Massachusetts Asset v. Harter, Secrest, 04-2541.

• Decision Date: 01 December 2005
• Docket Number: No. 04-2541.,04-2541.
• Citation: 430 F.3d 59
• Parties: MASSACHUSETTS ASSET FINANCING CORPORATION, Plaintiff, Appellant, v. HARTER, SECREST & EMERY, LLP, Sardone, Robinson & Schnell, and MB Valuation Services, Inc., Defendants, Appellees, and Wanda Kinney-Canary, d/b/a Tritech Appraisal Services, Defendant.
• Court: U.S. Court of Appeals — First Circuit

430 F.3d 59

MASSACHUSETTS ASSET FINANCING CORPORATION, Plaintiff, Appellant, v. HARTER, SECREST & EMERY, LLP, Sardone, Robinson & Schnell, and MB Valuation Services, Inc., Defendants, Appellees, and Wanda Kinney-Canary, d/b/a Tritech Appraisal Services, Defendant.

No. 04-2541.

United States Court of Appeals, First Circuit.

Heard April 6, 2005.

Decided December 1, 2005.

Michael E. Schoeman, with whom Schoeman, Updike & Kaufman, LLP, was on brief, for appellant.

John J. O'Connor, with whom Robert T. Gill and Peabody & Arnold, LLP, were on brief, for appellee MB Valuation Services, Inc.

Goulston & Storrs, on brief for appellee Harter, Secrest & Emery, LLP.

Donovan Hatem, LLP, on brief for appellee Sardone, Robinson & Schnell.

Before BOUDIN, Chief Judge, TORRUELLA and SELYA, Circuit Judges.

TORRUELLA, Circuit Judge.

This case arises from a loan made by Plaintiff Massachusetts Asset Financing Corp. ("Plaintiff") to American Mold Corporation ("American Mold"). The loan was secured by American Mold's manufacturing equipment, which had been appraised at $1.1 million dollars, but eventually sold for $30,000 after American Mold defaulted on the loan and went bankrupt. Plaintiff filed suit against American Mold's lawyers, American Mold's accountants, and two appraisal companies. This appeal concerns Plaintiff's claim against the appraisal company MB Valuation Services, Inc. ("MB Valuation"). On August 29, 2002, the court below allowed MB Valuation's motion for summary judgment. Mass. Asset Financing Corp. v. Harter, Secrest & Emery, LLP, 220 F.Supp.2d 20, 25 (D.Mass.2002). On September 30, 2004, the court below entered an order for final judgement pursuant to Federal Rule of Civil Procedure 54(b). For the reasons stated herein, we reverse the decision of the district court and remand the case for trial.

I.

Plaintiff is in the business of making loans. The loans are secured by the borrower's assets, which are appraised before the loan is made. On numerous occasions, MB Valuation had performed appraisals for Plaintiff. To secure the loan to American Mold, Plaintiff called Scott Creel ("Creel") at MB Valuation about appraising American Mold's equipment. The parties disagree as to Creel's actual involvement after this request. According to Plaintiff, Creel stated that "he could not himself perform the appraisal" but that "he would find another appraiser and would supervise and review that appraiser's work."¹ Plaintiff states that Creel then put Plaintiff in touch with an appraiser from another company, Tri-Tech Appraisal Services, and that "Creel reviewed the appraisal as he had promised and increased some specific equipment appraisal amounts and reduced others." According to MB Valuation, Creel referred Plaintiff to another appraisal company and had no further involvement in the appraisal.

The final appraisal valued American Mold's equipment at about $1.1 million. MB Valuation and Creel did not receive payment from Plaintiff or any other source for their involvement with this appraisal. Several months after the closing of the loan, American Mold defaulted on the loan and filed for bankruptcy. The equipment, which had been appraised at a value of about $1.1 million, sold for about $30,000.

Plaintiff claims damages of about $1.2 million, resulting from professional negligence on the part of MB Valuation. Significantly, Plaintiff's complaint alleged only negligence on the part of MB Valuation and did not allege gross negligence. MB Valuation moved for summary judgment. The court below granted summary judgment because it found that the factual dispute described above was not material to the outcome of the case. The court found that because Plaintiff had never paid MB Valuation for the appraisal — regardless of the dispute over Creel's involvement — any act by MB Valuation was gratuitous. Under Massachusetts law, liability for a gratuitous act arises only from gross negligence. Thus, since Plaintiff alleged only negligence and not gross negligence, Plaintiff could not recover as a matter of law.

We review a district court's grant of summary judgment de novo. Tum v. Barber Foods, Inc., 360 F.3d 274, 279 (1st Cir.2004). Since MB Valuation has moved for summary judgment, we construe the record in the light most favorable to Plaintiff. Id.

II.

"A basic principle of negligence law is that ordinarily everyone has a duty to refrain from affirmative acts that unreasonably expose others to a risk of harm." Tobin v. Norwood Country Club, Inc., 422 Mass. 126, 661 N.E.2d 627, 637 (1996). In contrast, a person generally "does not have a duty to take affirmative action." Commonwealth v. Levesque, 436 Mass. 443, 766 N.E.2d 50, 56 (2002). For example, "a mere passerby who observes a fire [has no obligation] to alert authorities." Id. at 57. If, however, a person voluntarily assumes a duty, that duty must be performed with due care. Mullins v. Pine Manor College, 389 Mass. 47, 449 N.E.2d 331, 336 (1983).²

For a duty voluntarily undertaken, the standard of due care depends upon the nature of the action. The Supreme Judicial Court (SJC) has noted that "[j]ustice requires that the one who undertakes to perform a duty gratuitously should not be under the same measure of obligation as one who enters upon the same undertaking for pay." Massaletti v. Fitzroy, 228 Mass. 487, 118 N.E. 168, 177 (1917). A person undertaking a nongratuitous duty, such as one for pay, has a duty to refrain from ordinary negligence. Wheatley v. Peirce, 354 Mass. 573, 238 N.E.2d 858, 860 (1968). In contrast, a person undertaking a gratuitous duty must refrain only from gross negligence. Id. Therefore, in order to determine whether a duty of care has been breached, we must first determine whether the duty was gratuitous or not. In a number of cases, Massachusetts courts have undertaken the task of distinguishing gratuitous and nongratuitous acts. An important factor is whether there was a "social nature in the relations of the parties." Beaulieu v. Lincoln Rides, Inc., 328 Mass. 427, 104 N.E.2d 417, 418 (1952). A gratuitous act is more likely to occur when an act is of a social nature rather than a business nature. See id.

The line between gratuitous and nongratuitous acts is relatively clear in the social context. In a social context, when a person does a favor for another person, whether a friend or a stranger, and receives no consideration other than "those intangible advantages arising from mere social intercourse," Comeau v. Comeau, 285 Mass. 578, 189 N.E. 588, 589 (1934), the act will be gratuitous. For example, in Bagley v. Burkholder, the plaintiff and defendant were both truck drivers for different trucking companies, and plaintiff sued defendant for injuries that occurred while defendant was helping plaintiff move his truck. 337 Mass. 246, 149 N.E.2d 143, 144 (1958). The court found that defendant's act was gratuitous because the evidence showed no business purpose and "no immediate advantage to the defendant of his helpful action." Id. at 146. Similarly, in a personal context, when a person offers to give another person a ride without any consideration, the act will be gratuitous.³ See Ruel v. Langelier, 299 Mass. 240, 12 N.E.2d 735, 736 (1938); Massaletti, 118 N.E. at 177; cf. Taylor v. Goldstein, 329 Mass. 161, 107 N.E.2d 14 (1952) (finding the giving of a ride to be a nongratuitous act where the objective of the ride was to benefit the driver and not the passenger). Finally, when a host receives a guest "as a visitor for social purposes," the act will be gratuitous. O'Brien v. Shea, 326 Mass. 681, 96 N.E.2d 163, 164 (1951).

In the business context, the line between gratuitous and nongratuitous acts is more difficult to discern. The dispositive question is whether the allegedly gratuitous act had a business purpose. See Onofrio v. Dept. of Mental Health, 408 Mass. 605, 562 N.E.2d 1341, 1346 (1990) ("[Defendant] was furthering its own business interests...."); Falden v. Crook, 342 Mass. 173, 172 N.E.2d 686, 688 (1961) ("[Defendant] was doing a kind act rather than building up good will for his business."); Beaulieu v. Lincoln Rides, Inc., 328 Mass. 427, 104 N.E.2d 417, 418 (1952) ("[T]here is nothing in the record to indicate that the defendant, a business corporation undertook to give the plaintiff a pure gratuity."); Foley v. McDonald, 283 Mass. 96, 185 N.E. 926, 927 (1933) ("[A] business purpose could be found in the transportation of the plaintiffs by the defendants in the course of an attempt by the defendants to sell an automobile to the plaintiffs....").

For an act to have a business purpose it need only be "incidental to the [defendant's] business." Foley, 185 N.E. at 926-27. For example, when a car salesman drove a prospective buyer home, the court found that the act was incidental to the business purpose of selling automobiles and therefore nongratuitous. Id. at 926-27. In contrast, where an ice cream truck driver gave a customer a ride home, the act was not incidental to the defendant's business as the court found that the driver "was doing a kind act rather than building up good will for his business." Falden, 172 N.E.2d at 688.

For an act to be nongratuitous, "it is only necessary for a jury to find some business advantage to the defendant." Beaulieu, 104 N.E.2d at 418. In Beaulieu, the defendant was the operator of an amusement park ride who gave free rides before 2:00 p.m. and charged for rides after 2:00 p.m. Id. at 417-18. The court found that a "jury could find that the purpose of giving free rides ... was merely to interest customers and increase business." Id. at 418. A "conjectural future benefit," however, will not establish an otherwise nonexistent business purpose. Bagley, 149 N.E.2d at 146. In Bagley, the plaintiff truck driver argued that the defendant truck driver's assistance was not gratuitous because, had he not given assistance, the defendant would receive a bad reputation and other truck drivers would not...