936 F.2d 1364 (1st Cir. 1991), 90-1096, Veranda Beach Club Ltd. Partnership v. Western Sur. Co.

Docket Nº:90-1096 to 90-1099, 90-1857, 90-1871 and 90-1872.
Citation:936 F.2d 1364
Party Name:VERANDA BEACH CLUB LIMITED PARTNERSHIP, Plaintiff, Appellee, v. WESTERN SURETY CO., et al., Defendants, Appellees, FRG Ventures, Inc., Plaintiff, Appellant. VERANDA BEACH CLUB LIMITED PARTNERSHIP, Plaintiff, Appellee, v. WESTERN SURETY CO., et al., Defendants, Appellees, Robert F. Mongillo, Defendant, Appellant. VERANDA BEACH CLUB LIMITED PARTNERSH
Case Date:June 10, 1991
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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936 F.2d 1364 (1st Cir. 1991)



WESTERN SURETY CO., et al., Defendants, Appellees,

FRG Ventures, Inc., Plaintiff, Appellant.



WESTERN SURETY CO., et al., Defendants, Appellees,

Robert F. Mongillo, Defendant, Appellant.



WESTERN SURETY CO., et al., Defendants, Appellees,

Faneuil Hall Capital Group, Inc., Plaintiff, Appellant.

Nos. 90-1096 to 90-1099, 90-1857, 90-1871 and 90-1872.

United States Court of Appeals, First Circuit

June 10, 1991

Heard April 1, 1991.

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Robert J. Kaler, with whom Lauren E. Duca, and Gadsby & Hannah were on brief, Boston, Mass., for plaintiff Faneuil Hall Capital Group, Inc.

James E. Carroll, with whom Peabody & Arnold was on brief, for defendant Robert F. Mongillo.

Frederic N. Halstrom, with whom Halstrom Law Offices, P.C. was on brief, Boston, Mass., for defendant Western Sur. Co.

Philip J. Crowe, Jr., with whom Elizabeth N. Mulvey and Lubin & Meyer, P.C. were on brief, Boston, Mass., for plaintiff FRG Ventures, Inc.

Walter R. May, Jr., with whom James E. Carroll and Peabody & Arnold were on brief, Boston, Mass., for defendant Edward W. Mongillo Co.

Before CAMPBELL, SELYA and CYR, Circuit Judges.

SELYA, Circuit Judge.

We confront today three separate sets of appeals, all of which relate to a multifaceted judgment entered in the United States District Court for the District of Massachusetts. The two civil actions that underlie the judgment had as their provenance a failed commercial transaction. The jury found in favor of plaintiff FRG Ventures, Inc. (FRG) against defendant Robert Mongillo

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(Mongillo). The remaining defendants, Edward W. Mongillo Company (EWM Co.) and Western Surety Company, went scot free. Another plaintiff, Faneuil Hall Capital Group, Inc. (Faneuil), took nothing. FRG, Mongillo, and Faneuil appeal. Having cut a passable swath through the jungle of charges and countercharges, we conclude that no reversible error occurred. Hence, we affirm the judgment below.


Although more intricate details of this star-crossed transaction will emerge in connection with our discussion of specific issues, we start by sketching the evidence.

The Veranda Beach Club is a luxury time-share resort located on oceanfront property in Longboat Key, Florida. In the spring of 1983, Peter Peggs and Peter Hutchings, FRG's principals, began to investigate the possibility of purchasing it. They formed the Veranda Beach Club Limited Partnership (VBCLP) for the sole purpose of acquiring equity in the resort. FRG, a Massachusetts corporation, was the general partner. Through Peggs and Hutchings, it negotiated with the club's owner, Vacation Equities, Inc. (VacEq), finally reaching an agreement that provided for the purchase of all ownership intervals (sometimes called "unit weeks") unsold as of the closing date. 1

FRG hired Faneuil to secure the necessary financing. Faneuil arranged a loan from the Union Trust Bank of Baltimore for slightly over $4,000,000. There was, however, a very large fly in the ointment: as a condition precedent to the loan, Union Trust required a bond guaranteeing full repayment of the balance. Faneuil began hunting for such a bond. In December 1983, John Eller, Faneuil's executive vice president, met Mongillo at a Christmas party. Mongillo was an employee of EWM Co. He was also a close friend of Carmen Elio, Faneuil's president, and an authorized agent of Western Surety. Upon learning of the need for a bond, Mongillo suggested that Insurance Risk Management, Inc. (IRM), a firm that he owned, could provide one underwritten by Western Surety. Eller encouraged him to try and sent him an information packet.

Within a month, Mongillo forwarded Faneuil a sample Western Surety bond and some supporting documentation (including a letter on Western Surety stationery, supposedly signed by a corporate official but actually forged by Mongillo, announcing Western Surety's "willingness" to write the desired bond). The documentation indicated that IRM would arrange for Western Surety to issue a financial guaranty bond to Union Trust. Based on these representations, and unaware that Mongillo was playing a rogue's game, Faneuil structured a transaction in which Union Trust would make the loan to VBCLP and Western Surety would issue a bond backing the repayment obligation. The closing was to take place in stages. The loan documents were to be executed in Baltimore. The real estate documents were to be recorded on the next day in Florida, and the seller paid.

When the closing convened in Baltimore on April 25, 1984, Mongillo delivered an apparently authentic Western Surety bond in the amount of $4,300,000. As the closing progressed, the bankers raised a question concerning the amount of flood insurance on the property. Mongillo stated that he could obtain additional coverage if necessary. After Mongillo departed, Union Trust decided to contact Western Surety directly to discuss the flood insurance situation. The cat soon came clear of the bag. The bond and accompanying documentation were canards, doctored and forged by Mongillo. Western Surety had no knowledge of them. The closing was suspended.

The following day, the plaintiffs forwarded all relevant information to Western Surety so that the company could decide whether it would issue a valid bond. About ten days later, Western Surety declined

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to participate. The closing imploded. Unwilling to wait any longer, VacEq cancelled the purchase agreement.

In August 1984, VBCLP filed suit against Mongillo, EWM Co., Western Surety, and IRM. Faneuil sued the same four defendants plus FRG. Faneuil's complaint charged that Mongillo and EWM Co. misrepresented their authority to deliver the bond; that the defendants, jointly and severally, breached their contract to provide an authorized bond; that Faneuil relied to its detriment on the apparent authority of Mongillo and the EWM Co. to issue bonds on Western Surety's behalf, as well as on the defendants' representations that they would furnish a valid bond; that Western Surety was negligent in licensing Mongillo and supervising his activities; and that all defendants engaged in acts and practices violative of Mass.Gen.L. ch. 93A. The district court consolidated the two cases for all purposes and realigned FRG as a party plaintiff. 2 The parties stipulated to have a magistrate judge preside at trial. See 28 U.S.C. Sec. 636(c).

Trial began in September 1989 and lasted for almost three weeks. At the end of plaintiffs' case, the court directed a verdict in favor of EWM Co. At the close of all the evidence, the court said that it would submit special questions to the jury, accompanied by two verdict forms: one to be employed if the jury found exclusively in the defendants' favor (Verdict Slip No. 1) and the other to be employed if the jury found for either or both of the plaintiffs (Verdict Slip No. 2). No one objected to this procedure and it was followed. The ensuing rigamarole became the focus of considerable controversy, see infra Part VI, but the bottom line was a verdict for FRG alone, against Mongillo alone, in the sum of $2,300,000. The Chapter 93A proceedings were then completed and a slew of post-trial motions were denied.

There are a salmagundi of issues presented on appeal. To put them in better perspective, we attach as an appendix the special questions, the jury's responses, and the verdict slip as completed by the jury. We discuss many of the issues but leave others untouched, believing the latter group to be patently meritless.


Faneuil argues that the lower court erred in dismissing a claim, mistakenly denominated by Faneuil in its brief as one for negligent misrepresentation, which charged Western Surety with carelessness in licensing and monitoring Mongillo. The court struck the claim before trial pursuant to Fed.R.Civ.P. 16(f), which permits the imposition of sanctions upon parties who fail to comply with, or who endeavor to subvert, pretrial orders. The magistrate found Faneuil to have been derelict in preserving the claim for trial. He stated: "Nothing in the Pretrial Memoranda filed by any of the parties, and nothing in the requests for instructions submitted by any and all of the plaintiffs [in advance of trial], even remotely suggested that plaintiffs contended they were entitled to recover upon a showing of negligent hiring and/or supervision...."

The proper performance of the case-management function requires that the trial court be allowed great latitude in applying Rule 16(f). Accord Matter of Sanction of Baker, 744 F.2d 1438, 1440 (10th Cir.1984) (Rule 16(f) "give[s] courts very broad discretion to use sanctions where necessary ... to insure the expeditious and sound management of the preparation of cases for trial"), cert. denied, 471 U.S. 1014, 105 S.Ct. 2016, 85 L.Ed.2d 299 (1985). Thus, we review the magistrate's imposition and choice of sanctions only for abuse of discretion. See National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 642, 96 S.Ct. 2778, 2780, 49 L.Ed.2d 747 (1976); Roland M. v. Concord School Comm., 910 F.2d 983, 999 (1st Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 1122, 113 L.Ed.2d 230 (1991).

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Faneuil challenges the preclusive order primarily on the basis that the negligent entrustment claim was part of its original complaint. The riposte is misdirected. The issue is not whether the claim was ever raised in the pleadings, but whether it was sufficiently developed and perennialized in the relevant...

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