Court Opinion

ID: 1020041
Source: CourtListenerOpinion
Date Created: 2013-07-04 22:44:53.757958+00
Date Added: 2024-06-11T15:13:45.948099
License: Public Domain

UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                            No. 05-2109

COLONY APARTMENTS, Chapel Hill,

                                            Plaintiff - Appellant,

          versus

ABACUS PROJECT MANAGEMENT, INCORPORATED,

                     Defendant & Third Party Plaintiff - Appellee,

AIMCO RESIDENTIAL GROUP, L.P.,

                                             Defendant - Appellee,

          and

EICHLER, FAYNE & ASSOCIATES; INSIGNIA
PROPERTY MANAGEMENT,

                                                       Defendants,

          and

BALCOR REALTY INVESTORS, LTD,

                                            Third Party Defendant.

Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Alexander Williams, Jr., District Judge.
(CA-00-1514-AW)
Argued:   May 22, 2006                     Decided:   July 25, 2006

Before WILKINS, Chief Judge, and MOTZ and KING, Circuit Judges.

Affirmed in part and reversed and remanded in part by unpublished
per curiam opinion.

ARGUED: Stanley James Reed, LERCH, EARLY & BREWER, CHARTERED,
Bethesda, Maryland, for Appellant. Rodney F. Page, BRYAN, CAVE,
L.L.P., Washington, D.C.; Sheila Christine Stark, DLA PIPER RUDNICK
GRAY CARY US, L.L.P., Reston, Virginia, for Appellees. ON BRIEF:
William B. Schroeder, LERCH, EARLY & BREWER, CHARTERED, Bethesda,
Maryland, for Appellant. Rebecca A. Ford, BRYAN, CAVE, L.L.P.,
Washington, D.C., for Appellee AIMCO Residential Group, L.P.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).

                                2
PER CURIAM:

     In 1996, Colony Apartments-Chapel Hill L.P. (“Colony”) bought

an apartment complex in Chapel Hill, North Carolina that, it

subsequently learned, contained severe structural flaws caused by

water damage to wooden floor joists. After discovering the damage,

Colony filed this diversity action against two companies involved

in the sale of the complex.    First, Colony sued Abacus Project

Management, Inc., which prepared a structural analysis for Colony’s

lender, claiming that Abacus committed professional negligence and

made negligent misrepresentations.      Second, Colony sued AIMCO

Residential Group, L.P., which managed the property, claiming that

an AIMCO employee made negligent and fraudulent representations

about the condition of the complex.     The district court awarded

summary judgment to both Abacus and AIMCO.   We affirm with respect

to AIMCO, but reverse the grant of summary judgment to Abacus.

                                I.

     In 1996, Colony purchased a 14-building, 198-unit apartment

complex located in Chapel Hill, North Carolina for $7.1 million.

Two of Colony’s five general partners, Michael Brodsky and Victor

Rosenberg visited the complex prior to Colony’s purchase.   Brodsky

made two trips to the complex in the summer of 1996, spending a

total of four hours on the premises.   In September 1996, Rosenberg

spent approximately two to two-and-a-half hours on site.    Brodsky

                                3
and Rosenberg each spoke with the resident property manager (and

AIMCO employee) William Peebles.            When asked about any major

maintenance issues, Peebles told Brodsky only that there were

problems with some of the heating and air conditioning units, and

with wooden columns on the exterior of some of the buildings.

      Colony financed the purchase of the building with a loan from

Eichler, Fayne & Associates (“EF&A”).           Prior to closing the sale,

EF&A hired Abacus to perform a Fannie Mae Delegated Underwriting

Service Physical Needs Assessment Report (“DUS Report”) for the

property.   That DUS Report revealed no major structural damage.

Colony ultimately obtained a copy of that report from John Eames,

a   representative   of    First    State   Holdings,     Inc.,    which    had

contracted to buy the property prior to Colony’s purchase of it.

      In 1998, Colony learned of severe structural damage to the

building, particularly water damage in the first floor units.                In

October 1999, Colony hired Bay Design to perform an engineering

report.   That report indicated the structural problems should have

been discovered by Abacus when it prepared the DUS Report.

      On May 24, 2000, Colony filed this action alleging that Abacus

committed    professional          negligence      and    made      negligent

misrepresentations in producing the DUS Report, and that AIMCO made

negligent and fraudulent misrepresentations through its employee,

William   Peebles.    In   response,      Abacus   and   AIMCO    filed    three

motions: (1) a motion for summary judgment on the merits, (2) a

                                      4
second motion for summary judgment on statute of limitations

grounds, and (3) a motion to strike plaintiffs’ proposed expert

testimony in light of inadequate disclosure.    The district court

granted defendants’ second summary judgment motion (on limitations

grounds), denying the first summary judgment motion and motion to

strike as moot.

     Colony retained new counsel on appeal.    After oral argument,

we reversed the judgment of the district court, holding that the

action was not barred by the statute of limitations.    See Colony

Apartments v. AIMCO Residential Group, L.P., 63 Fed. Appx. 122 (4th

Cir. 2003).

     On May 11, 2004, after remand, both Abacus and AIMCO moved to

renew their motions for summary judgment. Three days later, on May

14, Colony filed a motion for leave to “File Supplemental and

Amended Rule 26(a)(2) Expert Witness Disclosure Statement.”      The

district court denied Colony’s motion to supplement, finding that

it had not met the “excusable neglect” standard imposed by Federal

Rule of Civil Procedure 6(b), but granted Abacus and AIMCO’s

motions to renew their summary judgement motions on the merits.

     Colony then requested permission to update its previously

filed opposition to defendants’ summary judgment motions.       After

denying that motion, again finding that Colony failed to establish

excusable neglect, the district court granted Abacus and AIMCO’s

motions for summary judgment.   Colony noted a timely appeal.

                                 5
                                 II.

     Colony first alleges that the district court erred in granting

summary judgment to Abacus.   It disputes the court’s finding that

Abacus owed no duty to Colony.

     To determine whether Abacus owed a duty to Colony -- a third

party with which it had no contractual relationship and to whom it

did not give its report -- North Carolina courts1 apply the

analysis set forth in the Restatement (Second) of Torts § 552

(1977).   See Raritan River Steel Co. v. Cherry, Bekaert & Holland,

367 S.E.2d 609, 617 (N.C. 1988); Ballance v. Rinehart, 412 S.E.2d

106, 109 (N.C. App. 1992).    Under this approach, a professional

providing information owes a duty to any “person or one of a

limited group of persons for whose benefit and guidance [the

professional] intends to supply the information or knows that the

recipient intends to supply it.”       Restatement (Second) of Torts

§ 552 (1977).

     “It is not enough that the maker merely knows of the ever-

present possibility of action in reliance upon it, on the part of

anyone to whom it may be repeated.”       Id. cmt. h; Ballance, 412

S.E.2d at 109.    At the same time, however, “[t]he Restatement’s

text does not demand that the [professional] be informed by the

     1
      In diversity actions we follow the law of the forum state.
See Limbach Co. LLC v. Zurich American Ins. Co., 396 F.3d 358, 361
(4th Cir. 2005).   Maryland’s choice of law rule requires us to
apply the law of North Carolina, where the tort occurred. Rhee v.
Combined Enterprises, Inc., 536 A.2d 1197, 1198-99 (Md. App. 1988).

                                  6
client himself of the [work product]’s intended use.” Raritan, 367

S.E.2d at 617.        “If he knows at the time he prepares his report

that specific persons, or a limited group of persons, will rely on

his work, and intends or knows that his client intends such

reliance, his duty of care should extend to them.”                    Id.

      The question in this case, then, is whether Colony was one of

a class of persons that Abacus intended would rely on the DUS

Report, or whether Abacus knew that EF&A so intended. The district

court, relying on a disclaimer in the DUS Report forbidding any

party other than EF&A from relying on the report without Abacus’s

consent, concluded that Colony did not fall within the class

described by § 552.            The disclaimer, however, cannot bear the

weight the district court placed on it.

      At      oral     argument,         Abacus’s        counsel    conceded      that

notwithstanding the disclaimer, First State Holdings, Inc. was

entitled to rely on the report because its name appeared on the

cover page of the DUS Report.            At the time, First State intended to

borrow     money     from   EF&A    to    purchase       the    complex,2   and   EF&A

specifically requested that Abacus list First State as a recipient

of the DUS Report.          This concession demonstrates that Abacus knew

someone other than EF&A was going to rely on the DUS report.                        And

it   raises    questions      not   addressed       by    the   district    court   --

      2
      The record does not explain how Colony, rather than First
State, came to purchase the complex.

                                            7
specifically, whether EF&A intended that any eventual purchaser

would rely on the report, and what Abacus knew of EF&A’s intent.

     This      ambiguity   precludes       summary   judgment,    which    is

appropriate only if there are no disputed issues of material fact,

viewing the record in the light most favorable to the non-moving

party.    See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio

Corp., 475 U.S. 574, 585-87 (1986); Fed. R. Civ. P. 56(c).                The

parties clearly dispute whether EF&A intended that a specific

purchaser, or any purchaser, rely on its report.          That dispute is

undoubtedly material; Abacus even conceded that the case would be

very different if the report were addressed to a generic purchaser

rather than to First State.         Therefore, we reverse the grant of

summary judgment to Abacus, and remand to the district court for

further proceedings.

                                    III.

     Colony next asserts that the district court erred in awarding

summary judgment on its negligent and fraudulent misrepresentation

claims against AIMCO.      Its allegations arise out of conversations

between   an    AIMCO   employee,   William    Peebles,   and    two    Colony

representatives, Michael Brodsky and Victor Rosenberg.                 Peebles

served as the on-site property manager for Colony Apartments

beginning in July 1995, approximately one year before the sale of

                                       8
the building.3         Colony alleges that Peebles misrepresented the

condition of the building in responding to questions from Brodsky

and Rosenberg.         Specifically, when asked what maintenance issues

existed    at    the    property   other    than   normal   repairs,    Peebles

indicated that “the property was in fine condition and there were

no items to worry about other than the heating and cooling of the

property, as well as some exterior wood columns that needed to be

replaced.”

     Colony asserts that this was a misrepresentation because

Peebles    was    aware   of   “extensive    structural     repairs    to   units

suffering from water damage.”          Brief of Appellant at 35.            AIMCO

contests this assertion, noting that Colony points to no evidence

demonstrating Peebles’ knowledge of significant structural repairs,

and that in a deposition the contractor who performed these repairs

recalled only one repair made during the time Peebles worked at the

complex.

     This factual dispute, however, does not preclude summary

judgment.       Even assuming that Peebles was aware of, but remained

silent about, the structural damage, Colony’s reliance on his

statements was objectively unreasonable.               That reliance would

directly contradict the terms of the written sale agreement, which

states:

     3
      At the time of the sale, Insignia Residential Group, LP
employed Peebles. Insignia is now known as AIMCO.

                                       9
     Seller acquired title to the property by foreclosure . .
     . . Seller can make no representations or warranties
     relating to the condition of the Property . . . .
     Purchaser acknowledges and agrees that it will be
     purchasing the Property . . . based solely upon its
     inspections and investigations . . . and that Purchaser
     will be purchasing the Property . . . “AS IS” and “WITH
     ALL FAULTS” . . . . Purchaser acknowledges that . . .
     neither Seller nor its consultants, brokers, or agents
     have made any representations or warranties of any kind
     upon which Purchaser is relying as to any matters
     concerning the Property . . . including, but not limited
     to, the condition of the land or any improvements
     comprising the Property . . . .

Moreover,   the    sale     agreement   included     an    integration     clause

providing that “[t]his Agreement constitutes the entire agreement

between    the    parties    and   supersedes    all      other   negotiations,

understandings, and representations made by and between the parties

and the [sic] agents, servants, and employees.”

     Given these contract terms, Colony’s asserted reliance on

Peebles’s statements is objectively unreasonable.                      See, e.g.,

Hardee’s of Maumelle, Ark., Inc. v. Hardee’s Food Sys., Inc., 31

F.3d 573, 576 (7th Cir. 1994); Motor City Bagels, LLC v. American

Bagel Co., 50 F. Supp. 460, 472, 474 (D. Md. 1999); Rosenberg v.

Pillsbury Co., 718 F. Supp. 1146, 1152-53 (S.D.N.Y. 1989).

     Moreover, even absent this contractual language, we would find

Colony’s    reliance      unreasonable.         “The      right   to     rely   on

representations     is    inseparably    connected     with   the   correlative

problem of the duty of a representee to use diligence in respect of

representations made to him.”            Libby Hill, 303 S.E.2d at 569

(quotation marks omitted).         Colony failed to act with the required

                                        10
diligence      when   it    relied    on   Peebles’s      statements.          Despite

negotiating to purchase a $7.1 million building, Colony decided not

to spend the $25,000 required for an engineer to perform a building

assessment. Instead, Brodsky and Rosenberg simply made three trips

to the property.           While on site, Brodsky spoke to the property

manager and maintenance supervisor, as well as a few tenants, and

viewed approximately twenty to thirty units.                   And although Brodsky

reviewed statements of how money was spent on capital improvements,

he did not ask to review maintenance records. Rosenberg spent only

two and a half hours on site, meeting with Peebles and visiting the

model apartment and one other occupied unit.

     This limited diligence failed to uncover structural defects

that,    according     to     Colony’s       own    complaint,        “were   readily

discernible” at the time it bought the building.                       Colony cannot

escape   the    consequences     of    its      failure   to    act   with    adequate

diligence by claiming that it justifiably relied on the vague oral

representations of the building manager who was neither an engineer

nor an architect, and had worked at the thirty-five year old

property only for one year.

     Because both negligent and fraudulent misrepresentation claims

require a plaintiff’s reliance be reasonable, See Raritan, 367

S.E.2d at 612; Libby Hill Seafood Restaurants, Inc. v. Owens, 303

S.E.2d 565, 568 (N.C. App. 1983), Colony cannot prevail against

AIMCO.   We affirm the grant of summary judgment to AIMCO.

                                           11
                                      IV.

      Colony   next   argues   that    the    district   court    abused   its

discretion in denying Colony’s request, after our remand, to

supplement its expert disclosure under Federal Rule of Civil

Procedure 26.     This argument fails.

      Rule 26 requires a party to notify the court “if the party

learns that in some material respect the information disclosed is

incomplete or incorrect.”      Fed. R. Civ. P. 26(e)(1).         But this duty

does not permit a party to make an end-run around the normal

timetable for conducting discovery. Instead, it requires that “any

additions or other changes to this information shall be disclosed

by the time the party’s disclosures under Rule 26(a)(3) are due.”

Id.   (emphasis   added).      Because      Rule   26(a)(3)   requires     that

disclosure be made at the time “directed by the court,” the

relevant deadline for supplementation of expert witness disclosures

in this case was the end of the discovery period provided by the

district court’s original scheduling order -- a date that passed

six months prior to the district court’s first grant of summary

judgment.

      As Colony’s motion was untimely under Rule 26, Rule 6(b)(2)’s

“excusable neglect” standard applies.              That Rule provides in

relevant part:

      When by these rules . . . or by order of court an act is
      required or allowed to be done at or within a specified
      time, the court for cause shown may at any time in its
      discretion . . . upon motion made after the expiration of

                                      12
       the specified period permit the act to be done where the
       failure to act was the result of excusable neglect.

Fed. R. Civ. P. 6(b)(2) (emphasis added).      “‘Excusable neglect’ is

not easily demonstrated, nor was it intended to be.”         Thompson v.

E. I. DuPont de Nemours & Co., 76 F.3d 530, 534 (4th Cir. 1996).

In determining whether a party has shown excusable neglect, a court

will consider: (1) the danger of prejudice to the non-moving party;

(2) the length of delay and its potential impact on judicial

proceedings; (3) the reason for the delay; and (4) whether the

movant acted in good faith.    Id. at 533.    The most important factor

is the third -- the reason for the delay.          Id. at 534.    Merely

establishing these elements does not entitle a party to relief;

rather, “whether to grant an enlargement of time still remains

committed to the discretion of the district court.”          Id. at 532

n.2.   We therefore review an excusable neglect ruling for abuse of

discretion.    See United States v. Borromeo, 945 F.2d 750, 754 (4th

Cir. 1991).

       The district court concluded that Colony’s motion resulted

from its desire to “improve its case and attempt to correct what it

perceives as the mistakes of prior counsel.”       The court also found

that Colony, “plainly concerned that the Motion to Strike [Colony’s

expert] will be successful,” sought to “address[] the Defendant’s

stated    concerns   about   the   adequacy   of   expert   designations

previously provided by Colony’s former counsel.”            Finally, the

court concluded that Colony had not sufficiently demonstrated its

                                   13
expert’s unavailability (although it left open the possibility of

allowing Colony to replace that expert if the case proceeded past

summary judgment). Like the district court, we think it clear that

the failings of prior counsel do not constitute excusable neglect.4

See,       e.g.,   Thompson,   76   F.3d   at   533   (“[T]he   [Supreme]   Court

specifically observed that it was appropriate to hold a client

accountable for the mistakes of counsel.”).                We therefore affirm

the district court’s decision not to allow Colony to supplement its

expert disclosures.

                                           V.

       Finally, Colony asserts that the district court erred in

permitting Abacus and AIMCO to renew their summary judgment motions

and in denying Colony’s request to supplement its opposition to

those motions.        These arguments too must fail.

       Colony cites no authority -- and we know of none -- to support

the proposition that the district court lacked the authority to

permit renewal of the summary judgment motions on the merits.                 The

       4
      Colony implies that the district court erred in concluding
that it was only seeking to update the work of its prior counsel.
See Brief of Appellant at 48-49 (noting that supplementation was
required to introduce evidence about the “Arizona litigation”
between Abacus and EF&A).     The district court considered and
rejected that interpretation of Colony’s motivation for filing its
motion to supplement. We are bound by that factual finding unless
it is clearly erroneous.     See In re Vitamins Antitrust Class
Actions, 327 F.3d 1207, 1209 (D.C. Cir. 2003). We do not think it
is.

                                           14
parties fully briefed those motions, and their arguments were in no

way affected by our prior ruling.       Thus, the court acted entirely

within its discretion.

     Colony’s claim that the district court erred by denying it the

right to update its oppositions also fails.      Colony’s request came

after the expiration of the pre-trial discovery order and briefing

schedule.   Colony had plenty of time to file its response to these

summary judgment motions.   Indeed, it did file a response.     Hence,

in order to file this untimely, updated brief, Colony must satisfy

the excusable neglect standard of Rule 6(b)(2).

     As with the motion to supplement, Colony cannot demonstrate

excusable neglect because it cannot establish sufficient reason for

the delay. The district court again attributed to Colony “a desire

to re-do much of prior counsel’s efforts, now finding them somewhat

lacking.”   We agree, and therefore find no abuse of discretion in

the district court’s refusal to allow Colony to supplement its

opposition to summary judgment.

                                  VI.

     For all the foregoing reasons, the judgment of the district

court is

                                         AFFIRMED IN PART AND REVERSED
                                                 AND REMANDED IN PART.

                                  15