Edwards v. John Hancock Mut. Life Ins. Co.

• Decision Date: 04 September 1992
• Docket Number: No. 91-2317,91-2317
• Citation: 973 F.2d 1027
• Parties: A. Greer EDWARDS, Jr., Plaintiff, Appellant, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 1027

973 F.2d 1027

A. Greer EDWARDS, Jr., Plaintiff, Appellant, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Defendant, Appellee.

No. 91-2317.

United States Court of Appeals First Circuit.

Argued May 8, 1992.

Decided Sept. 4, 1992.

Maria L. Sveikauskas, West Roxbury, Mass., for appellant.

Edward S. Rooney, Jr., with whom Lyne, Woodworth & Evarts, Boston, Mass., was on brief, for appellee.

Before BREYER, Chief Circuit Judge, CYR, Circuit Judge, and FUSTE, ^* District Judge.

CYR, Circuit Judge.

Plaintiff A. Greer Edwards, Jr., appeals a district court judgment dismissing his action against John Hancock Mutual Life Insurance Company [hereinafter "Hancock"] to recover damages allegedly caused by an underinclusive property description in the notices of foreclosure sale relating to certain Nevada ranch properties. Count I of the complaint, a negligence claim, was dismissed as time-barred. The breach of contract claim in count II was dismissed on the grounds that Hancock had assumed no contractual obligation with respect to the foreclosure sale and that the trustees under the Nevada deeds of trust were not Hancock's agents.

I BACKGROUND

As these claims were dismissed pursuant to Fed.R.Civ.P. 12(b)(6), we review the order of dismissal de novo, Garita Hotel Ltd. Partnership v. Ponce Federal Bank, 958 F.2d 15, 17 (1st Cir.1992); McCoy v. Massachusetts Institute of Technology, 950 F.2d 13, 15 (1st Cir.1991), accepting all well-pleaded allegations in the complaint and drawing all reasonable inferences in favor of the plaintiff, see Dartmouth Review v. Dartmouth College, 889 F.2d 13, 16 (1st Cir.1989). According to the complaint, during 1975 and 1976 Hancock loaned approximately $1,000,000 to a general partnership in which Edwards remains the only interested partner. The Hancock loans were secured by first deeds of trust on two Nevada ranch properties owned by the partnership. Farmers Home Administration later extended loans secured by second deeds of trust on the same properties.

The partnership defaulted on its loan obligations to Hancock, which instituted foreclosure proceedings in July 1985. The notices of the foreclosure sale specifically excluded mineral, oil and gas rights from the property interests to be sold at public auction. At the auction, Farmers Home Administration, the only bidder, acquired both ranch properties for approximately $1,232,000. Freeport-McMoran Gold Company had "expressed great interest" in acquiring the properties and was in attendance at the auction, but refrained from bidding due to the mineral rights exclusion.

After paying Hancock approximately $1,250,000 to release its interest in the ranch properties, Farmers Home Administration instituted an action against Edwards in the United States District Court for the District of Nevada to recover a deficiency approximating $600,000. On January 5, 1988, the Nevada federal district court ruled the foreclosure sale invalid on the ground that the notices of sale violated the Nevada foreclosure statutes by excluding the mineral, oil and gas rights. Farmers Home Administration subsequently transferred its interest in the ranch properties to Edwards for $400,000.

The present action was instituted by Edwards in Suffolk Superior Court on January 2, 1991, and promptly removed by Hancock to the United States District Court for the District of Massachusetts. The district court dismissed the negligence claim as time-barred under the three-year Massachusetts statute of limitations. It dismissed the breach of contract claim as well, but with leave to amend. Later, the amended breach of contract claim was dismissed, with prejudice, and this appeal followed.

II DISCUSSION

A. Negligence Claim

Edwards does not contest the district court ruling that count I alleged a negligence claim subject to the three-year limitations period in Mass.Gen.Laws ch. 260, § 2A, commencing at the time of the discovery of the injury to the plaintiff. See Joseph A. Fortin Constr. Inc. v. Massachusetts Housing Finance Agency, 392 Mass. 440, 442, 466 N.E.2d 514, 515 (1984) (cause of action in tort accrues upon happening of event likely to put plaintiff on notice that it has been injured). The district court ruled that the cause of action for negligence accrued not later than the foreclosure sale in July 1985. Edwards counters on appeal that the cause of action accrued on January 5, 1988, when the Nevada federal district court ruled the notice of foreclosure sale invalid under Nevada law. Prior to that time, Edwards contends, his cause of action was "inherently unknowable" within the meaning of the Massachusetts discovery rule. Hendrickson v. Sears, 365 Mass. 83, 85, 310 N.E.2d 131, 132 (1974).

A cause of action for an inherently unknowable wrong does not accrue under the Massachusetts discovery rule until the facts which gave rise to the cause of action, as distinguished from the legal theory, either became known or should have become known to the injured party in the exercise of reasonable diligence. Catrone v. Thoroughbred Racing Asso., 929 F.2d 881, 885 (1st Cir.1991) (citing cases). Edwards admits that he was aware, at the time of the foreclosure sale, that the notices of sale "except[ed] therefrom all mineral, oil and gas rights on the property hereinabove described, said rights forming no part of this guarantee." He contends, however, that the quoted language is ambiguous as to whether mineral rights were excluded from the foreclosure sale or simply excepted from the disclaimer of coverage under the title guarantee. If the latter interpretation were intended, Edwards argues, he would have had no cause of action until the Nevada federal district court ruled the notices of sale underinclusive.

We cannot agree that any ambiguity in the exclusionary language in the notices of sale affected the accrual of the cause of action for purposes of the Massachusetts discovery rule. Even assuming the notices of sale were ambiguous, Edwards nonetheless was aware of sufficient facts to alert a reasonable person to the potential negligence claim no later than the time of the foreclosure sale. Under Massachusetts law, a cause of action accrues when a reasonable person, in the exercise of due diligence, "would have discovered the damage." Riley v. Presnell, 409 Mass. 239, 245, 565 N.E.2d 780, 786 (1991); see also Malapanis v. Shirazi, 21 Mass.App.Ct. 378, 383, 487 N.E.2d 533, 537 (1986) (limitations period begins when reasonably prudent person "reacting to any suspicious circumstances of which he might have been aware ... should have discovered that he had been harmed") (emphasis added); Fidler v. Eastman Kodak Co., 714 F.2d 192, 199 (1st Cir.1983) ("notice of likely cause is ordinarily enough to start the statute running") (applying Massachusetts law). "The controlling question is whether a plaintiff's knowledge, actual or attributed, of both harm to [him] and the likely cause of such harm, was sufficient to stimulate further inquiry which was likely to alert [him] to a cause of action against a defendant." Hanson Housing Auth. v. Dryvit System, Inc., 29 Mass.App.Ct. 440, 446, 560 N.E.2d 1290, 1294 (1990), review den., 409 Mass. 1101, 565 N.E.2d 792 (1991).

Edwards does not deny notice of the foreclosure sale. Moreover, during the Nevada federal district court action in 1986, Edwards apparently raised the invalidity of the notices of sale under the Nevada statute as a defense to the Farmers Home Administration deficiency claim. Thus, long before January 1988, Edwards plainly was on notice of facts sufficient to lead a reasonable person to believe that the exclusion of mineral rights in the notices of sale may have harmed him. ¹

Without rendering the limitations period nugatory, accrual of a cause of action cannot await a judicial determination that a legal basis exists for the action. See Whitcomb v. Pension Dev. Co., 808 F.2d 167, 170 (1st Cir.1986) (claims against insurer, stemming from erroneous tax advice, accrued no later than receipt of notification of IRS position, rather than receipt of notice of tax deficiency or date of Tax Court decision) (applying Massachusetts law); White v. Peabody Constr. Co., 386 Mass. 121, 129-30, 434 N.E.2d 1015, 1022 (1982) (cause of action accrued when claimants learned they had sustained harm from leaky roof, not when administrative agency determined cause of leak); Salin v. Shalgian, 18 Mass.App.Ct. 467, 469, 467 N.E.2d 475, 477 (1984) (negligent title-certification claim accrued when real estate purchasers filed answer in action brought by neighbors alleging misrepresentations in certificate of title, not when Land Court entered judgment in favor of neighbors). The negligence claim is time-barred.

B. Breach of Contract Claim

The breach of contract claim was dismissed on the ground that Edwards did not allege sufficient facts to support reasonable inferences that Hancock breached an agreement with Edwards or that the trustees under the deeds of trust were acting as Hancock's agents in providing the underinclusive notices of sale. On appeal, Edwards challenges the agency ruling alone.

In Nevada, real estate mortgage deeds take the form of deeds of trust. Essentially, the encumbered property is conveyed by the mortgagor (variously referred to in the deed of trust as the trustor, grantor or borrower) to the trustee, a title company, as security for repayment of the loan from the mortgagee (the beneficiary or lender). See Nev.Rev.Stat. § 107 (deeds of trust). The default and sale provisions in a Nevada deed of trust are regulated by statute. See id. § 107.080 (trustee's power of sale; required notices); § 107.090 (filing of notice of default and sale); § 21.130 (notice of sale must "particularly describe the property" to be sold). The deed of trust establishes the rights and responsibilities of the parties and prescribes certain duties to be performed by the trustees.

The complaint sufficiently alleges that the notices of sale...