Sierra Fria Corp. v. DONALD J. EVANS,(PC), 96-CIV-10106-MEL.
| Decision Date | 31 October 1996 |
| Docket Number | No. 96-CIV-10106-MEL.,96-CIV-10106-MEL. |
| Citation | 978 F.Supp. 28 |
| Parties | SIERRA FRIA CORPORATION, et al., Plaintiffs, v. Donald J. EVANS, (P.C.), et al., Defendants. |
| Court | U.S. District Court — District of Massachusetts |
Rosenman & Colin, Washington, D.C., Richard A. Gross, Michael Gaffney, (On Brief), for Plaintiffs.
Williams & Connolly, Washington, D.C., John K. Villa, David S. Blatt, Goodwin, Procter & Hoar, Boston, MA, James J. Dillon, P.C., for Defendants.
In October 1991, Rodrigo Rocha retained Goodwin, Procter & Hoar to represent him, and other interested investors, in connection with the acquisition of two resorts in Aruba, Netherlands Antilles. On November 1, 1991, Rocha signed a letter of intent with Doral Hotels and Resorts specifying the terms under which Doral and the Rocha investors would together enter into a transaction with Divi Hotels, N.V. to purchase the Divi Divi Beach Resort and the Divi Tamarijn Beach Resort in Aruba. The letter, which had been reviewed and edited by Michael Glazer, the partner in charge at Goodwin, Procter & Hoar, specified that "your (that is, Rocha's) attorneys would be the lead coordinator for all legal due diligence."
Several weeks before November 1, 1991, Divi and Doral had signed a letter of intent providing for them jointly to exercise an option owned by Divi to purchase the stock or assets of Grape Holding N.V. (Grape), which was the owner of the hotels. The ultimate transaction therefore involved the purchase of the stock (and thereby the assets) of Grape from Divi on February 11-12, 1992.
The Hotels purchased by Rocha and Doral were adjacent to a timeshare development known as the Dutch Village. The Divi Tamarijn Hotel and the Dutch Village are integrated properties, that is, there is no clear visual dividing line between them which enables a viewer without knowledge of the actual division to determine precisely what facilities or assets belong to the Village as opposed to the Hotel.
More than a year after the closing of the transaction, Rocha was informed that the property purchased by Rocha-Doral did not include tennis courts, an administrative building (which housed the Hotel's laundry facilities) and some parking spaces (the "missing assets"), all of which the purchasers had assumed to be among the assets owned by Grape. Later inquiry confirmed that the facilities in question were not owned by Grape and, consequentially, were not part of the property purchased.
The plaintiffs bring this suit claiming that Goodwin, Procter, by its partner and associate, Michael Glazer and Minta Kay, were negligent in failing to assure that the purchasers acquired the "missing assets." In addition, they claim that Glazer negligently drafted §§ 3.3 and 5.3 of the partnership agreement (the Andes Aruba Limited Partnership, or "the Agreement").
As indicated above, the letter agreement between Rocha and Doral of November 1, 1991 provided that Goodwin, Procter (as Rocha's attorneys) would be the "lead attorneys for all legal due diligence." it is not disputed that the letter correctly described Goodwin, Procter's role. The disagreement centers on what Goodwin's obligations as "lead attorneys for all legal due diligence" were and whether they fulfilled those obligations. The assets purchased from Grape consisted of six ground leases on which the hotels were located. Since the site of the property was in Aruba, which is governed by Dutch law, and since Goodwin did not, and did not hold itself out to, practice Dutch law, it was apparent that counsel familiar with Dutch law and the local real estate practices in Aruba would have to be consulted. Indeed, even before November 1, 1991, on October 23, 1991, Divi's attorney, Fred Pillon, contacted Frank Zeven of the firm of Smeets, Thesseling & Von Bokhorst (Smeets) to represent the acquirers in the acquisition of the hotels.
The defendants contend that since they were not and had not held themselves out to be Aruban or Dutch lawyers, it was not their responsibility to perform due diligence regarding questions arising under Aruban-Dutch law, such as, they contend, the location or identification of assets located on the real property owned by Grape. The plaintiffs argue that, as "the lead coordinator for all legal due diligence," Goodwin was ultimately responsible to its clients not only for matters of Massachusetts law, but also as to questions arising under Aruban-Dutch law.
The case does not turn, however, on who retained Smeets or on the relative responsibilities of Goodwin and Smeets, but rather on whether, once having recognized, as the defendants did, that Aruban real estate practices made it impossible to ascertain precisely what assets and facilities were located on the Divi property rather than the Dutch Village, Goodwin informed Rocha of that risk with sufficient emphasis and particularity to make certain that his decision on whether to consummate the purchase was intelligent and knowing.
Early in the game, Minta Kay learned that the custom in regard to sales of Aruban real estate was to accomplish them without the use of an as-built survey or title insurance. On November 27, 1991, a Smeets attorney, Ingrid Bleeker, prepared a draft title memorandum based on the official Aruban land records and documents from the prior transfers of the hotels. A copy of this was transmitted to Glazer and Kay. Upon review of the memorandum, Kay noticed that it did not refer to a survey or contain title assurances. On December 16, she telephoned Bleeker to determine whether the memorandum would be supplemented. Bleeker told her that the memorandum was the customary form used in Aruba and that it would be virtually impossible to get a survey done within the time frame and that if it were possible at all, as to which there was considerable doubt, it would be extremely costly and time-consuming. (4(PM) at 35 & 37). In addition, Bleeker informed Kay that, in Aruba, transfers of title were based on the opinion and assurances of a "notary" who was authorized by law to undertake such action. Bleeker said that the notary in this case would be Mrs. Maria Albertina Eman (who, coincidentally, was the wife of the Prime Minister of Aruba) and that if Mrs. Eman was uncertain about the location of improvements or easements, she would arrange to have a new map (not an as-built survey) prepared. Frank Zeven, also of the Smeets firm, confirmed to Kay and Glazer that it was not customary in Aruba to use an as-built survey and that to do so would be time-consuming.
In her conversation with Bleeker on December 16, Kay observed that Bleeker's memorandum referred only to six ground leases and asked Bleeker if they constituted all of the land leases belonging to Grape. Kay was concerned about this because she had noted in her own examination of documents relating to the transfer of the properties from Divi to S.P. Aruba that thirteen, rather than six, leases appeared to be involved.
In sum, as a result of her conversation with Bleeker, Kay clearly understood that the Aruban practice of transferring real estate without an as-built survey or title insurance exposed a purchaser — in this case her firm's client — to the risk of not knowing precisely what assets he was purchasing.
In view of the potential seriousness of the problem, she concluded that Rocha should be informed so that everyone concerned could decide how to proceed.
According to Kay, DeChiario replied that he would talk to "Rodrigo" (Rocha) about it, that he understood what she was telling him, and that he would like to see the maps which Bleeker had told Kay she would send, when Kay received them. Id. In his testimony, DeChiario could not recall whether this conversation with Kay occurred but did not deny it, and he concurred in the proposition that he was in frequent personal contact with Goodwin, Procter counsel and spoke most frequently with Kay. Later that day, Kay wrote to Bleeker (Defendant's Exhibit 24), stating in relevant part that:
as we discussed, there appears to be a discrepancy between the identity of Long-Term Land Leases we have been told affect the Divi Hotels and those that appear in the Real Estate and Mortgage Registry of Aruba.
To resolve the discrepancy, Kay enclosed copies of the leases that Divi had given to her and added that she awaited receipt from Bleeker of the existing land maps for the purpose of identifying satisfactorily the locations of the properties. Copies of this letter were sent to Rocha and DeChiario with copies of the material sent to Bleeker.
On January 15, 1992, Bleeker telecopied maps (apparently known as "Kadaster" maps) for the six ground leases to Kay. Kay reviewed them and found that they were useless for showing the location of improvements at the Divi Tamarijn Hotel. In order to keep Rocha informed, Kay forwarded copies of the maps to Rocha and DeChiaric. She testified at trial:
I recall that I told him (DeChiario) that the maps were not helpful for purposes of locating improvements. I told him that on the basis of these, which is what the Arubans were delivering, there was no assurance that improvements were located within boundary lines on leases held by Grape. I reiterated again that a survey, an as-built and at the time that we're used to here, would offer assurance on this, would eradicate some of the concern.... He told me to...
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Sierra Fria Corp. v. Donald J. Evans, P.C.
...not to contest the facts as found by the lower court, we lean heavily upon the opinion below in recounting the relevant events. See id. at 28-35. In 1991, plaintiffs-appellants Sierra Fria Corporation and Rodrigo Rocha (hereinafter collectively Rocha) acquired an option to purchase two Arub......