Court Opinion

ID: 2964241
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:22:39.24134+00
Date Added: 2024-06-11T11:42:53.186265
License: Public Domain

USCA1 Opinion

	

          July 31, 1996     United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________

          No. 95-2329

                           WAINWRIGHT BANK & TRUST COMPANY,

                                Defendant, Appellant,

                                          v.

                              GREGORY W. BOULOS, ET AL.,

                          Third Party Defendants, Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF NEW HAMPSHIRE

                   [Hon. Steven J. McAuliffe, U.S. District Judge]
                                              ___________________

                                 ____________________

                                        Before

                               Torruella, Chief Judge,
                                          ___________
                           Stahl and Lynch, Circuit Judges.
                                            ______________

                                 ____________________

                                     Errata Sheet
                                     Errata Sheet

               The  opinion of  this  Court issued  on  July 17,  1996,  is
          amended as follows:

                    Page 16, line  8, change  second "Boulos"  to
                    read "Wainwright"

                            United States Court of Appeals
                                For the First Circuit
                                 ____________________

        No. 95-2329

                           WAINWRIGHT BANK & TRUST COMPANY,

                                Defendant, Appellant,

                                          v.

                              GREGORY W. BOULOS, ET AL.,

                          Third Party Defendants, Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF NEW HAMPSHIRE

                   [Hon. Steven J. McAuliffe, U.S. District Judge]
                                              ___________________

                                 ____________________

                                        Before

                                Torruella, Chief Judge,
                                           ___________
                           Stahl and Lynch, Circuit Judges.
                                            ______________

                                 ____________________

            Robert M. Shepard with whom Smith-Weiss and Zall, PC was on brief
            _________________           ________________________
        for appellants.
            Harold J. Friedman with whom Karen Frink Wolf and Friedman &
            __________________           ________________     __________
        Babcock was on brief for appellees.
        _______

                                 ____________________

                                    July 17, 1996
                                 ____________________

                      STAHL, Circuit Judge.  Appellant Wainwright Bank
                      STAHL, Circuit Judge.
                             _____________

            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.
                                          I.
                                          __

                                        Facts
                                        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.
            ________    ____________________

            1994).  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. 

                                
            ____________________

            1.  Because there is no need to distinguish Gregory W. Boulos
            from The  Boulos Company  (a corporation), for  simplicity we
            refer to Boulos as an individual.

                                         -2-
                                          2

            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

                                         -3-
                                          3

            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

                                         -4-
                                          4

            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.
                                         II.
                                         ___

                                  Prior Proceedings
                                  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

                                         -5-
                                          5

            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.

                                         -6-
                                          6

                                         III.
                                         III.
                                         ____

                                      Discussion
                                      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

                                         -7-
                                          7

            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

                                         -8-
                                          8

                      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
                      while this contract certainly isn't
                      perfect and could certainly be better,
                      it's not inadequate.  And its meaning I
                      think is reasonably determined from the
                      contract and the evidence presented.

                      Earlier, in Wainwright's closing argument, the

            district court asked whether Wainwright needed expert

            testimony on a broker's standard of care in preparing a P&S

            agreement and whether Boulos breached it.  The court's

            questioning clearly indicated its belief that expert

            testimony was required.  But Wainwright's attorney replied

            that the testimony of Boulos -- who had substantial expertise

            in his field -- was sufficient to establish the standard of

            care, and that the ambiguous contract documents themselves

            were sufficient to show a breach of that standard.  The court

            never expressly ruled on whether expert testimony was needed. 

                      On appeal, both parties have assumed that the

            district court required expert testimony, even though it only

            stated that "the bank has not presented evidence" on the

            standard of care or Boulos's breach thereof.  The parties

                                         -9-
                                          9

            exert much effort arguing whether or not an expert was

            required.  We need not decide that issue, however.  Viewing

            the record independently, and assuming for the sake of

            argument that no expert was needed, we hold that Wainwright

            nonetheless failed to present sufficient evidence of either

            the applicable standard of care or that Boulos breached it.

                      Wainwright's burden of proving the standard of care

            applicable to the allegedly ambiguous P&S, and a breach

            thereof, is difficult -- perhaps impossible -- given the

            court's well-supported finding that Wainwright was "planning

            on accounting for the sale in some manner other than at the

            face value of the contract."  The record does not indicate

            whether Zocco and Wainwright hoped to confound its regulators

            or effect some other purpose.  It is obvious, though, that

            Zocco injected a significant element of confusion and

            duplicity into the transaction.  A vague and ambiguous P&S

            contract would seem to be exactly what Wainwright wanted,

            giving it the "flexibility" to record an inflated price.  The

            evidence also showed that Boulos probably understood as much. 

                      Moreover, the buyer, Khanna, felt compelled to add

            language to protect himself from possible tax increases

            resulting from Wainwright's strategy, and Wainwright points

            to that same language as a primary source of its purported

            confusion.  Given the context in which Wainwright asked

            Boulos to work, the factfinder must ask:  What is the

                                         -10-
                                          10

            standard of care when the client wants to play games with the

            figures?  And is facial ambiguity a breach of the standard

            under such circumstances?

                      Wainwright asked the district court to rely on the

            testimony of Boulos to establish the standard of care.  The

            only pertinent testimony he provided was this:

                      [Bank's lawyer]:  When you agree to act
                      as an agent, do you agree with me that
                      you accept certain responsibilities?

                      [Boulos]:  Yes.

                      . . . .

                      [Bank's lawyer]:  And you agree that you
                      owe a responsibility to act in a
                      professional manner when marketing the
                      property?

                      [Boulos]:  Correct.

                      [Bank's lawyer]:  You have a
                      responsibility and obligation to
                      communicate all information that you
                      learn from prospective purchasers back to
                      your client, the seller.

                      . . . .

                      [Bank's lawyer]:  When you draw up a
                      purchase agreement on behalf of a seller
                      such as Wainwright, you have a
                      responsibility to do that carefully.

                      [Boulos]:  Correct.

                      [Bank's lawyer]:  To make sure that the
                      language in there is precise and reflects
                      the agreement of the parties.

                      [Boulos]:  That's correct.

                                         -11-
                                          11

            Thus, all the court heard about the standard of care was that

            the broker should "communicate all information," "act in a

            professional manner," draft the agreement "carefully," and

            provide "precise language" that "reflects the agreement of

            the parties."  

                      As the district court ruled, that limited testimony

            is insufficient to establish the applicable standard of care

            in a complex commercial transaction involving real and

            personal property, a financing commitment for both the

            purchase and the post-purchase improvement of the property,

            and tax consequences that may compel a buyer to allocate the

            price in a way that is not necessarily reflective of actual

            economic value.  And that testimony is certainly not enough

            where the seller has indicated its intent to record a sale

            price greater than the actual consideration.  We hold, even

            assuming that no expert testimony was necessary, that

            Wainwright failed to establish the standard of care owed by

            Boulos.  Thus, the district court properly denied

            Wainwright's claim that Boulos negligently prepared the P&S

            agreement.

                      Not only did Wainwright fail to establish the

            broker's standard of care in this context, it also failed to

            present evidence sufficient to allow a reasonable factfinder

            to conclude that Boulos breached any duty.  First, without

            evidence of the standard of care, there is no basis upon

                                         -12-
                                          12

            which a factfinder could determine breach.  Moreover, we are

            unpersuaded by the argument that the contract itself

            indicates a breach of duty.  Wainwright apparently argues

            that the preparation of this contract was per se negligent
                                                      ___ __

            because it was found by the district court to be ambiguous,

            requiring extrinsic evidence to interpret the parties' intent

            on a fundamental term, the price.  We decline to hold that a

            broker who prepares a contract that is facially ambiguous

            about the price is necessarily negligent, especially given

            the facts and circumstances of this case.

                      Wainwright also claims that Boulos breached his

            duty to present all relevant information about the

            transaction, asserting that Boulos should have sent it an

            earlier proposed contract that was never executed by Khanna

            because it contained an error in the purchase price. 

            Specifically, after Wainwright orally accepted Khanna's

            second, reduced offer of $1.1 million, Boulos drew up a

            purchase and sale agreement and sent it to Khanna.  Boulos

            testified that this agreement contained a typographic error,

            indicating a purchase price of $1.35 million, mistakenly

            reflecting an earlier offer from another prospective

            purchaser.  Because of this mistake, Khanna returned the

            unexecuted document to Boulos.  Wainwright contends that

            certain handwritten notations made by Khanna's attorney on

            that unexecuted contract would have alerted Wainwright to

                                         -13-
                                          13

            Khanna's mistaken view of the deal.  The unexecuted contract

            included a term stating that the purchase price consisted of

            "$250,000 in personal property."  A handwritten notation

            added to that term the following:  "and $850,000 for real

            estate."  This was a clearer allocation than was included in

            the final P&S at issue, which provided that "the purchase

            price of the property consists of $250,000 in personal

            property and the balance in real estate."

                      New Hampshire law imposes a duty on a broker who

            has a conflict of interest relating to the transaction to

            make a full disclosure of "`all facts which the agent knows

            or should know would reasonably affect the principal's

            judgment.'"  Reinhold v. Mallery, 599 A.2d 126, 129 (N.H.
                         ________    _______

            1991) (quoting Restatement (Second) of Agency   390).  In
                           ______________________________

            this case, there is no allegation whatever that Boulos was

            acting for his own account or had any other conflict of

            interest.  

                      The only authority Wainwright presents for its

            position states that a broker must disclose "all facts which

            are or may be material to the matter . . . or which might

            affect the principal's rights and interests or influence his

            action."  12 Am. Jur. 2d Brokers   89 (1964), cited in
                                     _______              ________

            Reinhold, 599 A.2d at 129.  We assume for the sake of
            ________

            argument that a New Hampshire court would follow that rule

            even where the broker has no conflict of interest.

                                         -14-
                                          14

                      The trial court expressly, and supportably, found

            that Boulos "provided Wainwright with all relevant

            information."  We hold that the judge did not clearly err in

            its fact-bound determination that the unexecuted contract was

            not relevant.  See Juno SRL v. S/V Endeavour, 58 F.3d 1, 4
                           ___ ________    _____________

            (1st Cir. 1995) (explaining that clearly erroneous standard

            applies to findings of fact, as well as mixed questions of

            law and fact, unless the latter are based on mistaken

            impression of applicable legal principles).  The district

            court's finding that Wainwright had intended to sell all the

            real and personal property for $1.1 million was supported by

            the evidence.  Thus, Wainwright and Khanna were actually in

            agreement about the intended purchase price, and the

            unexecuted agreement could not have alerted Wainwright to any

            problems or confusion.  Therefore, we agree with the district

            court that the unexecuted contract was not relevant to the

            transaction, in that it would not have influenced

            Wainwright's actions or affected its judgment. 

                      Accordingly, we affirm the district court's ruling

            that Wainwright failed to prove negligence or any other

            breach of fiduciary duty on the part of Boulos.

                      B. The Award of Commission to Boulos
                      ____________________________________

                      Wainwright makes two arguments in challenging the

            award of a $65,460 commission to Boulos: (1) Boulos must

            forfeit his commission because he breached his fiduciary duty

                                         -15-
                                          15

            to his client, Wainwright; and (2) Boulos is entitled to a

            commission on the sale of only the real property, and not the

            personal property included in the sale.  We also consider

            Wainwright's enigmatic argument that there was no valid

            purchase and sale agreement, and thus (we assume the argument

            goes), there can be no commission award to Boulos.

                      We have already rejected Wainwright's claim that

            Boulos breached his fiduciary duty to Wainwright, thus

            Wainwright's first argument must fail.  The second argument

            also fails, because the district court's finding that

            Wainwright intended to pay Boulos a commission on the entire

            sale of both real and personal property is supported by the

            evidence and is not clearly erroneous.  Where a contract is

            ambiguous on its face, extrinsic evidence is admissible to

            prove the parties' intent, Spectrum Enterprises, Inc. v. 
                                       __________________________

            Helm Corp., 329 A.2d 144, 146-47 (N.H. 1974), and the trier
            __________

            of fact's determination controls unless clearly erroneous, 

            Gel Sys., Inc. v. Hyundai Eng'g & Constr. Co., 902 F.2d 1024,
            ______________    ___________________________

            1027 (1st Cir. 1990).2  Indeed, the record suggests that,

                                
            ____________________

            2.  We  note that Wainwright  could argue, but  did not, that
            the court  erroneously considered  extrinsic evidence  of the
            parties' intent  regarding the commission,  when the  listing
            agreement   between   Wainwright  and   Boulos  unambiguously
            specified that the commission was payable on the sale of real
            estate, not  personal property.  But  Wainwright never raised
            that argument  before the  district court,  and it  cannot be
            raised  for the first  time on appeal,  even if  the bank had
            attempted to do so.  See Roche v. John Hancock Mut. Life Ins.
                                 ___ _____    ___________________________
            Co.,  81 F.3d 249, 257  n.6 (1st Cir.  1996) (explaining that
            ___
            arguments may not be raised for the first time on appeal).

                                         -16-
                                          16

            from the outset, Wainwright intended that Boulos market the

            entire property, and because the units were operated as

            college dormitories, the furnishings were an integral part of

            the property.  There is no evidence of any discussion between

            Boulos and Wainwright about allocating the purchase price

            between real and personal property, and the evidence

            indicates that the allocation was made solely by Khanna based

            on tax concerns.  

                      Finally, Wainwright's argument that there was no

            valid agreement between Wainwright and Khanna lacks merit. 

            Wainwright argues that because the written documents were

            ambiguous, there was no "meeting of the minds" and therefore

            no valid agreement.  From that premise, Wainwright apparently

            wants us to conclude that Boulos should get no commission, or

            (somewhat differently) that it is impossible to calculate the

            correct commission because the parties never agreed on a firm

            sale price.  We reject the premise, however, and therefore

            need not address the possible conclusions.  Wainwright's

            argument totally ignores the extrinsic evidence that was

            presented, which supported the court's finding that

            Wainwright and Khanna had indeed intended a sale for $1.1

            million.   We see no error -- and certainly no clear error --

            in the district court's finding that Wainwright understood

            and accepted Khanna's offer of $1.1 million.

                                         -17-
                                          17

                                         IV.
                                         IV.
                                         ___

                                      Conclusion
                                      Conclusion
                                      __________

                        For the foregoing reasons, the decision of the

            district court is affirmed.  Costs to the appellee.
                              ________

                                         -18-
                                          18