Wainwright Bank & Trust Co. v. Boulos

Decision Date10 May 1996
Docket NumberNo. 95-2329,95-2329
Citation89 F.3d 17
PartiesWAINWRIGHT BANK & TRUST COMPANY, Defendant, Appellant, v. Gregory W. BOULOS, et al., Third Party Defendants, Appellees. . Heard
CourtU.S. Court of Appeals — First Circuit

Robert M. Shepard with whom Smith-Weiss and Zall, P.C., Nashua, NH, was on brief for appellants.

Harold J. Friedman with whom Karen Frink Wolf and Friedman & Babcock, Portland, ME, was on brief for appellees.

Before TORRUELLA, Chief Judge, and STAHL and LYNCH, Circuit Judges.

STAHL, Circuit Judge.

Appellant Wainwright Bank and Trust Co. ("Wainwright") retained appellees Gregory W. Boulos and The Boulos Company (collectively "Boulos") 1 as real estate brokers to sell a distressed property. Boulos found a buyer, but the deal fell apart at the closing. The prospective buyer sued Wainwright, who counterclaimed; Wainwright then sued Boulos, who also counterclaimed. During the bench trial, Wainwright and the buyer settled, but Wainwright and Boulos pressed on. Ultimately, the district court denied Wainwright's claims that Boulos breached his duties as a broker, and awarded a $65,460 commission to Boulos. Wainwright appeals, and we affirm.

I. Facts

We summarize the facts in the light most favorable to the verdict-winner Boulos, consistent with record support. Cumpiano v. Banco Santander P.R., 902 F.2d 148, 151 (1st Cir.1990). Wainwright held a first mortgage on two dormitory-style apartment buildings adjacent to the University of New Hampshire in Durham, New Hampshire. The owner of the apartments, after defaulting on the mortgage loan, agreed to allow Wainwright to sell the property in lieu of foreclosure. Wainwright retained Boulos, a licensed commercial real estate broker, to market the property.

After a number of unsuccessful offers from other potential buyers and a reduction in the asking price, Wainwright accepted a $1.25 million offer from Radhey Khanna, a real estate investor. Wainwright agreed to finance eighty percent of both the $1.25 million purchase price and $250,000 of planned improvements to the property. Khanna subsequently determined, however, that the property's cash flow was less robust than advertised, and he withdrew his offer.

Khanna remained interested, though, and made several lower offers that were rejected by Wainwright. Eventually, Wainwright accepted Khanna's offer of $1.1 million. Boulos, who is not a lawyer, prepared a Purchase and Sale Agreement ("the P & S") dated August 4, 1994, to embody the accepted deal. Boulos included in the P & S certain language provided by Khanna's lawyer.

Khanna had earlier learned from Boulos that Wainwright intended to record the sale on its own books at an inflated price, higher than the actual price to which Khanna and Wainwright agreed. The record suggests that Wainwright planned to combine the $1.1 million purchase price and the $250,000 of planned improvements, together comprising Khanna's "total investment," and record the sale at $1.35 million. The improvements, however, were to be completed after Khanna closed the purchase of the apartments. The $250,000 was to be paid to the contractors that completed the improvements, not to the bank, and thus the cost of the planned improvements was in no sense part of the bank's proceeds from the sale. Khanna indicated that he did not care what Wainwright did internally as long as it did not increase his cost of ownership.

Because Khanna's share of the real estate transfer taxes might conceivably be increased if the taxing authorities learned that Wainwright recorded an inflated purchase price, Khanna, through his attorney, had Boulos add this term to the contract: "The transfer tax will be paid equally by the Buyer & Seller except Seller will pay the entire transfer tax on the portion of the sale price above $1,100,000."

Khanna also wanted to allocate a specific portion of the purchase price to the furnishings and other personal property in the apartments, which are depreciated for tax purposes at a faster rate than the building. With that intent, Khanna had Boulos add this term: "Purchase price of the property consists of $250,000 in personal property and the balance in real estate."

The deal unraveled at the closing. Although Khanna had been sent draft closing documents, prepared by Wainwright's counsel, that indicated a $1.1 million total purchase price, at the closing Wainwright insisted that the actual price was $1.35 million. Khanna maintained that the deal was for $1.1 million for the entire property "as is," and that the additional $250,000 was for planned improvements and was not part of the purchase price. Wainwright has put forth two rationales for its position that Khanna was to pay $1.35 million. Initially, in a letter to Boulos arguing that no commission was due, Wainwright stated that the purchase price was Khanna's "total investment" of $1.1 million plus $250,000 of planned improvements. Later, Wainwright took the position that the real property was to be sold for $1.1 million and the personal property for $250,000, relying on the two paragraphs added by Khanna (one allocating $250,000 to personal property and "the balance" to real estate; the other making Wainwright pay transfer tax on the portion of the sale price above $1.1 million). The parties were unable to resolve their differences, and this litigation ensued.

II. Prior Proceedings

Khanna filed a petition for specific performance and money damages in New Hampshire state court. Wainwright removed the suit to New Hampshire's federal district court under diversity jurisdiction. Wainwright filed a counterclaim against Khanna, and a third-party complaint against its broker Boulos, alleging negligence, negligent misrepresentation, and breach of contract by Boulos. In turn, Boulos counterclaimed against Wainwright, seeking payment of his commission.

The case was tried to the bench. After the close of evidence, Wainwright agreed to pay Khanna $85,000 to settle the claims between them. Boulos and Wainwright continued to press their third-party claims, and after the closing arguments, the court orally made the following findings of fact and rulings of law: the parties intended a $1.1 million sale of the real and personal property, with plans for $250,000 of post-closing improvements; the testimony of Thomas Zocco, Wainwright's senior vice president, was not credible, and he and Wainwright could not have reasonably believed that the price was $1.35 million; the evidence was insufficient to make out any of Wainwright's claims against Boulos; and Boulos had earned his commission by producing a ready, willing, and able buyer. Accordingly, the court awarded Boulos $65,460, representing his six percent commission on the intended purchase price of $1.1 million, with a minor (and undisputed) adjustment. Wainwright appeals.

III. Discussion

Wainwright articulates three issues on appeal, all governed by New Hampshire law:

(1) Did Boulos breach his fiduciary duty to his client, Wainwright, by negligently preparing the P & S agreement and by failing to provide a copy of an earlier draft agreement that contained language that might have avoided Wainwright's confusion?

(2) Did the district court err in awarding Boulos a full commission?

(3) Was the final P & S so vague that there was no valid contract between the parties?

We need not address the third "issue" separately; whatever relevance it has is subsumed in the first two issues. Whether or not there was a valid P & S contract between Khanna (the buyer) and Wainwright (the seller) is only tangentially relevant to this litigation between Boulos (the broker) and Wainwright (the seller). Although Wainwright does not explain exactly why it raises this issue, we see two relevant aspects. First, contract validity reflects on Boulos's performance in preparing the P & S documents; but that is encompassed in Wainwright's arguments on breach of fiduciary duty. Second, the court based its commission award to Boulos on its finding that there was an agreement for the transfer of the property to Khanna at a price of $1.1 million; we will deal with that finding in our discussion of the award to Boulos.

A. Breach of Fiduciary Duty

We note at the outset that Wainwright's third-party complaint against Boulos did not allege any breach of fiduciary duty, but Boulos apparently has not objected to the gradual transformation (both at trial and on appeal) of Wainwright's negligence claim into a breach of fiduciary duty claim. Thus, we will hear Wainwright's arguments as presented. Wainwright asserts that Boulos breached his fiduciary duty to Wainwright in two ways: first, by negligently preparing the P & S, and, second, by breaching the duty to present all relevant information to Wainwright.

We first address the alleged negligent preparation of the P & S. The trial court orally ruled on Wainwright's negligence/breach of fiduciary duty claim against Boulos as follows:

I'm not sure what the standard is in terms of a real estate broker who's not a lawyer drafting a contract for the sale of real estate. Technically I'm not sure a real estate broker should be drafting a contract for the sale of real estate. Certainly not in New Hampshire, I think he shouldn't be. I think that's practicing law without a license. But to the extent Mr. Boulos prepared this contract and the bank hasn't presented evidence regarding the applicable standard of care or evidence suggesting that he didn't meet that standard of care, I'm inclined to not find a breach of any duty. Certainly I don't find a breach of duty of undivided loyalty or breach of the agency relationship by Mr. Boulos. There's no evidence to suggest that he didn't act completely properly. He provided the bank with all relevant information.

I don't think Mr. Zocco [Wainwright's senior vice president] can reasonably claim to have been confused by the proposed sale terms that Mr. Boulos transmitted to him from Mr. Khanna. And...

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