States Resources Corp. v. Architectural Team, Inc.

Citation433 F.3d 73
Decision Date20 December 2005
Docket NumberNo. 05-1473.,No. 05-1381.,05-1381.,05-1473.
PartiesSTATES RESOURCES CORP., Plaintiff, Appellee, v. THE ARCHITECTURAL TEAM, INC., Defendant, Appellant, Michael Capizzi; Catherine Capizzi; Garrett, Inc., Defendants, Appellees, John Connolly, Jr.; Massachusetts Department of Revenue; James Grumbach; Kevin Duffy, Defendants. States Resources Corp., Plaintiff, Appellant, v. Michael J. Capizzi; Catherine R. Capizzi; The Architectural Team, Inc.; Garrett, Inc.; John Connolly Jr.; Massachusetts Department of Revenue; Kevin Duffy, Defendants, Appellees, James Grumbach, Defendant.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

Jordan Ring, with whom Ring Law Firms was on brief, for appellant/cross-appellee.

John A. Doonan, with whom is Doonan, Graves & Longoria, L.L.C. was on brief, for appellee/cross-appellant.

Before LIPEZ, Circuit Judge, COFFIN, Senior Circuit Judge, and CARTER,* Senior District Judge.

LIPEZ, Circuit Judge.

This case began as an interpleader action to determine the proper distribution of surplus proceeds from a foreclosure sale conducted by States Resources Corporation ("SRC"). To that end, SRC named several defendants with interests in the foreclosed property, including The Architectural Team, Inc. ("TAT"), a junior lienholder. TAT filed counterclaims against SRC, alleging that SRC mishandled the foreclosure sale and breached its fiduciary duty to TAT. The district court granted summary judgment in favor of SRC, denied a motion by TAT to add a counterclaim, and denied a motion by SRC to strike portions of an affidavit filed by TAT. Both parties appealed. We affirm.

I.

This case has a complex factual and procedural history that is discussed in detail in the district court's opinion. See States Res. Corp. v. Capizzi, No. 04-10095, 2005 U.S. Dist. LEXIS 956 (D.Mass. Jan 20, 2005). We relate only those facts relevant to the questions presented on appeal.

A. States Resources Corporation's Interest in the Capizzi Property

In October 1988, Michael Capizzi ("Capizzi") signed a $750,000 adjustable-rate note, secured by a $750,000 mortgage on his property at 236 Lincoln Road, Lincoln, MA, memorializing a loan from Winchendon Savings Bank ("WSB") for use in developing his property. After WSB became insolvent, other institutions obtained and assigned the mortgage until SRC became the mortgagee in 1998.

SRC first initiated foreclosure proceedings against Capizzi in state court in January 1999, alleging that he was in default on the note. Due to a series of partial payments and defaults by Capizzi and his wife, Catherine Capizzi, SRC cancelled and recommenced foreclosure proceedings against Capizzi several times. The Capizzis filed several lawsuits against SRC and bankruptcy petitions to prevent the foreclosure, none of which was successful. During the course of a state court action filed by the Capizzis against SRC, SRC removed the case to federal court based on diversity jurisdiction. On June 9, 2003, the district court granted a motion by SRC for default judgment against the Capizzis for their failure to plead or otherwise defend against SRC's counterclaims, and entered judgment in favor of SRC for $875,203.38.

B. The Architectural Team, Inc.'s Interest in the Capizzi Property

In 1989, TAT filed a lawsuit against the Capizzis in Suffolk Superior Court, regarding a dispute over unpaid fees. In 1994, TAT obtained and duly recorded a $600,000.00 attachment on the Capizzi property. The lawsuit went to trial and the court entered a judgment in favor of TAT for $200,254.00, with interest accruing from the 1989 filing date. See The Architectural Team, Inc. v. Capizzi, No. 89-4479-D, slip op. at 3-4 (Mass.Super.Feb.26, 1999), aff'd, 782 N.E.2d 1136 (Mass.App.Ct.2003). On September 24, 2003, TAT obtained and recorded a $541,152.81 execution on its judgment from the court.

C. The Foreclosure Auctions and Disbursement of Proceeds

After obtaining its default judgment against the Capizzis, SRC made plans to sell the property. SRC hired Garrett, Inc. and its president, Garrett Healy, to conduct the foreclosure auction proceedings.

At the first foreclosure auction, the highest bid of $2,000,000.00 came from Linda Micu. Micu signed a "Memorandum of Terms and Conditions for the Purchase at the Mortgagee's Foreclosure Sale" as "Linda Micu or Assigns" and provided Garrett with a $5,000.00 deposit. However, Micu, who turned out to be a straw person for Catherine Capizzi, did not purchase the property and forfeited her deposit. Micu left Garrett a phone message stating that "we have had a little bump in the road here financially and we are now having a problem getting financing . . . but I would at least like to give you the courtesy to let you know at this point we cannot proceed with this and hopefully you can get this thing going and someone else can take advantage of what I think is a pretty good deal."

After Micu's offer fell through, SRC scheduled a second foreclosure auction for September 26, 2003. SRC published a "Notice of Mortgagee's Sale of Real Estate," which contained a legal description of the property, in The Concord Journal on September 4, 11, and 18, 2003. At the direction of SRC, Garrett also publicized the auction through telemarketing, mailings the internet, and "display advertisements" in The Boston Globe on September 14 and 21, 2003. The display advertisements contained incorrect information, allegedly obtained from town records, understating the acreage of the property and the number of bedrooms, bathrooms, and fireplaces it contained.

In early August 2003, Garrett received a letter from Leonard Florence, who offered to buy the property for $2,000,000.00 and provided a deposit of $50,000.00. Garrett informed counsel for SRC of the offer and deposit. SRC's attorney later informed Garrett that, based on his interpretation of state law, SRC could not accept Florence's offer because it was made outside of the public auction process. Garrett rejected Florence's offer and asked him whether he would like to participate in the upcoming auction. Florence declined, telling Garrett that he did not have the time to pursue the property. Garrett returned the deposit to Florence. Neither SRC nor Garrett informed any of the other interest holders of the offer by Florence.

On September 26, 2003, Garrett conducted the second foreclosure auction. Kevin Duffy made the highest bid of $1,200,000.00. Duffy and Garrett executed a "Memorandum of Terms and Conditions For the Purchase at Mortgagee's Foreclosure Sale," which included a provision stating that TAT had a $600,000.00 real estate lien on the property.

At the time of the final foreclosure auction of the Capizzis' property, SRC was owed $932,630.87, which it collected from the $1,200,000.00 proceeds. In November 2003, counsel for SRC and TAT negotiated the disbursement of the surplus auction proceeds. On November 11, 2003, SRC sent TAT a check for $210,096.33 in partial satisfaction of TAT's junior lien. After sending the check, SRC sent TAT an indemnification agreement pursuant to which TAT would indemnify and hold harmless SRC "from any and all actions, proceedings, claims, demands, costs, damages and expenses . . . in connection with or arising out of the payment." TAT never executed the indemnification agreement.

D. Procedural History

SRC initiated an interpleader action in federal district court on January 15, 2004, seeking a judicial determination regarding the proper apportionment of proceeds from the September 26, 2003 foreclosure sale of the Capizzis' property. Although SRC's initial judgment against the Capizzis was satisfied by the proceeds of the sale, SRC alleged that it had accrued additional fees and costs due to the lawsuits filed by the Capizzis and the payment owed to the auctioneer for his services. SRC named several parties with interests in the proceeds as defendants, including TAT. On March 17, 2004, TAT filed an answer; affirmative defenses; cross-claims against Catherine Capizzi; and counterclaims against SRC, seeking an accounting and alleging unjust enrichment and various other defects in foreclosure. On April 20, 2004, TAT filed an amended answer, affirmative defenses, cross-claims, and counterclaims. On July 8, 2004, TAT filed a motion to amend its answer to add a counterclaim against SRC and Garrett under Mass. Gen. Laws ch. 93A for unfair and deceptive business practices, based on information regarding the Florence offer that TAT alleges it first learned about through discovery. On October 6, 2004, SRC filed a motion for partial summary judgment, which TAT opposed.

On January 20, 2005, the district court granted SRC's motion for partial summary judgment and dismissed TAT's counterclaims, denied TAT's motion to amend its answer to add a counterclaim, and denied SRC's motion to strike portions of an affidavit filed by TAT. Shortly thereafter, SRC filed a motion for a final judgment, describing a proposed disbursement of the surplus funds. On February 4, 2005, the district court issued the final judgment, adopting SRC's disbursement proposal and ordering SRC to disburse $48,459.20 to Garrett, Inc. for its auctioneer services and $13,813.60 to SRC for costs and attorneys fees incurred in the interpleader action and related bankruptcy litigation. TAT and SRC appealed.

II.
A. Subject Matter Jurisdiction

As a preliminary matter, we dispatch SRC's argument that the district court lacks subject matter jurisdiction over some of TAT's claims under the Rooker-Feldman doctrine. "Under the Rooker-Feldman doctrine, federal district courts lack jurisdiction over `federal complaints. . . [that] essentially invite[] federal courts of first instance to review and reverse unfavorable state-court judgments.'" Federación de Maestros de P.R. v. Junta de Relaciones del Trabajo de P.R., 410 F.3d 17, 20 (1st Cir.2005) (quoting Exxon Mobil...

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