Linares-Acevedo et al v. Acevedo et al

Filing 40

OPINION and ORDER granting in part and denying in part 26 motion for summary judgment. Signed by US Magistrate Judge Bruce J. McGiverin on March 17, 2014. (McGiverin, Bruce)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
JUAN C. LINARES-ACEVEDO, et al.,
Plaintiffs,
v.

Civil No. 12-1906 (BJM)

DONALD ACEVEDO, et al.,
Defendants.
OPINION AND ORDER
In an amended complaint, Juan C. Linares-Acevedo (“Linares”), and his wife,
Miriam Blanco-Rodriguez, bring this diversity action against Donald Acevedo, Rich Port
Development, LLC, and others alleging fraud, breach of contract, and damages under
Article 1802 of the Puerto Rico Civil Code. Docket No. 30 (“Compl.”).1 Defendants
answered and asserted a counterclaim. Docket No. 36. Following the close of discovery,
defendants moved to dismiss for lack of subject matter jurisdiction, or alternatively, for
summary judgment. Docket No. 26. Plaintiffs opposed. Docket No. 32. The parties
consented to proceed before a magistrate judge. Docket No. 19.
For the reasons set forth below, defendants’ motion is GRANTED IN PART and
DENIED IN PART.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate 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.” Fed. R. Civ. P. 56(a). A fact is material only if it “might affect the outcome of
the suit under the governing law,” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986), and “[a] ‘genuine’ issue is one that could be resolved in favor of either party.”
Calero-Cerezo v. U.S. Dep’t of Justice, 355 F.3d 6, 19 (1st Cir. 2004). The court does not
1

The court granted plaintiffs’ request to amend the complaint, except for the request to
add Arthur MacMenomay as a new defendant. Docket No. 31.

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weigh facts, but instead ascertains whether the “evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Leary v. Dalton, 58 F.3d 748, 751 (1st
Cir. 1995).
The movant must first “inform[] the district court of the basis for its motion,” and
identify the record materials “which it believes demonstrate the absence of a genuine
issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); R. 56(c)(1).
If this threshold is met, the opponent “must do more than simply show that there is some
metaphysical doubt as to the material facts” to avoid summary judgment. Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The nonmoving party
may not prevail with mere “conclusory allegations, improbable inferences, and
unsupported speculation” for any element of the claim. Medina-Muñoz v. R.J. Reynolds
Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990). Still, the court draws inferences and evaluates
facts “in the light most favorable to the nonmoving party,” Leary, 58 F.3d at 751, and the
court must not “superimpose [its] own ideas of probability and likelihood (no matter how
reasonable those ideas may be) upon the facts of the record.” Greenburg v. P.R. Maritime
Shipping Auth., 835 F.2d 932, 936 (1st Cir. 1987).
BACKGROUND
The facts set forth below are based on plaintiffs’ opposing statement of material
facts (Docket No. 32-1, “OSMF”), and the court’s independent review of the exhibits
supporting defendants’ motion.2

2

By not filing a statement of facts with its motion, defendants violated Local Rule 56(b):
“A motion for summary judgment shall be supported by a separate, short, and concise statement
of material facts, set forth in numbered paragraphs, as to which the moving party contends there
is no genuine issue of material fact to be tried.” Whether or not this case involves complex issues
of fact or law, defendants may not unilaterally decide whether it will comply with the rule.
Nonetheless, district courts “may forgive a party’s violation of a local rule.” Crowley v. L.L.
Bean, Inc., 361 F.3d 22, 25 (1st Cir. 2004). In the interest of justice, judicial economy, and
because courts must “rigorously enforce” the jurisdictional limits set by Congress in diversity
cases, Coventry Sewage Assocs. v. Dworkin Realty Co., 71 F.3d 1, 4 (1st Cir. 1995), I will
consider defendants’ motion on its merits.

Juan C. Linares-Acevedo v. Donald Acevedo, Civil No. 12-1906 (BJM)

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Plaintiffs Juan C. Linares-Acevedo and his wife, Miriam Blanco-Rodriguez are
residents of Ponce, Puerto Rico. Compl. ¶¶ 3.1–3.2. Donald Acevedo, a resident of
South Carolina, is a builder and owns a 50% stake in Rich Port Development, LLC, a
South Carolina Corporation. Compl. ¶¶ 3.3, 3.5. Linares and Acevedo are cousins.
Acevedo travelled to Puerto Rico to attend Linares’ wedding. At that time, the two began
discussing the possibility of Linares purchasing real estate in South Carolina from
Acevedo. OSMF ¶ 3. After various discussions, Acevedo offered to sell to Linares lots
21 and 22 on Aycock Drive in Anderson County, South Carolina. OSMF ¶ 4. Acevedo
allegedly stated that the two lots were prime real estate worth $68,000, and that they were
quickly appreciating in value such that they could be re-sold for $100,000 within a year.
OSMF ¶ 14. The two lots, however, are actually in a 100-year flooding zone, a fact that
Acevedo knew of but failed to disclose to plaintiffs. OSMF ¶ 8. Linares claims he
trusted Acevedo because he was family, and they were close enough that Acevedo
attended his wedding. OSMF ¶ 10.
On February 10, 2005, Linares and Rich Port Development entered into an
agreement for the purchase and sale of lots 21 and 22 on Aycock Drive in South Carolina.
Docket No. 26-1. The purchase price was $68,000, with a $6,800 down payment and the
remaining balance to be paid in monthly installments of $673.86 at an interest rate of
12% per annum. Plaintiffs paid a total of $68,000 to defendants under the contract.
OSMF ¶¶ 1, 6.

The contract states that the seller “will convey good, fee simple

marketable title, to the Property to the Purchaser by general warranty deed,” and the
transfer is to occur “on or before 60 days from date.” Docket No. 26-1, at 1–2. Title to
the two lots was never transferred to plaintiffs. OSMF ¶ 12.
An appraiser appraised the value of the two lots on February 22, 2012, and found
each lot worth $1,000. Docket Nos. 32-5; 32-6. The same appraiser concluded that the
two lots were each worth $1,400 in January 2005. Docket Nos. 32-7; 32-8. Upon
realizing that the two lots were not worth nearly as much as what they paid for them,

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plaintiffs filed this action in October 2012. The complaint asserts four causes of action:
(1) damages under Article 1802 of the Puerto Rico Civil Code, 31 L.P.R.A. § 5141; (2)
fraud; (3) misrepresentation; and (4) breach of contract. Compl. ¶¶ 5–8. Defendants
counterclaimed for $112,560, the amount Linares allegedly still owes on the loan he
obtained to purchase the properties at issue. Docket No. 36, at 4–5.
DISCUSSION
Defendants argue that the court lacks subject matter jurisdiction over the case
because the amount in controversy is below $75,000.00.3 Alternatively, defendants argue
that the evidence submitted demonstrates that there is no genuine issue of material fact
and that they are entitled to summary judgment as a matter of law.
I.

Subject Matter Jurisdiction – Amount in Controversy Requirement
Federal courts are courts of limited jurisdiction, and “federal jurisdiction is never

presumed.” Viqueira v. First Bank, 140 F.3d 12, 16 (1st Cir. 1998). Rather, “the party
invoking the jurisdiction of a federal court carries the burden of proving its existence.”
P.R. Tel. Co. v. Telecomm’s Reg. Bd. of P.R., 189 F.3d 1, 7 (1st Cir. 1999). 28 U.S.C. §
1332 provides federal courts with diversity jurisdiction—jurisdiction over “controversies
arising between citizens of different states, provided that the amount in controversy
exceeds $75,000.” García Pérez v. Santaella, 364 F.3d 348, 350 (1st Cir. 2004) (internal
quotations omitted). A plaintiff’s claim that damages meet the jurisdictional amount
requirement generally suffices unless questioned by the opposing party or the court.

3

Curiously, on the first page of their motion the defendants also list improper venue as a
basis for dismissal. Yet later in the motion, under a section titled “discussion of venue not being
proper (forum non conveniens),” defendants fail to include any discussion of the law or facts
relevant to venue or forum non conveniens. This may be an unfortunate oversight, but it is only
one example of the various careless, unprofessional errors committed by defendants in this case.
The court declines to do counsel’s work and reach the issues of venue or transfer. United States
v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990) (“It is not enough merely to mention a possible
argument in the most skeletal way, leaving the court to do counsel’s work, create the ossature for
the argument, and put flesh on its bones. . . . [A] litigant has an obligation to spell out its
arguments squarely and distinctly, or else forever hold its peace.”) (internal quotations omitted).

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Spielman v. Genzyme Corp., 251 F.3d 1, 5 (1st Cir. 2001). However, if challenged, the
plaintiff must show “‘that it is not a legal certainty that the claim involves less than the
jurisdictional amount.’” Id. (quoting Dep’t of Recreation and Sports v. World Boxing
Ass’n, 942 F.2d 84, 88 (1st Cir. 1991)).
Before examining plaintiffs’ claim that the amount in controversy exceeds
$75,000, the court must determine which jurisdiction’s substantive law controls this
diversity suit. A federal court sitting in diversity applies state substantive law to state law
claims. Hoyos v. Telecorp Comm’ns, Inc., 488 F.3d 1, 5 (1st Cir. 2007). This includes the
forum state’s choice of law principles. See Hartford Fire Ins. Co. v. CNA Ins. Co.
(Europe), 633 F.3d 50, 54 n. 7 (1st Cir. 2011). Puerto Rico generally follows the
Restatement (Second) of Conflict of Laws and applies the “dominant or significant
contacts test,” in which the laws of the jurisdiction with the most significant contacts to
the dispute apply. Allstate Ins. Co. v. Occidental Int’l, Inc., 140 F.3d 1, 3 (1st Cir. 1998).
Specifically, in disputes involving real property, the law of the jurisdiction in which the
property is located applies. Weston v. Stuckert, 329 F.2d 681 (1st Cir. 1964); 31 L.P.R.A.
§ 10. Because the lots at issue in this case are located in South Carolina, its laws should
govern plaintiffs’ breach of contract, fraud, and misrepresentation claims.
Damages awards in breach of contract claims are meant to compensate the injured
party, “that is, to put the plaintiff in as good a position as he would have been in had the
contract been performed.” Drews Co., Inc. v. Ledwith-Wolfe Assocs., Inc., 296 S.C. 207,
209 (1988). Under South Carolina law, actual damages in a fraud case are determined
under “the benefit of the bargain approach, according to which the plaintiff is entitled to
the difference between the value he would have received if the defendant’s
representations had been true and the value he actually received, together with any
proximately caused consequential or special damages.” Schnellmann v. Roettger, 373
S.C. 379, 383 (2007).

Moreover, punitive damages may be awarded if the

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misrepresentation was made knowingly or with reckless disregard for its truth. Carter v.
Boyd Const. Co., 255 S.C. 274, 283 (1971).
In this case, Linares argues that he could recover at least $100,000, the amount
needed to put him in the position he would have been in had Acevedo’s representations
been truthful. Opp. 13–14. Whether Linares can recover $100,000 is unclear, but the
court agrees that his damages may exceed $75,000. Because defendants never transferred
title of the land over to Linares, he may be able to recover the $68,000 allegedly paid to
defendants, in addition to any actual and punitive damages caused by Acevedo’s alleged
misrepresentation of the property’s value. A jury may well find that punitive damages in
excess of $7,000 are warranted, bringing Linares’s total recovery to above $75,000. See,
e.g., Austin v. Stokes-Craven Holding Corp., 387 S.C. 22, 53 (2010) (sustaining punitive
damages award in breach of contract and fraud action that was 8.21 times actual
damages).4 Therefore, Linares has satisfied his burden of demonstrating that it is not a
legal certainty that his recovery cannot meet the jurisdictional threshold.
II.

Article 1802 Claim
Article 1802 of the Puerto Rico Civil Code, Puerto Rico’s general tort statute,

generally does not apply in the context of commercial transactions. Isla Nena Air Servs.,
Inc. v. Cessna Aircraft Co., 449 F.3d 85, 88 (1st Cir. 2006); Betancourt v. W.D. Schock
Corp., 907 F.2d 1251, 1255 (1st Cir. 1990). However,
[a] plaintiff may bring a negligence claim based on a contractual
relationship when there is both an alleged breach of contract and an
alleged breach of the general duty not to negligently cause injury. This
general duty not to act negligently must arise out of conditions separate
from the parties’ contract. If a plaintiff’s damages arise exclusively from a
defendant’s alleged breach of contract, the plaintiff does not have a
separate cause of action for negligence.
4

Defendants erroneously cite Cinalli v. Kane, 191 F. Supp. 2d 601 (E.D. Pa. 2002), for
the proposition that punitive damages cannot be considered in determining whether the amountin-controversy requirement is satisfied. To the contrary, the court in Cinalli stated that when
punitive damages are recoverable, they “are properly considered in determining whether the
jurisdictional amount is satisfied.” 191 F. Supp. 2d at 606.

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Nieves Domenech v. Dymax Corp., 952 F. Supp. 57, 65–66 (D.P.R. 1996) (citations
omitted).

Here, plaintiffs’ injuries (economic or otherwise) directly arise out of

Acevedo’s alleged fraud and misrepresentation, conduct which forms the basis of
Linares’s breach of contract claim. Because Acevedo’s alleged breach of duty of care is
intertwined with the alleged breach of contract, plaintiffs cannot bring a separate cause of
action under Article 1802, and the claim must be dismissed.5
III.

Breach of Contract, Fraud, and Negligent Misrepresentation
Upon a careful review of the record, I find that Linares has raised genuine issues

of material fact such that summary judgment on his breach of contract, fraud, and
negligent misrepresentation claims is inappropriate at this time.
Under South Carolina law, the elements for a breach of contract are the existence
of the contract, its breach, and the damages caused by such breach. Fuller v. E. Fire &
Cas. Ins. Co., 240 S.C. 75, 89 (1962). Here, the parties do not dispute the existence of a
valid contract. Linares and Rich Port Development entered into an agreement for the
purchase and sale of lots 21 and 22 on Aycock Drive for $68,000, to be paid with a
$6,800 down payment and monthly installments at a 12% interest rate. Docket No. 26-1.
Seller agreed to “convey good, fee simple marketable title” to the purchaser “on or before
60 days from date.” Docket No. 26-1, at 1–2. Acevedo admits that title to the two lots
was never transferred to Linares. OSMF ¶ 12. He claims that title was not transferred
because Linares had not paid in full the amount due under the contract. Docket No. 32-4,
at 19. Because the contract is not entirely clear as to when title is to be conveyed to

5

Linares’s reliance on Diaz Irizarry v. Ennia, N.V., 678 F. Supp. 957 (D.P.R. 1988) and
similar cases is inapposite, because those cases did not involve Article 1802 claims. The question
before the court in Diaz Irizarry was whether consequential damages, in the form of physical
injury and mental suffering, were recoverable in a breach of contract action. See 678 F. Supp. at
961.

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Linares, I find there is a genuine issue of material fact precluding summary judgment on
the breach of contract claim.6
To state a claim for fraud, plaintiff must establish (1) a representation of fact that
is (2) false, (3) material, (4) made with knowledge of its falsity or a reckless disregard for
its truth, (5) intent that the representation be acted upon, (6) the hearer’s ignorance of its
falsity, (7) the hearer’s reliance on its truth, (8) the hearer’s right to rely thereon, and (9)
the hearer’s consequent and proximate injury. Schnellmann, 373 S.C. at 382. The main
difference between fraud and negligent misrepresentation claims is that the former
requires the misstatement to be made knowingly or recklessly, and the latter only requires
a negligent mental state. However, in both instances, the plaintiff must show that reliance
upon the false statement was reasonable. McLaughlin v. Williams, 379 S.C. 451, 457 (Ct.
App. 2008).
Here, Linares claims Acevedo knowingly made two materially false
representations: (1) lots 21 and 22 were prime real estate, suitable for development when
they were actually located in a flood zone, and (2) the lots had a market value of $68,000
and were appreciating in value such that they could be resold for $100,000 within a year.
Opp. 18. Relying on Acevedo’s misstatements, Linares agreed to purchase lots 21 and 22
for $68,000—an amount far more than what the lots are actually worth given their
location in a potential flood zone. As plaintiffs rightly concede, however, the issue of
whether Linares was reasonable in relying on Acevedo’s representations regarding the
property’s suitability for development and market value is generally a question for the
jury. See Unlimited Servs., Inc. v. Macklen Enterprises, Inc., 303 S.C. 384, 387 (1991).
Having failed to reference any authority to the contrary, defendants’ request for summary
judgment on Linares’ fraud and negligent misrepresentation claims must be denied.
6

Notably, defendants repeatedly state in a conclusory fashion that they are entitled to
summary judgment on all of plaintiffs’ claims, yet defendants’ brief contains no discussion of the
merits of Linares’ breach of contract claim.

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CONCLUSION
For the foregoing reasons, defendants’ motion for summary judgment is
GRANTED as to plaintiffs’ Article 1802 claim, and otherwise DENIED.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 17th day of March, 2014.
S/Bruce J. McGiverin
BRUCE J. MCGIVERIN
United States Magistrate Judge