Rhode Island Depositors Economic Protection Corp. v. Hayes, s. 94-1767
| Decision Date | 31 July 1995 |
| Docket Number | 94-1768,Nos. 94-1767,s. 94-1767 |
| Citation | 64 F.3d 22 |
| Parties | RHODE ISLAND DEPOSITORS ECONOMIC PROTECTION CORP., ET AL., Plaintiffs, Appellees, v. John A. HAYES and Iola Hayes, Defendants, Appellants, v. Steven M. MCINNIS, et al., Defendants, Appellees. RHODE ISLAND DEPOSITORS ECONOMIC PROTECTION CORP., et al., Plaintiffs, Appellees, v. Robert P. MCGOLDRICK, Defendant, Appellant, v. Steven M. MCINNIS, et al., Defendants, Appellees. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Mark A. Stull with whom Dennis F. Gorman and Fletcher, Tilton & Whipple, P.C., Worcester, MA, were on brief, for appellants.
Allen N. David with whom Harvey Weiner, Maureen Mulligan, and Peabody & Arnold, Boston, MA, were on brief, for appellees.
Before TORRUELLA, Chief Judge, BOUDIN and STAHL, Circuit Judges.
Limited partners who personally guaranteed the partnership's obligations to a credit union seek indemnification on their guaranty, as well as damages, from the attorney (and his law firm) representing the partnership. The district court entered summary judgment for the attorneys. We now affirm.
During the heady late eighties, Carol Lavin, a Jamestown, Rhode Island real estate agent, conceived a plan to purchase and develop luxury homes on an eighty-acre tract of land located in Jamestown. Lavin, a novice at real estate development, enlisted her husband Kevin Lavin, her sister Janice Barron, and her brother-in-law James Barron in the project. The new venturers were equally unknowledgeable in the nuances of real estate development.
Lavin approached the parcel's owners, David Henderson and Donald Huggins ("sellers"), who indicated a willingness to sell their land for $2.7 million. Although the price seemed high, the Lavins and Barrons remained interested. However, to make the deal work, they needed more capital than they had. In order to remedy this deficiency, Carol Lavin and Janice Barron contacted dozens of potential investors, including appellants John and Iola Hayes and Robert McGoldrick. During the summer of 1987, the Lavins and Barrons met with the Hayeses and McGoldrick on several occasions to discuss the project. A rosy financial projection of the completed development forecast a $2 million profit for the venturers. Eventually On September 14, 1987, Carol Lavin, Janice Barron, and John Hayes met with appellee Steven McInnis, a Rhode Island attorney, about legal representation for the project ("September 14 meeting"). The participants discussed the project's form and financing. McInnis was advised that the Hayeses and McGoldrick wished to limit their investment to a total of $200,000 (based on a $100,000 investment by the Hayeses and a $100,000 investment by McGoldrick). McInnis suggested that rather than a general partnership they form a limited partnership, with the Hayeses and McGoldrick as the limited partners and the Lavins and Barrons as the general partners. McInnis indicated that the prospective limited partners (that is, the Hayeses and McGoldrick), might want to retain their own attorneys to represent their interests. McInnis agreed to draft the partnership agreement and to represent the limited partnership, later named Cedar Hill Developments, L.P. ("the partnership").
the Hayeses and McGoldrick, with a vision of high returns, agreed to invest in the scheme. Like the Lavins and Barrons, the three investors had no prior experience in real estate development.
Sometime after the September 14 meeting, the Hayeses and McGoldrick (hereinafter, "limited partners") and the Lavins and Barrons (hereinafter, "general partners") discussed whether they should retain separate counsel, as suggested by McInnis. By deposition, general partner Lavin testified, "we all decided as a group to let [McInnis] represent us," and she later communicated this decision to McInnis. In his pretrial deposition, McInnis testified that "they [the general and limited partners] indicated that they wished me to perform certain tasks on behalf of the 'group,' ... but it was phrased more in the context of performing certain, in their view, relatively routine tasks required by either the bank or the buyers and the seller." McInnis denies ever agreeing to represent the limited partners individually. Throughout the course of the representation, all attorneys fees were billed to the partnership and paid by partnership funds.
The parties to the transaction eventually hammered out the details of the transaction. Of the $2.7 million sale price, $300,000 was to be in cash, $900,000 was to be financed by the sellers (secured by a second mortgage on the parcel), and $1.5 million was to be financed through a bank loan. In addition, the sellers were each to receive a 12.5% limited partnership interest.
Meanwhile, Carol Lavin attempted to secure bank financing. The going proved difficult. Three institutions, including the Marquette Credit Union ("Marquette"), turned down the group's loan application. Later, Marquette reversed its position and agreed to loan up to $3.5 million for the purchase and development of the land. However, as a condition for the loan, Marquette required a personal guaranty from the Lavins, the Barrons, the Hayeses, and McGoldrick. The Marquette commitment letter, dated November 6, 1987, stated that the limited partners would have to guaranty the loan personally in the event of a partnership default. At some point during November 1987, Carol Lavin informed McInnis of Marquette's guaranty requirement. McInnis, however, did not participate in the negotiations with Marquette, and at no point did any of the partners request his participation. Marquette prepared the guaranty.
On December 11, 1987, the general and limited partners convened at McInnis's office to sign documents effecting the formation of the partnership and executing bank documents including the guaranty. There is conflicting evidence in the record as to whether the limited partners knew of the personal guaranty requirement prior to the December 11 meeting, although all three appear to have signed the commitment letter. 1 In any event, at this meeting, McGoldrick clearly evidenced his understanding of the nature of his obligation, for he explicitly stated that he knew that he was making himself personally liable for the entire loan in the event of a default. For their part, the Hayeses recall The development quickly floundered. Ultimately, only three homes were ever sold. By August 1988, the Hayeses had retained separate counsel. At that time, they demanded, futilely, a return of their capital contribution and "a release from all Limited Partnership obligations." By January 1989, the partnership defaulted with more than $2 million outstanding. Marquette failed in early 1991. Its receiver held a foreclosure sale on April 17, 1991, at which it purchased the development for $850,000.
nothing about the meeting or the commitment letter, although they acknowledge their signatures appear on the guaranty agreement. At no time, either prior to signing the commitment letter or prior to signing the guaranty itself, did any of the partners request McInnis to intervene with Marquette to seek removal or modification of the guaranty. Closing on the sale occurred on December 15, 1987.
The receiver and its successor, Rhode Island Depositors Economic Protection Corporation ("DEPCO"), sued on the guaranty to recover $2,004,446, plus interest and late charges. The limited partners, in turn, instituted third-party claims against McInnis and his law firm, Cameron & Mittleman (collectively, "attorneys"), seeking indemnification and damages. The district court granted the summary judgment motions of both DEPCO and the attorneys against the limited partners. This appeal ensued. However, because of a prior settlement with DEPCO, only the third party claims are now on appeal.
The limited partners raise two principal issues on appeal: first, whether they are entitled to indemnification by the attorneys for the amount owed to DEPCO, plus costs and attorneys fees; and second, whether they are entitled to damages against the attorneys under theories of malpractice, breach of contract, and misrepresentation. After reciting the standard of review, we discuss each argument in turn.
Summary judgment is appropriate when the record reflects "no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We review a grant of summary judgment de novo. See, e.g., Colonial Courts Apartment Co. v. Proc Assocs., 57 F.3d 119, 122 (1st Cir.1995). We review the record in the light most favorable to the nonmoving party, and indulge all reasonable inferences in that party's favor. Id.
The limited partners argue that the attorneys must indemnify them because of negligence on the part of McInnis and because of alleged violation of Massachusetts securities laws. We find indemnification inapposite in this context.
We begin with general principles. 2 "The concept of indemnity is based upon the theory that one who has been exposed to liability solely as the result of a wrongful act of another should be able to recover from that party." Muldowney v. Weatherking Prods., Inc., 509 A.2d 441, 443 (R.I.1986) (citation omitted). Thus, one party may seek full reimbursement from another when he has fully discharged a common, as opposed to "joint," liability. W. Page Keeton, et al., Prosser and Keeton on the Law of Torts Sec. 51 (5th ed. 1984) (hereinafter, "Prosser & Keeton"). Stated another way, "[i]f another person has been compelled to pay damages that should have been paid by the wrongdoer, the latter becomes liable to the former." Muldowney, 509 A.2d at 443.
The Rhode Island Supreme Court has made clear that an indemnification cause of action lies in two situations: first, when there is an...
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