Opinion ID: 2554806
Heading Depth: 2
Heading Rank: 2

Heading: Indemnification, Fraud, and Implied Warranty of Authority

Text: [¶ 37] Through claims of breach of indemnification, fraud, and breach of implied warranty of authority, Muther and Woods asserted that the Association was liable for the J-Lot owners' non-compliance with the terms of the settlement agreement. They contend that the court erred by entering summary judgment in favor of the Association on these claims. [¶ 38] When a defendant moves for summary judgment, the plaintiff must establish a prima facie case for each element of [the] cause of action that is properly challenged in the defendant's motion. Curtis v. Porter, 2001 ME 158, ¶ 8, 784 A.2d 18, 22 (italics removed) (quotation marks omitted); see Addy v. Jenkins, 2009 ME 46, ¶ 8, 969 A.2d 935, 938. A defendant is entitled to a summary judgment if the evidence in the summary judgment record, if given at trial, would entitle the defendant to judgment as a matter of law. Addy, 2009 ME 46, ¶ 8, 969 A.2d at 938.
[¶ 39] Muther and Woods, as third-party plaintiffs, contend that there remain genuine issues of material fact regarding whether the Association breached the indemnification provision of the settlement agreement because the present suit arises from an act or omission arising from the conduct of the [Association]. Specifically, Muther and Woods argue that the J-Lot owners' present claim for a prescriptive easement arises from the Association's failure to prevent its members from filing further lawsuits after it represented that it had authority to bind its members to the settlement agreement that disposed of the Association's prescriptive easement claim. [¶ 40] The interpretation of a contract and whether or not its terms are ambiguous are questions of law that we review de novo. Beal, 2010 ME 20, ¶ 26, 989 A.2d at 741. Here, the indemnification provision of the settlement agreement, as transcribed at the settlement conference, unambiguously required the Association to indemnify [Muther and Woods] if they are sued for an act or omission arising out of the conduct of the [Association]. The Association's statement of material facts addressed only the element of breach: whether this suit arose from an act or omission of the Association. Therefore, to defeat a summary judgment motion, Muther and Woods were required to establish a prima facie case for that element. See Curtis, 2001 ME 158, ¶ 8, 784 A.2d at 22. [¶ 41] Viewing the summary judgment record in the light most favorable to Muther and Woods, as the nonprevailing party, and accepting their uncontroverted statement of additional facts as true, see id. ¶¶ 6, 8, 784 A.2d at 21, 22, Muther and Woods did not establish that the Association had authority to control its membership to prevent further lawsuits and that it failed to exercise that authority. [¶ 42] The record also establishes that the J-Lot owners have a deeded right to the easement that is different from the Association's claimed prescriptive right. As a result, the factual elements required to support the J-Lot owners' prescriptive claim to the upland of Lot J-46 in this case are different from those needed to support the Association's prescriptive claim to the easement in the prior litigation. Therefore, the J-Lot owners' present prescriptive claim arises from their independent standing to claim prescriptive rights to the upland instead of from an act or omission of the Association. [¶ 43] Because Muther and Woods did not establish at summary judgment a prima facie case that any acts or omissions by the Association gave rise to this litigation, the court did not err by granting summary judgment in favor of the Association on Muther and Woods's claim for indemnification.
[¶ 44] Muther and Woods also contend that at the settlement conference in the prior litigation, the Association through its directors, Beth Hess and Leslie Connolly, and its attorneyfalsely represented that it had the authority to bind all of its members, including the J-Lot owners. [¶ 45] To withstand the Association's motion for summary judgment on fraud, Muther and Woods were required to establish a prima facie case for the five elements of fraud by clear and convincing evidence. See Addy, 2009 ME 46, ¶ 8, 969 A.2d at 938; cf. Butler v. Poulin, 500 A.2d 257, 260 & n. 5 (Me.1985) (requiring plaintiff to establish elements of fraud by clear and convincing evidence to avoid directed verdict). The essential elements of fraud, or fraudulent misrepresentation, are (1) that [one party] made a false representation; (2) of a material fact; (3) with knowledge of its falsity or in reckless disregard of whether it is true or false; (4) for the purpose of inducing [another party] to act in reliance upon it; and (5) [the other party] justifiably relied upon the representation as true and acted upon it to [its] damage. Me. Eye Care Assocs. P.A. v. Gorman, 2008 ME 36, ¶ 12, 942 A.2d 707, 711 (last alteration in original) (quotation marks omitted). [¶ 46] The summary judgment record establishes that, at the settlement conference, the attorney for Muther and Woods stated on the record, Th[e] agreement will be in the form of a stipulated judgment recorded at the Registry of Deeds, and it's binding upon the individual [defendants, Beth Hess and Leslie Connolly,] but also on the [Association]. ... We understand that the settlement is binding upon all the members of [the Association], the so-called two hundred and forty-three lots, and that it is made with full authority as to that. At the close of the conference, Hess, Connolly, and the attorney for the Association each acknowledged on the record that the record was a fair representation of the terms of the agreement and that they had full authority on behalf of the Association to agree to the terms of this [agreement]. [¶ 47] None of these statements establishes that the settlement is binding on the J-Lot owners to any extent beyond their status as members of the Association. Nor did Muther and Woods establish that Hess, Connolly, or the Association's attorney purported to have authority to bind the J-Lot owners in any way other than as members of the Association. To the contrary, the summary judgment record establishes that the J-Lot owners have deeded rights to the easement that are different from the prescriptive rights claimed by the Association on behalf of its members. In sum, Muther and Woods failed to establish a prima facie case that the Association made a false representation. Accordingly, the court did not err by granting summary judgment in favor of the Association on Muther and Woods's claim of fraud.
[¶ 48] Muther and Woods contend that a genuine issue of material fact remains regarding whether, at the settlement conference, the Association purported to have authority to represent its 243 household-members, including the J-Lot owners. They argue that from the provision in the settlement agreement that waived the $150 annual beach access fee for J-Lot owners it was reasonable to infer that the Association represented the J-Lot owners as deeded easement holders. They also argue that, having established this element of an implied warranty of authority claim, the burden shifted to the Association to present facts that would preclude its liability. [¶ 49] The Restatement (Third) of Agency prescribes liability for breach of implied warranty of authority: A person who purports to make a contract ... with a third party on behalf of another person, lacking power to bind that person, gives an implied warranty of authority to the third party and is subject to liability to the third party for damages for loss caused by breach of that warranty ..., unless (1) the principal or purported principal ratifies the act as stated in § 4.01; or (2) the person who purports to make the contract ... gives notice to the third party that no warranty of authority is given; or (3) the third party knows that the person who purports to make the contract... acts without actual authority. Restatement (Third) of Agency § 6.10 (2006); [11] see also Noyes v. Loring, 55 Me. 408, 412, 413 (1867) (suggesting liability for contracts made by unauthorized agents purporting to have authority, but not specifying the form of action). [¶ 50] As discussed above with regard to the fraud claim, Muther and Woods did not establish on the summary judgment record that Hess, Connolly, or the Association's attorney purported to have authority to bind the J-Lot owners in any way other than as members of the Association. Without an express representation of authority, no implied warranty of authority was given upon which Muther and Woods may make a claim. See Restatement (Third) of Agency § 6.10. [¶ 51] However, whether the Association made an implied representation to Muther and Woods that it had authority to bind the J-Lot owners other than as members of the Association is a question of fact to be determined by inferences to be drawn from the [Association's] conduct. See Restatement (Third) of Agency § 6.10, cmt. c. Although summary judgment is typically inappropriate for resolving questions of fact such as this, a plaintiff must still establish in the summary judgment record evidence sufficient to create a question of fact, Stanley v. Hancock Cnty. Comm'rs, 2004 ME 157, ¶ 25, 864 A.2d 169, 178, and summary judgment is appropriate if the non-moving party rests merely upon conclusory allegations, improbable inferences, and unsupported speculation, Dyer v. Dep't of Transp., 2008 ME 106, ¶ 14, 951 A.2d 821, 825 (quotation marks omitted); but see Curtis, 2001 ME 158, ¶ 9, 784 A.2d at 22 (When facts or reasonable inferences are in dispute on a material point, summary judgment may not be entered.). [¶ 52] Here, the issue is whether it is an improbable inference that the Association was authorized to represent the J-Lot owners in a capacity other than as Association members based on the fact that, pursuant to the settlement agreement, the $150 annual beach access fees that Association members would pay would be waived for the J-Lot owners. Viewing all of the evidence in the light most favorable to Muther and Woods, it is an improbable inference that the J-Lot owners would authorize the Association to represent them in exchange for waiving a fee for a privilege that they already hold by deed. A more reasonable inference is that the Association understood that it could not charge some of its members for something that they already owned. Because the summary judgment record is insufficient to create a genuine issue of fact that the Association made an implied representation of authority to make a binding agreement related to the J-Lot owners' deeded easement interests, the court did not err in granting summary judgment in favor of the Association on Muther and Woods's claim of implied warranty of authority.