Darr v. Muratore
| Decision Date | 05 August 1993 |
| Docket Number | No. 93-1154,93-1154 |
| Citation | 8 F.3d 854 |
| Parties | Stephen DARR, Trustee of Columbus Mortgage and Loan Corporation of Rhode Island, Inc., Plaintiff, Appellee, v. Joseph R. MURATORE, Sr., et al., Defendants, Appellants. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Paul J. Bogosian, Jr., West Yarmouth, MA, with whom Hodosh, Spinella & Angelone, Providence, RI, were on brief, for appellants.
Joseph Avanzato, Sauderstown, RI, with whom John F. Bomster and Adler Pollock & Sheehan Inc., Providence, RI, were on brief, for appellee.
Before CYR and STAHL, Circuit Judges, and FUSTE, * District Judge.
The Trustee for a bankrupt mortgage lending institution brought an action against the former chairman and chief executive officer of the company, his wife, who was also an officer and director of the bankrupt lender, and three separate real estate and development corporations controlled by the couple. The Trustee's action sought to recover over two million dollars allegedly owed to the bankrupt lending institution by defendants. The Trustee contends that defendants first, improperly created the debt, second, fashioned a favorable calculation of the amount due, and third, incorrectly declared the loans repaid through a questionable real estate conveyance. The Trustee claims that defendants violated their fiduciary duty to the institution and to the lender's numerous debenture holders.
Defendants argue that no fiduciary duty was transgressed, and counter that the Trustee committed waste and failed to mitigate damages to the bankrupt estate by allowing foreclosure on the properties which allegedly were conveyed in order to satisfy the debt. They also take issue with the method of debt calculation utilized by the district court. In addition, defendants contend that they are entitled to a significant reduction of any outstanding debt because of the equity in, and rental income from, the conveyed real estate, and to a further reduction of the debt because of the Trustee's alleged failure to prevent the foreclosures of the properties. Finally, defendants argue that they should receive a setoff of any debt owed to plaintiff as a result of various unrelated expenses allegedly advanced by defendants to the plaintiff.
In the instant appeal, defendants challenge two decisions of the district court: A grant of partial summary judgment with respect to the total remaining debt owed by defendants, and the court's certification of final judgment. We now affirm the district court's partial summary judgment and hold that final judgment certification was justified. Defendants' claims of payment through property transfer, waste, failure to mitigate, setoff, and miscalculation of debt are unavailing as a matter of law.
From August 1961 to December 1991, Defendant-Appellant Joseph R. Muratore, Sr. ("Mr. Muratore") owned and controlled a mortgage lending institution, Columbus Mortgage & Loan Corporation of Rhode Island, Inc., as well as its wholly-owned real estate development corporation subsidiary, Columbus Development Corporation. The nature of the business of Columbus Mortgage was to serve as a mortgage lending firm specializing in residential real estate loans secured by first and second mortgages on real estate. At some point, however, Columbus Mortgage entered into the business of making unsecured loans in its real estate dealings, financing them in large part through the sale of debentures. 1 Columbus Mortgage eventually took its business a step further and sold a second generation of debentures to refinance the first generation of maturing obligations. As of December 31, 1989, Columbus Mortgage had $4,400,139 in outstanding debentures. It is undisputed that Mr. Muratore owed a fiduciary duty to the debenture holders, as well as to Columbus Mortgage. In February 1991, Columbus Mortgage declared bankruptcy, acknowledging its inability to repay its debts in full, including its debentures.
Mr. Muratore and his wife, Defendant-Appellant Rose E. Muratore ("Mrs. Muratore"), controlled other Rhode Island corporations, officially unrelated to Columbus Mortgage, that, inter alia, were in the business of selling and developing real estate: Defendants-Appellants Muratore Agency, Inc. ("Muratore Agency"), Muratore Realty Corp. ("Muratore Realty"), and Shawomet Holding Associates ("Shawomet") (collectively referred to as the "Separate Muratore Companies"). We refer, collectively, to all Muratore persons and Muratore corporations as the "Muratore Defendants".
There is no doubt that Columbus Mortgage provided several unsecured loans to the Separate Muratore Companies, drawing funds from the pool of money accumulated by the selling of debentures to citizens of Rhode Island. These loans were by no means insignificant. In fact, loans to the Separate Muratore Companies, most or all of which were unsecured, totaled $2,044,313 as of June 30, 1989, more than half of Columbus Mortgage's total assets of $3,973,791 at that time. In addition, the record strongly suggests that Columbus Mortgage's funds were used to pay miscellaneous personal debts of Mr. Muratore. The record contains no proof of repayment from Mr. Muratore to Columbus Mortgage. The bottom line is that the Muratore Defendants claim that their total indebtedness was approximately $900,000 in December 1990, and $1,200,000 in 1992. Plaintiff-Appellee Stephen Darr, Chapter 11 Bankruptcy Trustee of Columbus Mortgage ("Trustee"), argues that the defendant's obligation was over $2,000,000.
The Muratore Companies paid off some portion of the debt in cash. However, the payments were applied to principal rather than to accumulated interest. The Muratore Defendants claim that their remaining debt to Columbus Mortgage was discharged in full on or about December 15, 1990, when two pieces of real estate of disputed equity value were conveyed from the Muratore Defendants to Columbus Mortgage. 2 In an affidavit, Mr. Muratore, an experienced appraiser in his own right, affirmed under oath that at the time of the conveyance he believed that the fair market value of the properties was $2,000,000, and that approximately $800,000 were still owed on the properties' mortgages. Thus, according to Mr. Muratore, the equity value of the properties was approximately $1,200,000. In the affidavit, Mr. Muratore also referred to an independent aggregate appraisal of the properties, before encumbrances, of $1,660,000, meaning that as of December 15, 1990 the equity in the properties was approximately $860,000. Scanning the record, we only find an independent appraisal of the Post Road Property, valued at $856,000 as of December 19, 1992. The Trustee challenges the Muratore Defendants' valuation of the property, contending that given the unpaid portion of the mortgages on the two properties, their aggregate equity value was less than $100,000.
The Muratore Defendants claim that the Trustee committed waste by failing to refinance the properties' mortgages and allowing foreclosure, causing the estate to lose whatever equity remained. Columbus Mortgage, through the Trustee, argues that it permitted foreclosure on the properties pursuant to 11 U.S.C. § 362 because they lacked equity value. 3 The Muratore Defendants contend that they deserve a reduction of the amount owed to Columbus Mortgage equal to the sum of the equity in the properties, the accrued rental income derived from the properties before foreclosure, and funds owed to the Separate Muratore Companies by Columbus Mortgage stemming from transactions unrelated to the debt at issue in this case.
Two months after the conveyance of the properties, on February 15, 1991, Columbus Mortgage, under the guidance of Mr. Muratore, filed a voluntary Chapter 11 bankruptcy petition with the United States Bankruptcy Court for the District of Rhode Island. 11 U.S.C. § 1121. At first, Columbus Mortgage operated as a debtor in possession; however, the creditors' committee brought an adversary proceeding in the bankruptcy court for the purpose of collecting money damages from the Muratore Defendants. In early April 1992, the adversary proceeding was withdrawn to the United States District Court for the District of Rhode Island. Soon thereafter, Stephen Darr was appointed Columbus Mortgage's Bankruptcy Trustee. The Trustee, substituted for the creditors' committee, continued a six-count action to recover damages allegedly sustained by the estate and supposedly caused by the Muratore Defendants. 4
On October 14, 1992, the Trustee filed a Fed.R.Civ.P. 56 motion for partial summary judgment and for entry of final judgment on Count III of the first amended complaint alleging a debt due and owing. Fed.R.Civ.P. 54(b). On January 12, 1993, the district court granted the Trustee's motion and entered final judgment on Count III against the Muratore Defendants in the amount of $2,146,034.24. The district court concluded that the Muratore Defendants were in fact one entity, one corpus, and ordered final judgment on Count III because there was "no just reason for delay." The district judge's primary rationale for Rule 54(b) certification was that the Muratore Defendants' assets available to settle the claim were barely sufficient to pay the debt and that relief should be granted to the debenture holders as soon as possible. The court noted that entry of judgment on Count III would probably cause the other counts to become moot because of the limited resources of the Muratore Defendants.
In order to review the district court's certification of summary judgment on Count III of the adversary proceeding against Mr. Muratore, we must decide whether the district court's ruling fulfilled the requirements for summary judgment and Rule 54(b) certification. 5
Our review of summary judgment decisions is plenary. Griggs-Ryan v. Smith 904 F.2d 112, 115 (1st Cir.1990). Summary judgment is...
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