Brine v. Paine, Webber, Jackson & Curtis, Inc., 84-1114

• Decision Date: 28 September 1984
• Docket Number: No. 84-1114,84-1114
• Parties: William H. BRINE, Jr., Administrator DBN of the Estate of Francis H. Swift, Plaintiff, Appellant, v. PAINE WEBBER, JACKSON & CURTIS, INCORPORATED, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 100

745 F.2d 100

William H. BRINE, Jr., Administrator DBN of the Estate of Francis H. Swift, Plaintiff, Appellant, v. PAINE WEBBER, JACKSON & CURTIS, INCORPORATED, Defendant, Appellee.

No. 84-1114.

United States Court of Appeals First Circuit.

Argued June 6, 1984.

Decided Sept. 28, 1984.

David D. Patterson, Boston, Mass., with whom Albert F. Cullen, Jr., and Cullen & Wall, Boston, Mass., were on brief, for plaintiff, appellant.

Dwight W. Quayle, Boston, Mass., with whom William L. Patton, and Ropes & Gray, Boston, Mass., were on brief, for defendant, appellee.

Before COFFIN, Circuit Judge, STEWART, ^* Associate Justice (Retired), and BREYER, Circuit Judge.

STEWART, Associate Justice (Retired).

Francis H. Swift (Swift) died in September, 1923. His estate is still being administered. In this case we are called upon to decide whether the estate's claim for the recovery of certain dividends alleged to have been paid to the defendant, Paine, Webber, Jackson & Curtis, Inc. (Paine Webber), is barred by Massachusetts' six-year statute of limitations for contract actions. Mass.Ann.Laws ch. 260, Sec. 2 (Law.Co-op.1980). The district court held that the estate's claim for dividends paid before October 3, 1973 is so barred, and the administrator, Brine, appeals.

I

Because this appeal is from a partial grant of Paine Webber's motion for summary judgment, the facts and inferences drawn therefrom must be viewed in the light most favorable to Brine. Emery v. Merrimack Valley Wood Products, Inc., 701 F.2d 985, 986 (1st Cir.1983). In this case, the parties stipulated to most of the relevant facts, and the others detailed below are uncontested.

For some years prior to 1923, Francis Swift had a trading account with the defendant's predecessor, Jackson & Curtis (J & C). In 1919 Swift, J & C, and several other individuals formed a syndicate to purchase stock in the Covert Gear Co., carry out this purchase, the syndicate borrowed money from the First National Bank of Boston (First National). Swift was a guarantor of the syndicate's obligation to First National, as were the other syndicate members.

In December of 1922, Swift wrote to J & C and directed it to close his account. He requested that J & C "send a balance cheque to me," but noted that "[i]t is understood that you will retain what is necessary to cover the Covert Gear Matter." J & C followed these directions, selling all of Swift's stock except for 136 shares of common stock in the Flintkote Company and certain shares of stock in the Union Oil Company of Delaware. J & C retained $11,500 in cash and these shares to "cover the Covert Gear Matter" and sent Swift a check for the balance $17,000.

Swift died in 1923. Vallie Swift, his widow, was appointed administratrix of his estate. Two years later, First National brought suit in Massachussets' Suffolk County Superior Court against Swift's estate and J & C to recover on Swift's obligation as a guarantor of the loan to the syndicate. First National prevailed in the lawsuit, and J & C was ordered to make good Swift's obligation to the bank. J & C was able to satisfy this obligation without selling the Flintkote shares (the original shares). Consequently, after paying Swift's obligation to First National, J & C endorsed the original shares in blank and delivered them to the estate in July 1928.

The transfer of the original shares, however, was never recorded on the book's of Flintkote's transfer agent, and Vallie Swift died in 1932 without completing administration of her husband's estate. Because J &amp C's name remained on the books of Flintkote's transfer agent as record owner of the shares, J & C continued to receive dividends paid on Swift's stock after July 1928. Also, in December 1928, Flintkote paid a 100% stock dividend to its shareholders, thereby adding 226 shares (the dividend shares) to Swift's Flintkote holdings. ¹

Not until 1977, for reasons unexplained in the record, was Brine appointed as the new administrator of Swift's estate. Brine discovered the erroneous payment of dividends on Swift's stock to J & C, and on October 5, 1979, he filed this diversity action, seeking recovery of dividends and interest on the original and the dividend shares. Because Paine Webber had already delivered all dividends that had accrued on the original shares between 1946 and 1973 to the state of New York pursuant to that state's abandoned property law, the complaint sought recovery only for dividends that had accrued from 1928 to 1946 and after 1973. The complaint alleged numerous theories of recovery, including breach of contract, breach of fiduciary duty, unjust enrichment, negligence, and conversion. Paine Webber moved for summary judgment on all counts, arguing that the action was time-barred. Brine then cross-moved for summary judgment on all counts except the negligence and conversion claims.

The district court agreed with Paine Webber that the negligence and conversion claims were time-barred, and that ruling has not been challenged in this appeal. In addition, the court concluded that Brine's remaining claims for cash and stock dividends issued prior to October 5, 1973, (for convenience, pre-1973 dividends), were barred by Massachusett's six-year statute of limitations for implied contract actions. The court accepted arguendo Brine's theory that, under Massachusetts law, if J & C had held the Flintkote securities for Swift and his estate in a fiduciary capacity, and if J & C had subsequently breached its fiduciary duty, then the statute of limitations would have been tolled until Brine had discovered the breach. The court concluded, however, that there had been no fiduciary relationship "[a]t the time the stock was delivered" to Swift's estate. As a result, the claims for the pre-1973 dividends were barred and the court granted Paine Webber's motion as to those dividends. As to dividends paid after October 5, 1973, (for convenience, post-1973 dividends), however, the court ruled that Brine's claim was timely filed within the six-year limit. The Court consequently granted judgment for Brine on those dividends, and Paine Webber has not appealed from that ruling. In a subsequent memorandum the court also made it clear that, because Brine's claim for pre-1973 dividends on the original shares was time-barred, any claim to dividends paid on the dividend shares was also barred, the dividend shares themselves being part of the time-barred claim. Only post-1973 dividends paid on the original shares were recoverable.

II

The parties agree that Massachusetts law governs this diversity action. In Massachusetts, if funds have been paid to the wrong party by mistake, the proper action for recovery is one of quasi-contract based on "money had and received." New Bedford v. Lloyd Investment Assoc., Inc., 363 Mass. 112, 118, 292 N.E.2d 688, 691 (1973); Stuart v. Sargent, 283 Mass. 536, 540, 186 N.E. 649, 650 (1933). Such an action is normally subject to Massachusetts' six-year statute of limitations for contract actions, and the six-year period is calculated to run from the date of "receipt of payment without regard to when the mistake is discovered." New Bedford, supra, 363 Mass. at 119, 292 N.E.2d at 692. ² Thus, absent some special circumstance, it was entirely proper for the district court to hold that any claims to dividends received by J & C more than six years prior to institution of this lawsuit were time-barred.

Brine contends that such a special circumstance arose from Swift's 1922 letter to J & C. He argues that an express trust was created by the letter, and that J & C subsequently held Swift's Flintkote stock as a fiduciary. Massachusetts' settled rule in such a case is that a "statute of limitations does not begin to run in favor of a trustee against a beneficiary until the trustee has repudiated the trust and knowledge of that repudiation has come home to the beneficiary." Kearney v. Mechanics National Bank of Worcester, 343 Mass. 699, 703, 180 N.E.2d 667, 670 (1962). Thus Brine argues that the six-year limitation should have been tolled until 1977 when Brine discovered that Swift's dividends had been erroneously paid to J & C, which discovery he contends constituted the estate's first knowledge of repudiation of the alleged trust. ³

We think it is likely correct, as the district court ruled, that a simple stockbroker-customer relationship is not a fiduciary one in Massachusetts. See Plumer v. Luce, 310 Mass. 789, 795-96, 39 N.E.2d 961, 964-65 (1942). But Brine does not rest on that relationship alone. He points to Swift's 1922 letter directing J & C to retain funds belonging to Swift sufficient "to cover the Covert Gear matter." J & C subsequently did retain Swift's funds, and Brine contends that this created an express trust as a matter of law. Brine further argues that the district court held to the contrary, and that this holding should be reversed as clearly erroneous.

An express trust may well have been created in this case. See Carpenter v. Suffolk Franklin Savings Bank, 362 Mass. 770, 777-78, 291 N.E.2d 609, 614-15 (1973). Based on our ruling below, however, we need not resolve that question here. It is not clear from the district court's Memorandum Opinion that it held that an express trust was never created between Swift and J & C. The district court stated only that "[a]t the time the stock was delivered to the estate there were no special circumstances" indicating a fiduciary relationship (emphasis supplied). This statement can be fairly read as a statement of the holding that Paine Webber now suggests: "[w]hatever obligations Jackson and Curtis owed the Swift estate, fiduciary or otherwise, were discharged" in July 1928 when J & C endorsed and delivered the original shares to the Swift estate. With this we agree.

The terms of the 1922 letter are clear: J & C was to apply Swift's funds, and stock if necessary, to "cover" Swift's guarantee to First National on the Covert Gear matter. Indeed...