Kansallis Finance Ltd. v. Fern

• Court: U.S. Court of Appeals — First Circuit
• Writing for the Court: Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and STAHL; COFFIN
• Citation: Kansallis Finance Ltd. v. Fern, 40 F.3d 476 (1st Cir. 1994)
• Decision Date: 13 September 1994
• Docket Number: Nos. 93-2381,94-1010,s. 93-2381
• Parties: KANSALLIS FINANCE LTD., Plaintiff, Appellant, v. Daniel J. FERN, et al., Defendants, Appellees. KANSALLIS FINANCE LTD., Plaintiff, Appellee, v. Daniel J. FERN, et al., Defendants, Appellants. First Circuit. Heard

Page 476

40 F.3d 476

KANSALLIS FINANCE LTD., Plaintiff, Appellant, v. Daniel J. FERN, et al., Defendants, Appellees.

KANSALLIS FINANCE LTD., Plaintiff, Appellee, v. Daniel J. FERN, et al., Defendants, Appellants.

Nos. 93-2381, 94-1010.

United States Court of Appeals,First Circuit.

Heard Sept. 13, 1994.

Decided Nov. 2, 1994.

James W. Murphy with whom Frederic L. Ellis, Boston, MA, was on brief, for Kansallis Finance Ltd.

Erik Lund with whom Susan S. Riedel, Boston, MA, was on brief, for Daniel J. Fern, et al.

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and STAHL, Circuit Judge.

COFFIN, Senior Circuit Judge.

Plaintiff Kansallis Finance Ltd. ("Kansallis") brought this diversity suit against four lawyers, asserting that they were vicariously liable for fraud committed by their purported law partner. A jury trial resulted in judgment for the defendants, Daniel Fern, Richard Anderson, Robert Donahue and Charles Sabatt. Both plaintiff and defendants now appeal, raising challenges to the sufficiency of the evidence to support various fact-findings, as well as two questions of Massachusetts law on which there is either conflicting or no clearly established precedent. We uphold the factual findings and certify the legal questions to the Massachusetts Supreme Judicial Court ("SJC").

Background

This lawsuit stems from a loan and lease financing transaction whose precise details are not relevant to any of the issues on appeal. What is important is that, in advance of consummating the loan, Kansallis sought and obtained an opinion letter from defendants' purported law partner, Stephen Jones, which was issued on letterhead captioned "Fern, Anderson, Donahue, Jones & Sabatt, P.A." The letter contained several intentional misrepresentations concerning the transaction and was part of a conspiracy by Jones and others (though not any of the defendants here) to defraud Kansallis. Jones was later criminally convicted for his part in the conspiracy, in which Kansallis lost more than $880,000. Unable to collect from Jones or any of the loan's guarantors, Kansallis sought compensation from defendants on the theory that they and Jones were either actual partners or partners by estoppel and that they were liable for the fraudulent opinion letter Jones caused to be issued on the firm stationery. ¹

The case went to trial. Both the judge and jury found that Jones and the defendants were partners at the relevant time, ² but, for different reasons, they concluded that defendants were not liable for Jones's conduct. The jury's verdict was based on its findings that Jones did not have authority to issue the opinion letter on behalf of the partnership, and that the issuance of the opinion letter was not within the scope of the partnership. The district court made independent findings of fact on plaintiff's claim under a Massachusetts consumer protection statute, Mass.Gen.L. ch. 93A. Unlike the jury, it found that the partnership had clothed Jones with apparent authority to issue the letter on its behalf. Nonetheless, the court went on to hold, as a matter of law, that "innocent" partners may not be held vicariously liable under 93A for their partners' fraudulent acts. In other words, the court held that a partner, entirely unaware and uninvolved with another partner's fraud, is immune from vicarious liability under 93A, even when the conduct constituting the fraud was authorized.

The court also found that the conduct giving rise to the 93A claim arose "substantially in Massachusetts," thus making it subject to the statute. See Mass.Gen.L. ch. 93A, Sec. 11.

On appeal, each side challenges the factual findings adverse to its position. Kansallis also asserts two legal errors. First, it finds error in the court's ruling that vicarious liability cannot attach to "innocent" partners in a 93A claim. Instead, based on the court's fact-finding that the letter was issued with the firm's apparent authority, Kansallis asserts that normal principles of vicarious liability as among partners should apply to make defendants liable for Jones's fraud. Second, it argues that the jury's finding that the letter was not issued in the ordinary course of the partnership was made only upon an erroneous jury instruction. Specifically, Kansallis submits that it was error to charge the jury that, for the letter to have been issued in the course of the partnership, Jones must have been motivated at least in part by the intent to serve the partnership. It argues that, while such motivation is required in an employer-employee context, no such requirement is present here.

Discussion

We first review the evidence to support the various fact-findings. Because we affirm these findings, we are faced squarely with the two legal issues raised by Kansallis. Finding no clearly established precedent on one of the questions, and conflicting precedent on the other, we certify both to the SJC pursuant to its Rule 1:03.

I. Sufficiency of the Evidence to Support the Fact-Findings

Defendants argue that it was error for both the jury and the judge to find that they were Jones's partners. They also submit that it was error for the judge to find that the partnership had granted Jones apparent authority to cause the letter to be issued on its behalf. Finally, they find error in the judge's determination that the conduct giving rise to the 93A claim occurred primarily and substantially within Massachusetts. Plaintiff, for its part, asserts that it was error for the jury to decide that defendants had not granted authority to Jones to issue the opinion letter. We find no merit in any of these contentions.

A. Partnership

Under Massachusetts law, a partnership "is an association of two or more persons to carry on as co-owners a business for profit." Mass.Gen.L. ch. 108A, Sec. 6. See also Loft v. Lapidus, 936 F.2d 633, 636 (1st Cir.1991). Several factors are considered to determine if a partnership exists. A non-exhaustive list includes: whether there is "(1) an agreement by the parties manifesting their intention to associate in a partnership (2) a sharing by the parties of profits and losses, and (3) participation by the parties in the control or management of the enterprise." Fenton v. Bryan, 33 Mass.App.Ct. 688, 691, 604 N.E.2d 56, 58 (1992). See also Mass.Gen.L. ch. 108A, Sec. 7 (providing additional rules for determining the existence of a partnership). While a partnership undoubtedly requires an agreement among the partners, that agreement need not be in writing. Rather, intent to carry on business as partners may be inferred from the partners' words and acts. Loft, 936 F.2d at 636-37.

We uphold the fact-findings below on the existence of a partnership unless that determination was clearly erroneous, id. at 636, a standard that requires " 'the definite and firm conviction that a mistake has been committed,' " American Title Ins. Co. v. East West Financial, 16 F.3d 449, 453 (1st Cir.1994) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541-42, 92 L.Ed. 746 (1948)).

The evidence adduced at trial was sufficient to support the finding that defendants and Jones were indeed law partners at the time the fraudulent opinion letter was issued. It is uncontroverted that Daniel Fern and Richard Anderson became law partners in the early 1960s and that Robert Donahue and Stephen Jones joined that partnership in the 1970s. Defendants maintain that, while Sabatt joined the firm in the early 1980s, he did so as an employee only. They also submit that the partnership dissolved in 1981 and, while all four defendants and Jones continued to share office space, secretarial services, letterhead, a central card file of clients, and so forth, they did so as a professional association of individual practitioners only, laying much emphasis on the fact that their letterhead used the denomination "P.A." after listing their names.

The jury and district court were entitled to discredit this defense. The record shows that Fern, Anderson, Donahue, Jones & Sabatt filed partnership tax returns for several years past 1981, the year the partnership allegedly dissolved, and that each partner's share of profits was calculated in the same manner in 1980, when the firm was admittedly a partnership, as it was for several years thereafter. Receipt of a share of profits in a business is itself prima facie evidence of a partnership. See Mass.Gen.L. ch. 108A, Sec. 7(4). In addition to the indicia of partnership already described, the firm's internal ledgers referred to itself as a partnership, the phone at the "shared office space" was answered in the name of the firm, and defendants advertised themselves as a firm in both the phone book and the lawyer's directory Martindale-Hubbell, held accounts, investments and insurance in the name of the firm, and renewed their lease in the name of the firm--specifically describing themselves as a partnership. ³ Though they offer explanations for these circumstances consistent with the absence of a partnership, it was not clear error to come to the conclusion that defendants were law partners at the time the opinion letter was issued.

B. Authority

Both parties urge us to overturn the findings below related to authority: defendants argue that the evidence was insufficient to support the district court's finding that there was authority to issue the letter, while plaintiff asserts that, based on the evidence, it was error for the jury to find that there was no authority. Despite the apparent incongruity of different conclusions by the jury and judge on this question, we hold that neither one is clearly erroneous. While the evidence was strong enough to permit a finding of apparent authority, it was not so overwhelming as to require one.

Massachusetts law recognizes apparent authority where

"conduct by the principal ... causes a third person reasonably to believe that a particular person ... has authority to enter into...