Court Opinion

ID: 2963507
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:11:07.601939+00
Date Added: 2024-06-11T11:42:42.312076
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USCA1 Opinion

	

          June 19, 1995         [NOT FOR PUBLICATION]
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

                                 ____________________

          No. 94-1598

                          TIDEMARK BANK FOR SAVINGS, F.S.B.,

                                Plaintiff - Appellant,

                                          v.

                           PETER R. MORRIS, AN INDIVIDUAL,
                        AND MARSHALL AND STEVENS INCORPORATED,

                               Defendants - Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                      [Hon. Patricia Saris, U.S. District Judge]
                                            ___________________
                     [Hon. A. David Mazzone, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                               Torruella, Chief Judge,
                                          ___________

                                Boudin, Circuit Judge,
                                        _____________

                           and Barbadoro,* District Judge.
                                           ______________

                                _____________________

               Frederic N. Halstrom, with whom Halstrom Law Offices, PC was
               ____________________            ________________________
          on brief for appellant.
               Joseph P. Musacchio, with whom Stephen W. Sutton and  Melick
               ___________________            _________________      ______
          & Porter were on brief for appellee Marshal and Stevens, Inc.
          ________

                                 ____________________
                              
          ____________________

          *  Of the District of New Hampshire, sitting by designation.

                                 ____________________

                    BARBADORO,  District  Judge.   The  plaintiff, Tidemark
                    BARBADORO,  District  Judge.
                                _______________

          Bank  for Savings,  F.S.B.  ("Tidemark"),1  appeals from  summary

          judgment granted in favor of the defendant, Marshall and Stevens,

          Inc.   Tidemark  argues  that the  district  court erred  in  its

          choice-of-law  analysis  and,  as  a result,  applied  the  wrong

          substantive  legal standard.  Finding  no error in  the choice of

          law, we affirm the district court's order.

                                    I.  BACKGROUND
                                    I.  BACKGROUND
                                        __________

                    In   1985,  Peter   Morris   received   a  $2   million

          construction loan from Tidemark to build a summer vacation  house

          on  Martha's  Vineyard  in  Massachusetts.    Morris  decided  to

          refinance the loan in 1987, and this time Tidemark agreed to loan

          Morris $3.5  million subject  to several conditions,  including a

          requirement  that Morris  have  the property  appraised.   Morris

          engaged  Marshall and  Stevens  to prepare  the appraisal,  which

          valued the property at $5.5 million.  Tidemark then made the loan

          in reliance on the appraisal and obtained a first mortgage on the

          Martha's  Vineyard  property.    Morris  subsequently  defaulted.

          After foreclosure,  Tidemark sold  the property at  a substantial

          loss.

                    Tidemark  is a  Virginia savings  institution  with its

          principle place of  business in Newport News, Virginia.  Marshall

                              
          ____________________

          1    Newport  News Savings  Bank  was  the  plaintiff during  the
          proceedings in district court.  In August 1993, Tidemark Bank for
          Savings, F.S.B.,  was substituted for Newport  News Savings Bank.
          Although the district court refers to the plaintiff as "Newport,"
          we use "Tidemark," which has been the plaintiff's name during the
          appeal.

                                         -2-

          and Stevens  is an Illinois corporation with  its principle place

          of  business in  Des Plaines,  Illinois.   Morris is  an Illinois

          resident.   Tidemark  filed  its complaint  against Marshall  and

          Stevens in  the  district of  Massachusetts alleging  negligence,

          negligent  misrepresentation,  and  breach  of  contract.2    The

          district  court invoked  Massachusetts'  choice-of-law rules  and

          determined  that  the  substantive  law of  Virginia  applied  to

          Tidemark's  negligence  and  negligent misrepresentation  claims,

          while  Illinois law  applied  to the  contract  claim.   It  then

          granted Marshall  and Stevens'  motion for summary  judgment with

          respect to all three claims. 

                    Tidemark  argues  on  appeal  that  the  district court

          misinterpreted  Massachusetts'  choice-of-law   rules.3    As   a

          result,  Tidemark contends  that the  district  court erroneously

          judged  its  negligence  and negligent  misrepresentation  claims

                              
          ____________________

          2   Tidemark sued Morris  in the  same action, but  later settled
          those claims. 

          3  We assume  for purposes of analysis that a choice must be made
          between  Massachusetts   and  Virginia  law   because  Tidemark's
          negligence  and  negligent  misrepresentation  claims  would have
          survived  if  they  had  been  judged  under  Massachusetts  law.
          Compare  Page v.  Frazier, 445  N.E.2d 148,  153-54 (Mass.  1983)
          _______  ____     _______
          (recognizing negligence cause of  action for misrepresentation to
          recover  purely  economic  loss  despite lack  of  privity  under
          certain circumstances)  and Craig v.  Everett M. Brooks  Co., 222
                                  ___ _____     ______________________
          N.E.2d 752, 755  (Mass. 1967) (same) with Ward v.  Ernst & Young,
                                               ____ ____     _____________
          435  S.E.2d  628, 631-32  (Va. 1993)  (holding  that no  cause of
          action exists for negligent misrepresentation absent privity) and
                                                                        ___
          Blake  Construction Co.  v. Alley,  353  S.E.2d 724,  726-27 (Va.
          _______________________     _____
          1987) (same).

                                         -3-

          under Virginia law,  rather than Massachusetts  law.4  We  review

          the  district court's  resolution of  the choice-of-law  issue de
                                                                         __

          novo.   CPC Int'l  v. Northbrook Excess  & Surplus  Ins., Co., 46
          ____    _________     _______________________________________

          F.3d 1211, 1214 (1st Cir. 1995).  

                                    II. DISCUSSION
                                    II. DISCUSSION
                                        __________

                    In  diversity of  citizenship cases,  we use  the forum

          state's choice-of-law rules.   Klaxon Co.  v. Stentor Elec.  Mfg.
                                         __________     ___________________

          Co., 313  U.S. 487, 496 (1941);  American Title Ins. Co.  v. East
          ___                              _______________________     ____

          West Fin. Corp., 959 F.2d 345, 348 (1st Cir. 1992).  Accordingly,
          _______________

          we are guided  in our analysis by the applicable decisions of the

          Massachusetts Supreme Judicial Court ("SJC").5

                    Massachusetts  eschews   any  particular  choice-of-law

          doctrine and instead employs a "functional approach" to choice of

          law.   Cosme v.  Whitin Mach.  Works, Inc.,  632 N.E.2d  832, 834
                 _____     _________________________

          (Mass. 1994).  A court using this approach must consider "various

          choice-influencing  considerations,  including those  provided in

          the  Restatement (Second) of  Conflict of Laws  (1971), and those

          suggested by various commentators."  Id. (citation omitted).  The
                                               ___
                              
          ____________________

          4  Because  Tidemark merely  alludes to its  contract claim,  and
          neither briefed  nor argued any  issue concerning that  claim, we
          deem it abandoned.   Ryan v.  Royal Ins. Co.,  916 F.2d 731,  734
                               ____     ______________
          (1st Cir. 1990);  Niziolek v. Ashe, 694  F.2d 282, 284  (1st Cir.
                            ________    ____
          1982).  

          5   Tidemark challenges our  denial of its motion  to certify the
          choice-of-law  question to the  SJC.  Tidemark's  failure to seek
          certification  in the  district court "considerably  weakens" its
          argument  for certification.  See  Boston Car Co.  v. Acura Auto.
                                        ___  ______________     ___________
          Div., Am. Honda Motor Co., 971 F.2d 811, 817 n.3 (1st Cir. 1992).
          _________________________
          Moreover,  since  sufficient  controlling  precedent  is  readily
          available  on   the  choice-of-law  standard,   certification  is
          unnecessary.   Snow v.  Harnischfeger Corp., 12  F.3d 1154,  1161
                         ____     ___________________
          (1st Cir. 1993), cert. denied, 115 S. Ct. 56 (1994).
                           ____________

                                         -4-

          SJC's most recent decisions on the subject suggest that the first

          step in this  process is  to identify and  apply the  Restatement

          sections  that are  most  analogous to  the  particular issue  in

          dispute.   See,  e.g., New  England Tel. &  Tel. Co.  v. Gourdeau
                     ___   ____  _____________________________     ________

          Constr. Co., 647 N.E.2d 42, 44-45 (Mass. 1995); Cosme, 632 N.E.2d
          ___________                                     _____

          at  834-36; Travenol Labs., Inc. v. Zotal, Ltd., 474 N.E.2d 1070,
                      ____________________    ___________

          1073 (Mass. 1985);  Bushkin Assocs.,  Inc. v.  Raytheon Co.,  473
                              ______________________     ____________

          N.E.2d 662, 668  (1985).  The results obtained by  using the most

          analogous Restatement sections are then evaluated in light of the

          more general choice-influencing  considerations described in    6

          of the Restatement and other  similar sources.6 Cosme, 632 N.E.2d
                                                          _____

          at  834-36.  Following this approach, we begin by identifying and

          applying  the  section  of  the Restatement  which  most  closely

          applies to Tidemark's claims.   

          A.  Restatement   148(2)
          A.  Restatement   148(2)
              ____________________

                    Like the district court,  we conclude that    148(2) of

          the Restatement is most  directly applicable to Tidemark's claims

          since  that  section  governs  choice-of-law  issues   where  the

          defendant's  misrepresentation  and   the  plaintiff's   reliance

          occurred in  different states.  Restatement  (Second) of Conflict

          of  Laws   148(s)  (1971).   Section  148(2) lists  the following

          factors that  a court should consider  in resolving choice-of-law

          questions in such cases:
                              
          ____________________

          6   Although the SJC has not limited itself to the Restatement as
          a  source  of  guidance, we  confine  our  analysis  here to  the
          Restatement  since the parties do  not draw our  attention to any
          additional  choice-of-law  principles  that  should   effect  our
          analysis.

                                         -5-

                      (a)  the  place,  or  places,  where  the
                      plaintiff  acted  in  reliance  upon  the
                      defendant's representations,
                      (b)   the   place  where   the  plaintiff
                      received the representations,
                      (c)  the place  where the  defendant made
                      the representations,
                      (d) the  domicil, residence, nationality,
                      place  of  incorporation  and   place  of
                      business of the parties,
                      (e)  the  place  where a  tangible  thing
                      which  is the subject  of the transaction
                      between the parties  was situated at  the
                      time, and
                      (f) the  place where the plaintiff  is to
                      render performance under a contract which
                      he has been induced to enter by the false
                      representations of the defendant.

          Id.  We  first consider factors (a), (b), (c),  which concern the
          ___

          places  where the  misrepresentations  were  made, received,  and

          acted upon.

                    1.  The  place or  places where  the misrepresentations
                    1.  The  place or  places where  the misrepresentations
                        were made, received, and acted upon. 
                        were made, received, and acted upon.

                    None of these three factors favors Tidemark's position.

          Taken   chronologically,  factor   (c),  the   place  where   the

          misrepresentations  were made,  favors neither  Massachusetts nor

          Virginia law.   Although the appraisal was  partially prepared in

          Massachusetts, it  was finalized  and released from  Marshall and

          Stevens'  Illinois office.    Factors (b),  the  place where  the

          misrepresentations were  received, and  (a), the place  where the

          plaintiff acted in reliance  on the misrepresentation, both favor

          Virginia  law since  Tidemark received  the appraisal,  agreed to

          make  the loan, and disbursed the loan proceeds from its Virginia

          office.   The record  does not identify the  place where the loan

          closing occurred.   However,  even if, as  Tidemark alleges,  the

                                         -6-

          closing  had occurred  in Massachusetts, that  fact is  of little

          significance since Tidemark's claims  concern the effect that the

          appraisal had on its Virginia-based decision to make the loan and

          its disbursal of the proceeds of the loan from Virginia.

                    2.  Other factors.
                    2.  Other factors.

                    Factor   (d),  concerning   the   parties'  states   of

          incorporation and  places of  business, also provides  no support

          for Tidemark's position since  Tidemark is a Virginia corporation

          based  in  Virginia, and  Marshall  and  Stevens is  an  Illinois

          corporation based  in Illinois.    Even if,  as Tidemark  argues,

          Morris should  be considered a resident  of Massachusetts because

          he once used the Martha's Vineyard house as a vacation home,  his

          place  of residence would be  irrelevant because Morris  is not a

          party to the claims at  issue here.  Factor (f), the  place where

          the plaintiff  performed the contract, favors  Virginia law since

          Tidemark  performed its  primary obligation  to Morris  under the

          loan contract by  disbursing the loan proceeds from  its Virginia

          office. 

                    The only  factor that supports  Tidemark's position  is

          factor (e), the location of the property which was the subject of

          the  transaction.  The section's comment  states that this factor

          "is of particular  importance when the subject of the transaction

          is land."  Restatement (Second) of Conflict of Laws   148 cmt. i.

          Nevertheless, the location of the  property carries comparatively

          little weight in this case because the alleged misrepresentations

          did not directly  affect the  property.  Instead,  the harm  that

                                         -7-

          Tidemark allegedly suffered occurred  primarily in Virginia where

          the decision to make the loan was made.  

                    Considering  all  of the     148(2)  factors and  their

          relative significance, we  agree with the district court that, on

          balance, the   148(2) factors  favor the application of  Virginia

          law. 

                                         -8-

          B.  Restatement   6(2)
          B.  Restatement   6(2)
              __________________

                    Tidemark  contends that  the  district  court erred  by

          failing  to interpret  the results  of its    148(2)  analysis in

          light  of  the  more  general  choice-influencing  considerations

          described  in    6(2)  of the  Restatement.7   As  we demonstrate

          below,  consideration  of  these factors  does  not  cause  us to

          question the district court's conclusion. 

                    1.  The needs of the interstate system.
                    1.  The needs of the interstate system.

                    Neither party  has suggested that choosing  one state's

          law  over the other would  impede the workings  of the interstate

          system.  Although the impact  of various states' negligence rules

          on interstate banking and the availability of interstate mortgage

          transactions might raise concern in some cases, we find no reason

          to address such issues on the record presented here.    

                    2.  The  relevant policies  and  relative interests  of
                    2.  The  relevant policies  and  relative interests  of
                        Massachusetts  and  Virginia   in  the   negligence
                        Massachusetts  and  Virginia   in  the   negligence
                        claims.
                        claims.

                    Virginia   plainly  has   a  significant   interest  in
                              
          ____________________

          7  Section 6 provides the following factors:

                      (a) the  needs  of  the   interstate  and
                          international systems, 
                      (b) the relevant policies of the forum,
                      (c) the relevant policies of other states
                          and  the  relative interest  of those
                          states  in  the determination  of the
                          particular issue
                      (d) the    protection     of    justified
                          expectations,
                      (e) the  basic  policies  underlying  the
                          particular field of law,
                      (f) certainty,     predictability     and
                          uniformity of result, and
                      (g) ease   in   the   determination   and
                          application of the law to be applied.

                                         -9-

          litigation involving  a Virginia plaintiff.   Virginia has chosen

          not  to recognize tort claims to recover purely economic loss for

          negligently  supplied misinformation  absent privity  between the

          parties.   Ward, 435 S.E.2d  at 631-32.   Instead, under Virginia
                     ____

          law,  a  plaintiff  may  recover economic  losses  caused  by the

          failure of contractual  duties only  in a contract  action.   Id.
                                                                        ___

          The purpose of  Virginia's "economic loss  rule" is "to  preserve

          the bedrock principle  that contract damages be limited  to those

          'within the contemplation  and control of the  parties in framing

          their agreement.'"   Richmond v. Madison  Management Group, Inc.,
                               ________    _______________________________

          918 F.2d 438, 446 (4th Cir. 1990) (quoting Kamlar Corp. v. Haley,
                                                     ____________    _____

          299 S.E.2d 514, 517 (Va. 1983)).  

                    Massachusetts, on the  other hand, has  little interest

          in  this  case.    Although  Massachusetts'  policy  would  favor

          compensating Massachusetts plaintiffs  and holding  Massachusetts

          defendants accountable under its  own law, see Cosme,  632 N.E.2d
                                                     ___ _____

          at 836,  none  of  the  parties  are  Massachusetts  citizens  or

          corporations.    Further,  although  the  appraised  property  is

          located in Massachusetts, the transaction did not directly affect

          the  property,  and  the  parties  no  longer  own  or  have  any

          connection with  the property.   Thus, Massachusetts  has minimal

          interest in the parties and the outcome of this case.  

                    3.  Protection of justified expectations.
                    3.  Protection of justified expectations.

                    This  factor  is  insignificant in  negligence  actions

          where   the  parties  probably   acted  without  considering  the

          significance of the applicable rule of law.  Restatement (Second)

                                         -10-

          of Conflict of Laws   6 cmt. g.  Tidemark contends, however, that

          it expected  that Massachusetts  law would  apply to  all actions

          related to  the loan because  the mortgage  document contained  a

          choice-of-law  clause  specifying  that  the  mortgage  would  be

          governed  by Massachusetts law.   Marshall and Stevens  was not a

          party to the mortgage, and Tidemark's claims are not based on the

          mortgage agreement.   If  Tidemark expected Massachusetts  law to

          apply to  potential negligence claims against  an appraiser based

          on the mortgage agreement, its expectation was unjustified.

                    4.  Basic policies underlying the field of law.
                    4.  Basic policies underlying the field of law.

                    The policy  supporting  tort recovery  for  negligently

          supplied information  is to  encourage honesty and  competence in

          the undertaking.  See  Restatement (Second) of Torts   552 cmt. a
                            ___

          (1977).    Section  552  of the  Restatement  (Second)  of Torts,

          pertaining to  negligent misrepresentation claims,  however, also

          recognizes the importance of a countervailing policy to limit the

          scope  of liability in light of the potentially broad circulation

          of  misinformation.  Id.;  see, e.g., Berschauer/Phillips Constr.
                               ___   ___  ____  ___________________________

          Co. v.  Seattle Sch.  Dist. No.  1, 881  P.2d 986,  989-90 (Wash.
          ___     __________________________

          1994); Matthew S.  Steffey, Negligence, Contract  and Architects'
                                      _____________________________________

          Liability for Economic Loss, 82 Ky. L.J. 659, 701 (1994); William
          ___________________________

          C. Way,  The Problem  of Economic Damages:  Reconceptualizing the
                   ________________________________________________________

          Moorman Doctrine, 1991 U. Ill. L. Rev. 1169, 1186-87 (1991).   In
          ________________

          light of  this countervailing policy, a solid minority of states,

          including  Virginia,  require  privity  in order  to  maintain  a

          misrepresentation claim.   See Bily  v. Arthur Young  & Co.,  834
                                     ___ ____     ___________________

                                         -11-

          P.2d  745, 755-59  (Cal. 1992)  (finding that  approximately nine

          states  require  privity  while   at  least  seventeen  do  not).

          Consequently, the  policies underlying this  area of  law are  in

          conflict and support both states' interpretations.  

                    5.  Predictability and uniformity of result.
                    5.  Predictability and uniformity of result.

                    Predictability and uniformity of results are of limited

          significance in  negligence actions  because parties do  not plan

          their activities  in light  of the potential  legal consequences.

          Restatement (Second) of  Conflict of Laws    6 cmt. i.   However,

          the  Restatement also  notes  that a  choice  of law  that  would

          further  the  predictability  and  uniformity  of  results  would

          discourage forum  shopping.  Id.   Because Massachusetts  joins a
                                       ___

          majority  of  states  in  allowing economic  loss  suits  without

          privity, application  of Massachusetts law arguably might further

          a uniform legal standard.   There is little benefit,  however, in

          encouraging  a majority  rule over  a significant  minority view.

          Thus, this consideration is also inconclusive.  

                    6.  Ease in determination and application of the law.
                    6.  Ease in determination and application of the law.

                    Because  a federal  court was the  forum here,  we give

          less  weight  to the  ease  of  applying Massachusetts  law  over

          Virginia law.  See Allstate Ins.  Co. v. Hague, 449 U.S. 302, 326
                         ___ __________________    _____

          (1981)  (Stevens,  J.,  concurring).     Moreover,  Virginia  law

          relating  to claims for  economic loss  without privity  is well-

          developed.  Thus, we  find no obstacles to applying  Virginia law

          in  a Massachusetts federal court in this case.  Indeed, Tidemark

          faults the  district court's  choice but not  its application  of

                                         -12-

          Virginia law.

                    In  summary,  the  predominance  and   significance  of

          Virginia's contacts with the  parties and relevant occurrences in

          this case weighs in favor of applying Virginia law.  Based on the

          balance of the appropriate choice-influencing  considerations, we

          hold that  the district  court's selection  of  Virginia law  was

          correct. 

                                    IV. CONCLUSION
                                    IV. CONCLUSION
                                        __________

                    We  conclude that the district court did not err in its

          choice  of Virginia law.  Because Tidemark does not challenge the

          district  court's  interpretation  of  that law,  our  review  is

          complete.  The district court's judgment in favor of Marshall and

          Stevens is affirmed.  
                     ________

                                         -13-