Askenaizer v. Moate

Decision Date04 June 2009
Docket NumberCivil No. 09-cv-63-JD.
Citation2009 DNH 073,406 B.R. 444
PartiesMichael ASKENAIZER, Esq. as Trustee for the Chapter 7 Debtor Beacon Vision, Inc. v. Victoria MOATE, d/b/a New Century Title Abstract, et al.
CourtU.S. District Court — District of New Hampshire

Steven M. Notinger, Donchess Notinger & Tamposi PC, Nashua, NH, for Beacon-Vision.

ORDER

JOSEPH A. DiCLERICO, JR., District Judge.

Michael Askenaizer, Trustee of the debtor, BeaconVision, Inc., appeals the decision of the United States Bankruptcy Court for the District of New Hampshire (Vaughn, C.J.) denying its claims of negligence and conversion in an adversary proceeding against Victoria and Stanley Moate, d/b/a New Century Title Abstract (collectively, "New Century"). The decision of the bankruptcy court is affirmed.

I. Standard of Review

This court has jurisdiction to hear appeals from final judgments, orders, and decrees of the bankruptcy court under 28 U.S.C. § 158(a) (2006). See also L.R. 77.4(c) (2009). The court conducts a de novo review of the legal determinations of the bankruptcy court, In re Gonic Realty Trust, 909 F.2d 624, 626-27 (1st Cir.1990), but will not reverse the bankruptcy court's factual findings unless clearly erroneous, Briden v. Foley, 776 F.2d 379, 381 (1st Cir.1985). A factual finding "is clearly erroneous when[,] although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (internal quotation marks omitted).

II. Background

In 2003, the debtor, BeaconVision, entered into an agreement with Weller Financial Resources, Inc. ("Weller") to obtain a $2 million loan. Michael Wyatt, Weller's president at that time, engaged in discussions with BeaconVision concerning the loan. Sometime before April 14, 2003, Weller and the president of BeaconVision executed an agreement detailing the terms and conditions of the proposed $2 million loan.1 As part of the agreement, Weller required that BeaconVision deposit $200,000 into an account provided by New Century. Weller claimed that the $200,000 was necessary to obtain an insurance binder for the loan.

On April 14, 2003, BeaconVision deposited $200,000 into an account at New Century. On April 15, 2003, BeaconVision and New Century signed the "Lender's Escrow Instructions," a pre-typed form provided by Weller which listed various terms and conditions regarding the $200,000 deposit and the $2 million loan.

The escrow instructions, which were signed by Victoria Moate and by a representative of BeaconVision, provided, in part:

Important Instructions to Settlement/Escrow Agent

.... As a Settlement Agent you are financially liable for any loss resulting from your failure to strictly follow these instructions.

Pursuant to these Settlement/Escrow Instructions, you, as Settlement Agent, are the Lender's agent for the limited purpose of carrying out these instructions, and for no other purpose.

Do not disburse funds from the borrower on this Credit Line unless ALL conditions in these escrow instructions and any supplemental settlement instructions have been satisfied....

You must follow these instructions exactly. Failure to comply with these instructions may delay funding or subject you to financial liability. These instructions can only be modified with the advanced written approval of Weller Financial Resources, Inc.

....

B. Funds are not to be disbursed for any reason prior to receipt of Insurance Binder issued by an "A" rated or better Insurance Company for an amount not less than $2,000,000.00 USD.

C. If for any reason the Insurance Binder is not issued the Escrow Agent is instructed to immediately return 100 percent of the funds received back to the originated party exactly as it was issued (via wire) within 72 business hours of receipt of funds.

D. If you become aware, or suspect, that any party to the subject transaction has provided false or incomplete information or documentation to the Lender, or has concealed relevant information from the Lender, you must contact Lender with the full particulars of the relevant situation and obtain written approval from Lender to proceed with the settlement of the subject transaction. If you are aware of relationships undisclosed to Weller Financial Resources, Inc. between any parties in the loan transaction, you must immediately contact Weller Financial Resources, Inc.

....

G. You are further instructed to disburse the $2,000,000.00 loan funds upon the 30th banking day after issuance of Insurance Binder unless given instructions to release earlier by Lender. In accordance with attached loan commitment letter of April 10, 2003.

....

.... You must promptly return any amounts advanced by the Borrowers if the line does not close within 30 banking days after receipt of Insurance Binder.

Wyatt also sent Victoria Moate an addendum to the escrow instructions on April 16, consisting of a payee list with instructions to "wire the funds [$200,000]" to three identified parties. The payee list did not contain a signature or authorization from BeaconVision. Victoria testified that Wyatt also called her on that date and told her he had received the insurance binder. Pursuant to Wyatt's written instructions, Moate disbursed $25,000 to Weller, and $175,000 to two other parties unrelated and unknown to BeaconVision. Victoria signed the payee list on April 16 and sent a copy to Wyatt indicating that she had disbursed the funds.2 In fact, Wyatt had not received an insurance binder. New Century never received the $2 million loan funds from Weller and the loan was never disbursed to BeaconVision. The $200,000 was never returned to BeaconVision.

BeaconVision filed for chapter 7 bankruptcy on February 19, 2004. On May 24, 2005, the Trustee commenced an adversary proceeding against several parties, including New Century, to avoid the transfer of the $200,000 deposit.3 The Trustee asserted claims of conversion and negligence against New Century. In February of 2007, New Century filed a motion requesting judgment as a matter of law dismissing all claims against it. See Fed. R.Civ.P. 52(c).4 The bankruptcy court held a three-day hearing ending on February 26, 2007. On January 20, 2009, the court issued an opinion and final judgment denying the Trustee's claims against New Century and granting New Century's Rule 52(c) motion for judgment as a matter of law.5

III. Analysis

The Trustee argues that the bankruptcy court erred in granting New Century's Rule 52(c) motion on the conversion and negligence claims.

A. Negligence

The Trustee argues that New Century was an escrow agent that breached the duty of care it owed to BeaconVision when it released the $200,000 before receiving the insurance binder and the $2 million loan from Weller. The Trustee further argues that the bankruptcy court erred in finding that Weller could unilaterally change the escrow instructions. New Century argues that it was not an escrow agent, that it was legally obligated to follow Weller's instructions, and that it acted reasonably under the circumstances, thereby fulfilling any duty of care it may have owed to BeaconVision. New Century further argues that the Trustee was required to produce expert testimony at trial to prove a breach of the duty of care and that the fraud committed by Weller constituted a superseding cause. The bankruptcy court concluded that New Century was Weller's agent, that New Century's obligations under the escrow instructions could be modified by Weller, and that New Century did not breach any duty of care it may have owed to BeaconVision. In re BeaconVision, No. 04-10528, 2009 WL 151594 at **1, 8 (Bkrtcy.D.N.H. Jan. 20, 2009). The court agrees.

To prevail on its negligence claim, the Trustee must show that: (1) New Century owed BeaconVision a duty; (2) New Century breached this duty; and (3) the breach proximately caused BeaconVision's injuries. Vandemark v. McDonald's Corp., 153 N.H. 753, 756, 904 A.2d 627 (2006). "Whether a defendant owes a duty is a question of law." Maloney v. Badman, 156 N.H. 599, 938 A.2d 883, 886 (2007). "The scope of the duty of care imposed upon the defendants, however, is limited by what risks, if any, are reasonably foreseeable." Macie v. Helms, 156 N.H. 222, 224, 934 A.2d 562 (2007).

The Trustee argues that the duty of care which New Century owed to BeaconVision is that which an escrow agent owes to the depositor. There are few New Hampshire cases interpreting escrow agreements. The court looks to other jurisdictions for guidance.

"An escrow agreement consists of the delivery of money or other valuable object by one party and a promise by the other to hold it until the performance of a condition or the happening of a certain event." In re Hilson, 448 Mass. 603, 863 N.E.2d 483, 492 (2007). The intention of the parties at the time of the deposit determines the type of agreement created. Id. As a general rule, "an instrument cannot be deposited as an escrow with the agent" of one of the parties. McCabe v. Hartford Accident & Indemnity Co., 90 N.H. 80, 4 A.2d 661, 664-65 (1939). This rule does not apply "if the agent's relation to his principal is such that his acting as custodian of the [escrow] involves no violation of his duty to the [depositor]." Id. at 665.

The escrow instructions are clear on their face that New Century was acting solely as Weller's agent and not as a neutral third party. The instructions state that, "[New Century], as Settlement Agent, [is] the Lender's agent for the limited purpose of carrying out these instructions, and for no other purpose." Further, the terms of the escrow instructions were for the benefit of Weller in that they obligated New Century to inform Weller if it became aware that any party had provided "false or incomplete information" to Weller or if...

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