Credit Union Cent. Falls v. Groff

• Decision Date: 27 March 2009
• Docket Number: No. 2006-255-APPEAL.,2006-255-APPEAL.
• Citation: 966 A.2d 1262
• Parties: CREDIT UNION CENTRAL FALLS v. Lawrence S. GROFF.
• Court: Rhode Island Supreme Court

966 A.2d 1262

CREDIT UNION CENTRAL FALLS v. Lawrence S. GROFF.

No. 2006-255-APPEAL.

Supreme Court of Rhode Island.

March 27, 2009.

Patricia A. Buckley, Esq., Providence, for Plaintiff.

George M. Prescott, Sr., Esq., Lincoln, for Defendant.

Present: WILLIAMS, C.J., GOLDBERG, FLAHERTY, SUTTELL, and ROBINSON, JJ.

OPINION

Justice SUTTELL, for the Court.

"All frauds, like the wall daubed with untempered mortar, with which men think to buttress up an edifice, always tend to the decay of what they are devised to support."¹ A closing attorney's misappropriation of money is the genesis of this appeal. The litigation arises out of the embezzlement of funds entrusted to former attorney Lawrence S. Groff during the course of two real estate closings. The plaintiff, Credit Union Central Falls (CUCF),² filed a civil action against Mr. Groff, alleging malpractice/negligence, breach of contract, breach of fiduciary duty, and conversion. The real dispute underlying this appeal, however, concerns the rights of two competing claimants, CUCF and Doris Riendeau, to the funds remaining in Mr. Groff's clients' trust account, funds which now are held in the Registry of the Superior Court. Significantly, pursuant to a Superior Court order entered on December 3, 2004, such funds may not be distributed until all potential claimants have been notified and given an opportunity to establish their entitlement to the funds at a Superior Court hearing. See Credit Union Central Falls v. Groff, 871 A.2d 364, 366, 368 (R.I.2005) (Groff I).

Ms. Riendeau had been a client of Mr. Groff, and alleged that he had misappropriated her funds in connection with a probate matter. She also filed a civil action and, in April 2006, obtained a judgment of $85,476.41 against Mr. Groff. In Groff I, we allowed her to intervene in the instant action in order to protect her interest in the money reposing in Mr. Groff's clients' account. Groff I, 871 A.2d at 366-68. She now appeals from the entry of summary judgment in favor of CUCF. For the reasons set forth in this opinion, we affirm the judgment of the Superior Court.

I Facts and Procedural History³

Mr. Groff handled real estate loan closings for CUCF for over thirty-five years. Although a borrower could choose his or her own attorney, if the borrower did not have an attorney, CUCF would recommend several, including Mr. Groff. When acting as a closing attorney, Mr. Groff would be responsible for preparing a title report, executing the necessary loan and mortgage documents, recording the mortgage to secure CUCF's priority lien position, disbursing loan proceeds, and providing CUCF with a lender's policy of title insurance. CUCF provided detailed guidance to such closing attorneys in the performance of their duties.⁴ In 2003, because of an increased volume of real estate loan refinancings, CUCF changed its closing policy to allow attorneys who were well known to CUCF, including Mr. Groff, to perform closings at their own law offices. To facilitate these transactions, CUCF provided the closing attorney with a check in the attorney's name for the total loan amount with instructions to disburse according to the terms of the agreement between the lender and the borrower.

The instant litigation concerns the peculation of the proceeds from two residential mortgage refinancings through CUCF, the first involving Paul and Rebecca Blanchet, and the other, Patrick Corcoran, in which both borrowers selected Mr. Groff as their closing attorney. On January 6, 2004, CUCF disbursed $186,000 in trust to Mr. Groff with instructions that $167,555.66 be used to discharge the Blanchets' two existing mortgages to ensure the priority of the CUCF mortgage. Mr. Groff deposited the entire amount into his clients' trust account and disbursed $15,450.15 to the Blanchets, which represented the difference between the total CUCF loan and the balance of the Blanchets' existing mortgages plus closing costs. Mr. Groff, however, failed to pay off the Blanchets' previous mortgages, and began making monthly payments on the prior loans to conceal their continuing existence.

As required by CUCF, Mr. Groff obtained title insurance for the full amount of the refinancing loan. Mr. Groff purchased a lender's policy of title insurance from Mortgage Guarantee & Title Insurance Company (Mortgage Guarantee) that reflected CUCF's status as first secured mortgagee. The Blanchets noticed sometime after the closing that their previous mortgages still were active and contacted CUCF for clarification. CUCF in turn contacted Mr. Groff who responded in a letter, dated March 10, 2004, that he had applied for and was awaiting receipt of the discharges for the prior mortgages. On March 12, 2004, however, an attorney representing Mr. Groff disclosed to CUCF's general counsel that Mr. Groff had failed to discharge the Blanchets' mortgages and had instead used the money for personal ends.

Upon discovering Mr. Groff's defalcation, CUCF initiated a review of all the loan closings that Mr. Groff handled on CUCF's behalf. It discovered a nearly identical misappropriation that occurred on November 12, 2003, in which Mr. Groff failed to discharge borrower Patrick Corcoran's prior mortgage with funds Mr. Groff had received from CUCF.⁵ Mr. Groff also had secured title insurance for this closing through Mortgage Guarantee.

CUCF filed an insurance claim on the Blanchets' policy with Mortgage Guarantee on March 15, 2004, and on the next day it initiated the instant civil action against Mr. Groff. Upon discovering the Corcoran defalcation, CUCF filed a second claim with Mortgage Guarantee on March 18, 2004. On March 31, 2004, Mortgage Guarantee paid a total of $223,410.03 to the Blanchets' and Mr. Corcoran's mortgage holders in fulfillment of its contractual obligations to CUCF. Subsequently, Mortgage Guarantee pursued CUCF's claims against Mr. Groff via subrogation in accordance with the terms of the title insurance policies.⁶ CUCF thereafter filed a motion for summary judgment on all of its claims, which both Mr. Groff and Ms. Riendeau opposed.⁷ Ms. Riendeau argued that an issue of material fact existed regarding the scope of Mr. Groff's representation and that she required more discovery to elucidate the relationships between the various parties. Ms. Riendeau also argued that because Mr. Groff was an "agent/approved attorney" for the title insurer, Mortgage Guarantee was vicariously liable to CUCF for Mr. Groff's misdeeds. Therefore, she maintained that Mortgage Guarantee could not also be the subrogee of the lender, and thus was not entitled to recover.

The hearing justice heard arguments on CUCF's summary judgment motion on April 4, 2006. Noting that this Court had not addressed the question of whether a closing attorney represents the lender and/or the mortgagor, the hearing justice was persuaded by a pair of foreign cases, Flaherty v. Weinberg, 303 Md. 116, 492 A.2d 618 (1985) and Kirby v. Chester, 174 Ga.App. 881, 331 S.E.2d 915 (1985), in which both courts relied upon the third-party beneficiary theory to conclude that a closing attorney owed a duty to a nonclient lender, irrespective of a formal attorney-client relationship. Rather than simply finding that CUCF was an intended beneficiary of Groff's actions, however, the hearing justice also concluded that Groff, in fact, represented both CUCF and the borrowers. Specifically, she stated "I think the defendant dually represented both the plaintiff and the mortgagor. At the very least, the plaintiff was a third party to whom the attorney Groff owed a duty." The hearing justice relied on the affidavits and supporting documents that CUCF had provided the court, and she deemed Mr. Groff's failure to respond to CUCF's requests for admissions as substantive admissions of dual representation under Rule 36 of the Superior Court Rules of Civil Procedure. The hearing justice further noted that Mr. Groff's attorney indicated that he would not be able to present evidence disputing CUCF's allegations. The hearing justice granted CUCF's motion for summary judgment on all claims, except for conversion.⁸ Counsel for Ms. Riendeau then sought clarification about whether the court's ruling pertained to her subrogation argument. The hearing justice initially said she would leave the issue open, but after considering it further, she found the subrogation argument to be without merit. An order granting summary judgment was entered on July 26, 2006, and final judgment was entered on September 6, 2006, from which Ms. Riendeau timely appealed.

II Standard of Review

This Court reviews a trial justice's decision to grant summary judgment on a de novo basis. United Lending Corp. v. City of Providence, 827 A.2d 626, 631 (R.I.2003). We will affirm such a decision only if "after reviewing the admissible evidence in the light most favorable to the nonmoving party, we conclude that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law." Lucier v. Impact Recreation, Ltd., 864 A.2d 635, 638 (R.I. 2005) (quoting DiBattista v. State, 808 A.2d 1081, 1085 (R.I.2002)). Moreover, the party opposing a summary-judgment motion "has the burden of proving by competent evidence the existence of a disputed issue of material fact and cannot rest upon mere allegations or denials in the pleadings, mere conclusions or mere legal opinions." Lucier, 864 A.2d at 638 (quoting D'Allesandro v. Tarro, 842 A.2d 1063, 1065 (R.I.2004)).

III Discussion

A Dual Representation

When an attorney abuses his unique position of trust and confidence and misappropriates money entrusted to him as a closing attorney, he sullies not only his own name but also the reputation of a profession that depends on the highest ethical conduct of its members. Real estate closings present a particularly thorny dilemma for the bar because a closing attorney often undertakes responsibilities to various parties to the transaction, in...