McLaughlin v. Langrock Sperry & Wool, LLP

• Decision Date: 12 February 2021
• Docket Number: Case No. 2:19-cv-00112
• Court: U.S. District Court — District of Vermont
• Parties: JAY R. MCLAUGHLIN, Plaintiff, v. LANGROCK SPERRY & WOOL, LLP, Defendant.

JAY R. MCLAUGHLIN, Plaintiff, v. LANGROCK SPERRY & WOOL, LLP, Defendant.

Case No. 2:19-cv-00112

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF VERMONT

February 12, 2021

OPINION AND ORDER GRANTING IN PART, DENYING IN PART, AND DEFERRING RULING IN PART ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

(Doc. 83)

Plaintiff Jay R. McLaughlin ("Plaintiff") brings this action against Defendant Langrock Sperry & Wool, LLP ("Defendant") alleging breach of fiduciary duty (Count I), breach of contract (Count II), negligent misrepresentation (Count III), and promissory estoppel (Count IV) arising out an agreement titled "Escrow Agreement."

Pending before the court is Defendant's motion for summary judgment filed on June 17, 2020. (Doc. 83.) On July 17, 2020, Plaintiff opposed the motion. Defendant filed a reply on August 7, 2020, at which time the court took the matter under advisement.

Plaintiff is represented by Gregory A. Weimer, Esq. and Lee H. Bals, Esq. Defendant is represented by Christopher D. Ekman, Esq. and James M. Cooley, Esq.

I. The Undisputed Facts.

A. The Parties.

Plaintiff is a logger and land developer who resides in Medway, Maine. He does business as McLaughlin Logging and owns McLaughlin Timber Trucking, Ward Cedar Log Homes, and Northeastern Log Homes.

Landel Land Clearing, LLC ("Landel") is a land clearing company based in Vermont. Mark Delancey ("Mr. Delancey") was its owner and managing member during the relevant time period. In the early summer of 2013, Landel had the opportunity to provide work on one or more natural gas pipeline projects owned by Access Midstream Partners (the "Access projects") at worksites in Pennsylvania.

Defendant is a Vermont law firm with offices in Middlebury and Burlington. At all relevant times, Defendant employed James Swift, Esq. ("Attorney Swift") who was retained by Mr. Delancey to negotiate a loan agreement, promissory note, and escrow agreement for Plaintiff's financing of a portion of Landel's work on the Access projects.

B. Contractual Negotiations.

In June and July 2013, Plaintiff and Landel negotiated a loan whereby Plaintiff provided Landel a loan to fund a portion of Landel's work on the Access projects in exchange for direct payment of the proceeds from the "first Purchase Order." (Doc. 83-13 at 29.) Landel hired Attorney Swift to assist with drafting documents related to this arrangement. Plaintiff hired Attorney Sean Joyce, Esq. ("Attorney Joyce"), a Maine attorney, to represent his interests.

In the course of the parties' negotiations, Attorney Joyce expressed concerns regarding security for Plaintiff's loan to Landel and originally counseled Plaintiff against providing the requested loan given the financial risk and lack of security in the event of Landel's default. Plaintiff nevertheless decided that he wanted to loan Landel money because he hoped to make a significant profit.

On July 3, 2013, Attorney Swift drafted a Promissory Note, a Lending Agreement, and an Escrow Agreement, which Mr. Delancey signed, as well as an Access Vendor Contract Information form and sent them to Plaintiff and Attorney Joyce for their review. On July 5, 2013, Attorney Joyce replied by email "stating his objections to the documents as drafted." (Doc. 83-1 at 3.)¹

On July 8, 2013, Landel and/or its agent completed the Vendor Contact Information form identifying Defendant as the payee for Landel's invoices. On that same date, the Vendor Contact Information form was attached to Landel's profile in the AccessMidstream Partners' computer database. Also on that same date, Attorney Swift sent a revised version of the Lending Agreement and Promissory Note to Attorney Joyce for his review. On July 9, 2013, Attorney Joyce proposed changes to the Lending Agreement and Promissory Note. Attorney Swift made changes to the documents based on Attorney Joyce's comments, and sent copies of the revised Lending Agreement, Promissory Note, and Escrow Agreement, signed by Mr. Delancey, to Attorney Joyce. The Lending Agreement was changed at Attorney Joyce's request to include a factoring provision that states as follows:

Lender's written consent must be obtained before Borrower enters into any "factoring" or other financing. In the event Borrower enters into any "factoring" or other financing agreement, Borrower shall be obligated to pay Lender an additional fee of Ten Percent (10%) of all amounts financed through "factoring" or other financing agreements[.]

(Doc. 83-13 at 27-28.)

Plaintiff contends that he entered into a contract with Defendant through the Escrow Agreement and that he signed the Escrow Agreement² and Lending Agreement. The Escrow Agreement provides as follows:

ESCROW AGREEMENT

THIS AGREEMENT, entered into and effective on this 3rd day of July, 2013, by and between Landel Land Clearing, LLC, of Weybridge, Vermont, hereinafter referred to as the "Borrower," and Jay McLaughlin, of Medway, Maine, hereinafter referred to as the "Lender," and Langrock Sperry & Wool LLP, whose office is located in Middlebury, Vermont, hereinafter referred to as the "Escrow Agent;"

WITNESSETH:

WHEREAS, Borrower and Lender have entered into a Lending Agreement and Promissory Note providing for a loan of $400,000.00 and other terms and conditions;

WHEREAS, the repayment to Lender of all sums due under the Lending Agreement and Promissory Note are to be paid upon receipt byBorrower of payment of its first Purchase Order on the Access Midstream Pipeline Project;

WHEREAS, the parties agree that the proceeds of the payment of the first Purchase Order are to be held in an escrow account by the Escrow Agent and Escrow Agent is to make payments to Lender of all sums owed under the Lending Agreement and Promissory Note, before payment to Borrower.

NOW THEREFORE, in consideration of the above and for other good and valuable consideration, the parties hereto agree as follows:

1. Borrower shall direct payment of the first Purchase Order on the Access Midstream Pipeline Project to the Escrow Agent to be held and distributed according to the terms of this Agreement, the Lending Agreement and the Promissory Note.

2. Escrow Agent shall pay to Lender the amount owed on the Promissory Note. Escrow Agent shall also pay Lender all other amounts owed Lender which have been agreed to by the parties.

3. The escrow money shall be held in a separate interest bearing bank account established by the Escrow Agent. Any interest in said account shall accrue to the Borrower.

4. In the event of a dispute over payment from the escrow account, the parties agree that the Arbitration clause in the Lending Agreement shall apply to any such dispute.

5. The Escrow Agent shall not be liable to any party except for bad faith or gross neglect. In the event a claim other than bad faith or neglect is asserted against the Escrow Agent, the other parties shall jointly and severally indemnify and hold the Escrow Agent harmless from all loss or expense of any nature, including attorneys' fees, arising out or holding and disbursing of the escrow account. In the event of a dispute unresolved by arbitration, Escrow Agent may pay the balance of the escrow account into a Court of competent jurisdiction for the purpose of determining the rights of the parties to the escrow account. All costs and expenses of such action, including attorney's fees incurred by Escrow Agent, shall be borne jointly and severally by the other parties irrespective of the amount of the escrow account or its remaining balance.

Id. at 29-30 (emphasis omitted).³

C. Plaintiff's Loans to Landel and Landel's Factoring Agreements.

Plaintiff contends that he made additional loans to Landel between August 9 and August 20, 2013 and that on July 16, July 18, July 19, and August 21, 2013 he purchased equipment for the Access projects. He further contends that he and his work crew travelled to Pennsylvania on or about July 22, 2013 and provided Landel with labor between the end of July and mid-September 2013. Plaintiff asserts that he entered into a written agreement with Landel regarding the provision of labor, equipment, and funding of expenses and Landel's payment obligations related thereto (the "July 30th Agreement"). Attorney Joyce was not involved in negotiations regarding additional loans, equipment, labor, and expenses and was not aware of the July 30th Agreement until months after that agreement was signed. Attorney Swift was also not involved in the negotiations and was not aware of the July 30th Agreement until sometime in 2014.

The Escrow Agreement was not amended to specifically incorporate the July 30th Agreement. Plaintiff acknowledges that neither he nor Landel specifically requested that Attorney Swift act as an escrow agent for sums related to equipment, labor, or additional loans or in conjunction with the July 30th Agreement.

On August 20, 2013, Attorney Joyce sent an email to Attorney Swift advising him of Plaintiff's intent to decline the opportunity to provide further funding to Landel. The subject of the email stated it "provided a Notice of Intent to Decline the opportunity to fund payroll obligations of Landel and/or Dell Enterprises." Id. This was the first time Attorney Swift received information about the Access projects since July 9, 2013.

On or before September 18, 2013, Landel began securing funding for its expenses on the Access projects from Capstone Business Funding, LLC ("Capstone"), an account receivable factor and purchase order financier who provided consideration for the purchase of accounts receivable in the form of a cash advance, by factoring invoices onthe Access projects (the "Capstone factoring agreements"). Attorney Swift was not involved with Landel's efforts to secure factor funding on the Access projects. At Landel's and Capstone's request, Access listed Capstone as the payee on Landel's invoices in Access's accounts payable system.

On September 18, 2013, Capstone filed a UCC Financing Statement with the Vermont Secretary of State listing Landel Land Clearing,...