and the plaintiffs, thus plaintiffs’ negligence claim seeking
economic loss due to Hardin’s negligent appraisal fails.
Hardin’s contract for the appraisal of Villeneuve’s land was with
T&M Mortgage Solutions, not the plaintiffs.
The appraisal was
conducted for T&M, who was identified on the appraisal as the
“Lender/Client.”
Plaintiffs admitted that they have never had a
connection to T&M or to Hardin.
Indeed, at the time that Hardin
completed his appraisal, he had never heard of either of the
plaintiffs, FRM, or any of the parties involved in the
transaction at hand except for Villeneuve, whose land Hardin was
appraising.
Thus, because no contract existed between Hardin and
6
As noted below in Section III.B., there is an exception to the
economic loss rule for losses stemming from negligent
misrepresentation. Nota Constr. Corp. v. Keyes Assocs., Inc.,
694 N.E.2d 401, 405 (Mass. App. Ct. 1998).
12
the plaintiffs, the plaintiffs cannot recover their economic loss
through tort law on pure negligence grounds.
Furthermore, Hardin argues that his relationship with the
plaintiffs is too attenuated for him to have owed them a duty of
care.
Hardin undisputably owed a duty to T&M as the
Lender/Client.
See APPRAISAL STANDARDS BOARD, UNIFORM STANDARDS
OF
PROFESSIONAL APPRAISAL PRACTICE 2 (2006) (“The client identified by the
appraiser in an appraisal . . . is the party or parties with whom
the appraiser has an appraiser-client relationship in the related
assignment . . . .”).
However, Hardin points to the Appraisal
Standards Board’s Statement on Appraisal Standards No. 9,
Identification of Intended Use and Intended Users,7 which notes
that an “appraiser’s obligation to intended users other than the
client is limited to addressing their requirements as identified
by the appraiser at the time the appraiser accepts the
assignment.”
Plaintiffs argue that they are in the same position as a
prospective lender using T&M as a broker, and therefore it is a
jury question whether it was foreseeable to Hardin that a party
7
The Appraisal Standards Board issues Statements on Appraisal
Standards “for the purposes of clarification, interpretation,
explanation, or elaboration of the Uniform Standards of
Professional Appraisal Practice (USPAP). Statements have the
full weight of a Standards Rule . . . .”
APPRAISAL STANDARDS BOARD,
UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE 80 (2006).
13
other than T&M would rely on his appraisal.
Plaintiffs note
Hardin’s statement during his deposition that ordinarily when he
was commissioned by brokers, he expected that his work would be
reviewed by lenders, and contend that this raises a triable issue
of fact whether plaintiffs were reasonably foreseeable users of
Hardin’s appraisal.
However, plaintiffs omit the very next
question of Hardin’s deposition:
Q.
A.
And it was your understanding with T&M Mortgage
Solutions that they would be free to share your
appraisal with prospective lenders in this subject
property, correct?
No.
This is because, as noted above, paragraph 10 of the
appraisal restricted the audience for Hardin’s appraisal:
The appraiser [Hardin] must provide his or her prior
written consent before the lender/client [T&M]
specified in the appraisal report can distribute the
appraisal report . . . to anyone other than the
borrower; the mortgagee or its successors and assigns;
the mortgage insurer; consultants; professional
appraisal organizations’ any state or federally
approved financial institution; or any department,
agency, or instrumentality of the United States or any
state or the District of Columbia; except that the
lender/client may distribute the property description
section of the report only to data collection or
reporting service(s) without having to obtain the
appraiser’s prior written consent. The appraiser’s
written consent and approval must also be obtained
before the appraisal can be conveyed by anyone to the
public through advertising, public relations, news,
sales, or other media.
14
(emphasis added).
There is no evidence that Hardin gave T&M or
Villeneuve (the only two parties with copies of his appraisal)
his written consent to disclose the appraisal to FRM.
Thus, based both on the economic loss doctrine and on
plaintiffs’ inability to establish Hardin owed them a duty of
care, their negligence claim fails, and summary judgment is
warranted for Hardin on that count.
B.
Negligent Misrepresentations
Although a pure negligence claim fails under the economic
loss doctrine when it seeks recovery of pecuniary losses in the
absence of a contractual relationship, courts have held that the
tort of negligent misrepresentation may be used to recover
economic losses by analogy to Restatement (Second) of Torts §
522.8
See, e.g., Nycal Corp. v. KPMG Peat Marwick LLP, 688 N.E.2d
8
That section, titled “Information Negligent Supplied for the
Guidance of Others,” provides that:
(1) One who, in the course of his business, profession
or employment, or in any other transaction in which he
has a pecuniary interest, supplies false information
for the guidance of others in their business
transactions, is subject to liability for pecuniary
loss caused to them by their justifiable reliance upon
the information, if he fails to exercise reasonable
care or competence in obtaining or communicating the
information.
(2) Except as stated in Subsection (3), the liability
stated in Subsection (1) is limited to loss suffered
(a) By the person or one of a limited group of
15
1368, 1371-72 (Mass. 1998) (adopting the test from § 552 for
claim of negligent misrepresentation brought against professional
accountants).
The Restatement notes that for liability to arise
on the basis of information supplied for the guidance of others,
there must be (1) justifiable reliance upon the information by a
limited group of persons, (2) for whose benefit and guidance the
appraiser (a) intends to supply the information, or (b) knows
that the recipient intends to supply it.
Restatement (Second) of
Torts § 522.9
persons for whose benefit and guidance he intends
to supply the information or knows that the
recipient intends to supply it; and
(b) Through reliance upon it in a transaction that
he intends the information to influence or knows
that the recipient so intends or in a
substantially similar transaction.
(3) The liability of one who is under a public duty to
give the information extends to loss suffered by any of
the class of persons for whose benefit the duty is
created, in any of the transactions in which it is
intended to protect them.
Restatement (Second) of Torts § 522.
9
The comments to the Restatement explain the bounds of the
limitation. On the one hand, it is sufficient “insofar as the
plaintiff's identity is concerned, that the maker supplies the
information for repetition to a certain group or class of persons
and that the plaintiff proves to be one of them, even though the
maker never had heard of him by name when the information was
given.” On the other hand, “[i]t is not enough that the maker
merely knows of the ever-present possibility of repetition to
anyone, and the possibility of action in reliance upon it, on the
part of anyone to whom it may be repeated.” Restatement (Second)
16
The Massachusetts Supreme Judicial Court has held in the
accounting context that an accountant’s liability to
noncontractual third parties is limited to those third parties
who can demonstrate “actual knowledge on the part of accountants
of the limited-though unnamed-group of potential [third parties]
that will rely upon the [report], as well as actual knowledge of
the particular financial transaction that such information is
designed to influence.”
Nycal Corp., 688 N.E.2d at 1372
(quotation and citation omitted, edits in original).
The
accountant’s “actual knowledge” should be “measured ‘at the
moment the audit [report] is published, not by the foreseeable
path of harm envisioned by [litigants] years following an
unfortunate business decision.’” Id. at 1372-73 (citation
omitted, edits in original).
In Nycal, KPMG had been retained to audit Gulf Resources &
Chemical Corporation’s 1990 financial statements.
Id. at 1369.
At the time that KPMG was auditing Gulf’s financial statements,
Gulf’s board of directors was fighting a hostile takeover threat
presented by D.S. Kennedy & Co., and was also discussing a
possible sale to Aviva Petroleum, Inc.
Id.
KPMG completed its
audit report, which was included in Gulf’s 1990 annual report
made publicly available on February 22, 1991.
of Torts § 522 cmt. h.
17
Id.
One month
later, Nycal entered into discussions with Gulf about purchasing
a large block of Gulf shares, during which Gulf provided Nycal
with a copy of its 1990 annual report, including KPMG’s audit
report.
Id. at 1370.
Nycal, in reliance on KPMG’s audit report,
entered into a stock purchase agreement with Gulf in 1991.
Gulf,
however, later went into bankruptcy, rendering Nycal’s investment
worthless.
Id. at 1369.
Nycal sued KPMG, alleging negligent
misrepresentations in the 1990 annual report it prepared.
Id.
The trial court granted summary judgment for KPMG under section
552 of the Restatement (Second) of Torts.
Id.
The Massachusetts Supreme Judicial Court, taking the matter
up on direct appellate review, held that the lower court
correctly concluded under § 552, that the undisputed
facts failed to show that the defendant knew (or
intended) that the plaintiff, or any limited group of
which the plaintiff was a member, would rely on the
audit report in connection with an investment in Gulf.
To the contrary, the record suggests that the defendant
did not prepare the audit report for the plaintiff's
benefit and that the plaintiff was not a member of any
“limited group of persons” for whose benefit the report
was prepared. At the time the audit was being
prepared, the plaintiff was an unknown, unidentified
potential future investor in Gulf. The defendant was
not aware of the existence of the transaction between
the plaintiff and Gulf until after the stock purchase
agreement had been signed and only a few days before
the sale was completed.
Id. at 1373.
Consequently, the Supreme Judicial Court upheld the
grant of summary judgment for KPMG.
18
Id. at 1374.
Here, as with KPMG in Nycal, it is undisputed that Hardin
did not know the plaintiffs and had no contact with them at the
time he performed his appraisal on October 4, 2007.
Similarly,
Hardin was unaware of any private financing arrangement, or real
estate transaction, planned between the plaintiffs and Villeneuve
at that time, as he was only dealing with T&M for an independent,
unconsummated transaction with Villeneuve.
Further, Hardin did
not give his written consent that the appraisal be disclosed by
FRM on a public website, or to the unknown plaintiffs, in
contravention of paragraph 10 of the appraisal document.
Therefore, Hardin argues, the plaintiffs cannot show that he had
“actual knowledge . . . of the limited-though unnamed-group of
potential” lenders that would rely on his appraisal, “as well as
actual knowledge of the particular financial transaction that
such information is designed to influence,” because he did not
know of the plaintiffs, nor did he have actual knowledge of their
future, as-yet-uncontemplated private financing transaction.
Plaintiffs, on the other hand, suggest that they stood in
the same position as T&M did, because both were parties with an
interest in loaning money to the Villeneuve using the property as
collateral.
Therefore, plaintiffs contend, they are within the
limited class of people Hardin knew would rely on his appraisal
19
(namely, potential creditors to the Villeneuves), because their
reasons for using the appraisal were the same as T&M’s reasons.
Under the approach described in the Restatement, upon which
the body of Massachusetts negligent misrepresentation law is
founded, plaintiffs’ argument fails.
As comment h to section 552
makes clear, it is insufficient that the appraiser “merely knows
of the ever-present possibility of repetition to anyone, and the
possibility of action in reliance upon it, on the part of anyone
to whom it may be repeated.”
cmt. h.
Restatement (Second) of Torts § 552
Hardin’s appraisal demonstrates that Hardin contemplated
that T&M would use it, because T&M is listed as the
“Lender/Client” on the cover.
Hardin’s appraisal further makes
clear that Hardin intended to limit the scope of who could rely
on the appraisal based on who could have access to it, as limited
by paragraph 10 of the appraisal report.
Hardin, much like KPMG,
performed the appraisal not for the transaction contemplated by
the plaintiffs (which was unknown and, indeed, uncontemplated at
the time), but for a distinct transaction by an unrelated party.
Finally, plaintiffs’ argument fails on policy grounds.
If
plaintiffs are correct, then an appraiser would open himself to
unbounded liability projecting forward to all future lenders from
the moment the appraiser submits his report to a single lender
interested in using the appraised property as collateral for a
20
transaction.
The logic of the plaintiffs’ position is that they
are similarly situated to T&M as potential lenders involved in a
transaction using the appraised 97 acre lot as collateral.
If,
without a contractual relationship, the plaintiffs may sue on the
basis they propose, there are no limiting principles which would
prevent future lenders, even years down the line, from suing
Hardin if they obtained a copy of his appraisal report and relied
on it, no matter how old it was.
This would violate the spirit
of § 552, as expressed in comment h.
In light of Nycal, the Restatement, the plaintiffs’
inability to cite any illustrative case in their favor, and
Hardin’s clear attempts in the appraisal to limit the group of
people who could rely on it, I cannot say that two plaintiffs who
never contacted Hardin during the relevant time period, and for
whom the appraisal was not made, can be said to be part of the
“limited group of people” who can rely on Hardin’s appraisal.
Thus, plaintiffs’ negligent misrepresentation claim fails.
C.
Chapter 93A
Finally, plaintiffs’ chapter 93A claim against Hardin cannot
withstand summary judgment.
For a claim under chapter 93A § 11,
“the conduct complained of must occur in a context in which the
parties to the transaction are persons engaged in ‘trade or
commerce’ with each other and therefore ‘acting in a business
21
context.’” Stop & Shop Supermarket Co. v. Loomer, 837 N.E.2d 712,
718 (Mass. App. Ct. 2005) (emphasis added).
Here, there is no evidence that the plaintiffs and Hardin
were engaged in a transaction amounting to “trade or commerce,”
and therefore the chapter 93A claim fails.
Plaintiffs admit they
did not interact with Hardin at all during the relevant time
period before 2009.
They did not contact Hardin to request an
appraisal of the property, enter into a contract with him, or
agree with him concerning the appraisal.
for his appraisal.
Nor did they pay him
Thus, plaintiffs and Hardin did not engage in
“trade or commerce” for purposes of chapter 93A § 11, and their
claim fails.
IV.
WILKINSON’S MOTION FOR SUMMARY JUDGMENT
The question I must address on Wilkinson’s Motion for
Summary Judgment is whether, when a law firm subcontracts out the
closing of a real estate transaction to local counsel licensed in
the proper jurisdiction, the client of the law firm may sue the
local counsel for failure to comply with a condition not
disclosed by the law firm to the local counsel.
Plaintiffs assert one cause of action against Wilkinson,
alleging in Count II that Wilkinson committed malpractice by
failing to (1) obtain personal guarantees from the Villeneuves;
(2) alert the plaintiffs that there were substantial back taxes
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owed on the property at closing; and (3) establish an escrow
account with the proceeds of the loan, from which FRM would pay
future real estate taxes.
on Count II.
Wilkinson moved for summary judgment
In their opposition, plaintiffs only defend their
claim that Wilkinson committed malpractice by failing to obtain
personal guarantees on the loan, consequently I consider
Wilkinson’s motion unopposed on their remaining two theories.
In Massachusetts, for a client to succeed against an
attorney on a claim of malpractice, he “‘must demonstrate that
the attorney failed to exercise reasonable care and skill in
handling the matter for which the attorney was retained; that the
client has incurred a loss; and that the attorney’s negligence is
the proximate cause of the loss . . . .’”
Coastal Orthopaedic
Institute, P.C. v. Bongiorno, 807 N.E.2d 187, 190 (Mass. App. Ct.
2004) (citation omitted).
Where, as here, the alleged negligence
is a failure to act in some regard, there can be no negligence
absent proof that the attorney had a duty to act.
The duty to
act, in turn, arises from the scope of the attorney-client
relationship.
See Brown v. Gerstein, 460 N.E.2d 1043, 1048-49
(Mass. App. Ct. 1984).
I therefore look to the scope of the
attorney-client relationship between Wilkinson and the plaintiffs
to determine whether, as plaintiffs contend, Wilkinson’s failure
to act amounts to malpractice.
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Wilkinson contends it was hired to serve as local counsel
for the limited purpose of clearing title to the property and
closing the Villeneuve transaction.
That has not been rebutted
or countered in any way by the plaintiffs.
It is also undisputed
that Gould & Burke was responsible for drafting all of the
closing documents, and that Gould & Burke provided Wilkinson with
those documents and a set of closing instructions to follow to
close the deal.
As noted above, neither the closing instructions
nor the closing documents said anything about the plaintiffs’
requirement that personal guarantees be obtained from the
Villeneuves’ before closing, and there is no evidence in the
record that Wilkinson received notice from Gould & Burke outside
of the closing documents and closing instructions about the
personal guarantees condition.
The undisputed evidence indicates that the scope of the
attorney-client relationship between Wilkinson and the plaintiffs
was limited to closing the deal on the documents and terms
provided by Gould & Burke.
There is no evidence in the record
that at the time of the closing, any party understood the
engagement to be broader in scope than that.
Because the scope
of the representation was limited, so too is the scope of the
duty Wilkinson had to the plaintiffs.
That duty, in this case,
was limited to clearing title to the property and closing the
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Villeneuve transaction in accordance with Gould & Burke’s
instructions with a reasonable degree of skill and care.
The Eighth Circuit has noted in the litigation context that
the limited engagement of local counsel does not expand that
counsel’s duties beyond the scope of the work local counsel was
hired to perform.
“Local counsel does not automatically incur a
duty of care with regard to the entire litigation.
When the
client vests lead counsel with primary responsibility for the
litigation, the duty of local counsel is limited.”
Macawber
Eng’g, Inc. v. Robson & Miller, 47 F.3d 253, 257 (8th Cir. 1995)
(citing Ortiz v. Barrett, 278 S.E.2d 833, 838 (Va. 1981) (finding
that local counsel’s duty was limited to the work assigned to him
by lead counsel)).
This approach is grounded in sound public
policy:
Were the law otherwise, the costs involved in retaining
local counsel would increase substantially. Confronted
with a duty to monitor lead counsel’s handling of the
litigation, local counsel would be bound to review all
manner of litigation documents and ensure compliance
with all deadlines.[10] Out-of-state litigants would be
10
Footnote 5, located at this point in the Eighth Circuit’s
opinion, stated:
This duty would be burdensome. To effectively monitor
lead counsel’s handling of the litigation, local
counsel would have to insist on receiving service of
all litigation documents, review the documents, and
monitor lead counsel’s progress toward meeting
deadlines. Simply checking with the court on a regular
basis would not be enough. Discovery documents are not
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forced to pay a local attorney to review lead counsel’s
work. Given the skyrocketing costs of litigation, the
duplication of effort and increased fees that would
result from such a rule foster problematic public
policy. Though some litigants may choose to enter a
representation agreement which includes extensive
duties for local counsel, Minnesota law does not (and
should not) require them to do so.
Id. at 257-58.
Here, Wilkinson was retained to close the Villeneuve
transaction in accordance with Gould & Burke’s closing
instructions and to clear the title on the property.
dispute that Wilkinson did so.
There is no
Plaintiffs do not allege that
Wilkinson performed these two tasks with less than the degree of
care and skill of a reasonable attorney.
That is the entirety of
the duty that was required of Wilkinson under the circumstances.
The plaintiffs’ claim therefore fails.
Furthermore, even if plaintiffs could establish that
Wilkinson did owe the plaintiffs a duty of care, they could not
show that her breach caused them harm.
The parties agree that to
routinely filed with the court, so local counsel would
not learn of a failure to respond to request for
admissions (as occurred in this case). Likewise, it
would not be sufficient to check with lead counsel.
Such an inquiry will usually result in a reply from
lead counsel that everything is under control (as it
did in this case). Lead counsel is not likely to
disclose that it has been negligent.
Macawber Eng’g, Inc. v. Robson & Miller, 47 F.3d 253, 257 n.5
(8th Cir. 1995).
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show harm in a case involving the loss of a monetary benefit as a
result of an attorney’s negligence, the plaintiff must show that
the benefit was collectable.
See, e.g., Shimer v. Foley, Hoag &
Eliot LLP, 795 N.E.2d 599, 602-03 (Mass. App. Ct. 2003).
Plaintiffs claim that there is a factual issue whether plaintiffs
could have improved their position had personal guarantees been
obtained by Wilkinson.
The argument is wholly speculative.
If Wilkinson had secured personal guarantees from Villeneuve
and her husband, there is no reason to believe they would be
better off.
As noted above, Villeneuve’s only source of income
was her construction company, which paid her roughly $2,700 per
month.
Her household’s adjusted gross income in 2005 was
$31,284, and in 2006 was $25,770.
While her construction company
had grossed $707,637 in 2005, by 2006 that number was cut by more
than half, to $339,375.
There is no evidence that the company
could have leveraged to provide greater income or alternative
assets for recovery.
Other than the property and the
construction company, Villeneuve’s only asset was a boat, which
itself was later reclaimed.
Villeneuve’s outstanding debt at the time of the proposed
transaction was extraordinary in comparison to her monthly
income.
She had a loan for the boat in the amount of $65,885, a
car loan for $36,195, and credit card debt in the amount of
27
$23,372.
This debt amounted to month minimum payments of $1,823.
The loan she requested from the plaintiffs proposed a monthly
payment of $3,969.
Combined with her other outstanding debt,
Villeneuve’s total monthly debt payments after the plaintiffs
engaged in the transaction with her amounted to more than double
her household’s monthly income, a fact disclosed to the
plaintiffs before they decided to make the loan.
Even if 2007 had not been the beginning of the worst
economic downturn this country faced since the Great Depression,
it is wholly implausible that Villeneuve would have been able to
afford the $5,792 monthly debt payments.
Because she was already
obligated on the full amount of the Promissory Note, personal
guarantees as to Villeneuve would be meaningless.
As to her husband, it is undisputed that he did not have any
assets at the time of his death in 2010.
There was deposition
testimony that Mr. Villeneuve originally owned the 97 acres of
land, but transferred it to his wife out of concern that his
personal creditors would try to take it.
The record, after the
close of all fact discovery, is devoid of any evidence of his
having property or assets that would have been collectable by the
plaintiffs had personal guarantees by Mr. Villeneuve been secured
by Wilkinson.
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Plaintiffs have failed to prove that Wilkinson breached a
duty that was owed to the plaintiffs, or that they were harmed
even if there was such a breach.
Therefore, their claim for
malpractice fails.
V.
CONCLUSION
For the reason set forth above, I (1) GRANT Hardin’s motion
for summary judgment (Dkt. No. 74), and (2) GRANT Wilkinson’s
motion (Dkt. No. 79).
/s/ Douglas P. Woodlock
DOUGLAS P. WOODLOCK
UNITED STATES DISTRICT JUDGE
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