Court Opinion

ID: 2963580
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:12:22.789099+00
Date Added: 2024-06-11T11:42:43.164525
License: Public Domain

USCA1 Opinion

	

                            United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________

        No. 94-1767

              RHODE ISLAND DEPOSITORS ECONOMIC PROTECTION CORP., ET AL.,

                                Plaintiffs, Appellees,

                                          v.

                            JOHN A. HAYES AND IOLA HAYES,

                               Defendants, Appellants,

                                          v.

                              STEVEN M. MCINNIS, ET AL.,

                                Defendants, Appellees,

        No. 94-1768

              RHODE ISLAND DEPOSITORS ECONOMIC PROTECTION CORP., ET AL.,

                                Plaintiffs, Appellees,

                                          v.

                                ROBERT P. MCGOLDRICK,

                                Defendant, Appellant,

                                          v.

                              STEVEN M. MCINNIS, ET AL.,

                                Defendants, Appellees.
                                 ____________________

                    APPEALS FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                       [Hon. Rya W. Zobel, U.S. District Judge]
                                           ___________________
                                 ____________________

                                        Before

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

                                 ____________________

            Mark A. Stull  with whom Dennis  F. Gorman and Fletcher,  Tilton &
            _____________            _________________     ___________________
        Whipple, P.C. were on brief for appellants.
        _____________
            Allen  N.  David with  whom Harvey  Weiner, Maureen  Mulligan, and
            ________________            ______________  _________________
        Peabody & Arnold were on brief for appellees.
        ________________

                                 ____________________

                                  September 7, 1995
                                 ____________________

                      STAHL,  Circuit  Judge.     Limited  partners   who
                      STAHL,  Circuit  Judge.
                              ______________

            personally  guaranteed  the  partnership's  obligations  to a

            credit union seek indemnification  on their guaranty, as well

            as damages, from the attorney (and his law firm) representing

            the partnership.  The district court entered summary judgment

            for the attorneys.  We now affirm.  

                                          I.
                                          I.
                                          __

                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
                       ________________________________________

                      During the  heady  late eighties,  Carol  Lavin,  a

            Jamestown, Rhode  Island real estate agent,  conceived a plan

            to  purchase and develop luxury homes on an eighty-acre tract

            of land located in Jamestown.  Lavin, a novice at real estate

            development,  enlisted her  husband Kevin  Lavin, her  sister

            Janice  Barron, and  her brother-in-law  James Barron  in the

            project.   The new venturers were  equally unknowledgeable in

            the nuances of real estate development. 

                      Lavin   approached   the  parcel's   owners,  David

            Henderson and  Donald Huggins  ("sellers"),  who indicated  a

            willingness to sell  their land for  $2.7 million.   Although

            the  price  seemed  high,  the Lavins  and  Barrons  remained

            interested.  However, to make the deal work, they needed more

            capital than they had.   In order to remedy  this deficiency,

            Carol Lavin  and Janice Barron contacted  dozens of potential

            investors,  including  appellants  John  and  Iola  Hayes and

            Robert McGoldrick.  During the summer of 1987, the Lavins and

                                         -3-
                                          3

            Barrons  met  with  the  Hayeses and  McGoldrick  on  several

            occasions  to   discuss  the  project.     A  rosy  financial

            projection of the completed development forecast a $2 million

            profit  for  the  venturers.   Eventually,  the  Hayeses  and

            McGoldrick, with a  vision of high returns,  agreed to invest

            in  the scheme.    Like the  Lavins  and Barrons,  the  three

            investors had no prior experience in real estate development.

                      On September 14, 1987, Carol Lavin,  Janice Barron,

            and  John  Hayes met  with appellee  Steven McInnis,  a Rhode

            Island attorney, about  legal representation for  the project

            ("September  14 meeting").   The  participants  discussed the

            project's form  and financing.  McInnis was  advised that the

            Hayeses and McGoldrick wished to  limit their investment to a

            total  of $200,000  (based  on a  $100,000 investment  by the

            Hayeses and  a $100,000  investment by McGoldrick).   McInnis

            suggested that rather than a general partnership  they form a

            limited partnership,  with the Hayeses and  McGoldrick as the

            limited partners and  the Lavins and  Barrons as the  general

            partners.   McInnis  indicated that  the prospective  limited

            partners (that is, the Hayeses and McGoldrick), might want to

            retain  their  own attorneys  to  represent  their interests.

            McInnis  agreed to  draft  the partnership  agreement and  to

            represent  the limited  partnership,  later named  Cedar Hill

            Developments, L.P. ("the partnership").

                                         -4-
                                          4

                      Sometime   after  the  September  14  meeting,  the

            Hayeses and McGoldrick (hereinafter, "limited  partners") and

            the  Lavins  and  Barrons (hereinafter,  "general  partners")

            discussed whether  they should  retain  separate counsel,  as

            suggested by  McInnis.  By deposition,  general partner Lavin

            testified, "we  all  decided  as  a group  to  let  [McInnis]

            represent us,"  and she  later communicated this  decision to

            McInnis.  In his  pretrial deposition, McInnis testified that

            "they [the general and  limited partners] indicated that they

            wished  me to perform certain tasks on behalf of the `group,'

            . .  . but it was  phrased more in the  context of performing

            certain, in their view,  relatively routine tasks required by

            either  the  bank or  the buyers  and  the seller."   McInnis

            denies  ever  agreeing  to  represent  the  limited  partners

            individually.  Throughout  the course of the  representation,

            all attorneys fees were billed to the partnership and paid by

            partnership funds.

                      The parties to  the transaction eventually hammered

            out the details of the transaction.  Of the $2.7 million sale

            price,  $300,000  was  to be  in  cash,  $900,000  was to  be

            financed  by the sellers (secured by a second mortgage on the

            parcel), and $1.5 million  was to be financed through  a bank

            loan.  In addition, the sellers were each to  receive a 12.5%

            limited partnership interest. 

                                         -5-
                                          5

                      Meanwhile,  Carol  Lavin attempted  to  secure bank

            financing.  The going  proved difficult.  Three institutions,

            including  the Marquette  Credit Union  ("Marquette"), turned

            down the group's loan application.  Later, Marquette reversed

            its position and  agreed to loan up  to $3.5 million  for the

            purchase  and  development  of  the  land.    However,  as  a

            condition  for  the  loan,   Marquette  required  a  personal

            guaranty  from  the Lavins,  the  Barrons,  the Hayeses,  and

            McGoldrick.  The Marquette commitment letter,  dated November

            6,  1987,  stated that  the  limited partners  would  have to

            guaranty  the loan personally  in the event  of a partnership

            default.   At some  point during  November 1987,  Carol Lavin

            informed   McInnis   of  Marquette's   guaranty  requirement.

            McInnis,  however, did  not participate  in the  negotiations

            with  Marquette,  and at  no point  did  any of  the partners

            request his participation.  Marquette prepared the guaranty.

                      On  December  11,  1987,  the  general  and limited

            partners convened  at  McInnis's  office  to  sign  documents

            effecting the formation of the partnership and executing bank

            documents  including  the  guaranty.   There  is  conflicting

            evidence in  the record  as to  whether the  limited partners

            knew  of  the  personal  guaranty requirement  prior  to  the

            December 11 meeting, although all three appear to have signed

                                         -6-
                                          6

            the  commitment  letter.1   In  any event,  at  this meeting,

            McGoldrick clearly evidenced his understanding of  the nature

            of his obligation, for he explicitly stated that he knew that

            he was  making himself personally liable for  the entire loan

            in the  event of  a default.   For  their  part, the  Hayeses

            recall nothing  about the  meeting or the  commitment letter,

            although  they acknowledge  their  signatures  appear on  the

            guaranty  agreement.  At no time, either prior to signing the

            commitment letter  or prior  to signing the  guaranty itself,

            did any of  the partners  request McInnis  to intervene  with

            Marquette to  seek removal  or modification of  the guaranty.

            Closing on the sale occurred on December 15, 1987.

                      The  development  quickly floundered.   Ultimately,

            only three homes were ever sold.  By August 1988, the Hayeses

            had retained separate counsel.  At that time,  they demanded,

            futilely,  a  return of  their  capital  contribution and  "a

            release  from  all  Limited  Partnership  obligations."    By

            January  1989, the  partnership defaulted  with more  than $2

            million outstanding.   Marquette failed in  early 1991.   Its

            receiver  held a foreclosure sale on April 17, 1991, at which

            it purchased the development for $850,000.

                      The   receiver  and  its  successor,  Rhode  Island

            Depositors Economic Protection Corporation ("DEPCO"), sued on

                                
            ____________________

            1.  The  Hayeses  now state  that  they  are uncertain  about
            whether their signatures appear on the commitment letter.

                                         -7-
                                          7

            the guaranty  to recover  $2,004,446, plus interest  and late

            charges.   The limited  partners, in turn,  instituted third-

            party  claims against  McInnis and  his law  firm, Cameron  &

            Mittleman      (collectively,      "attorneys"),      seeking

            indemnification and damages.   The district court granted the

            summary  judgment motions  of  both DEPCO  and the  attorneys

            against the limited  partners.  This appeal ensued.  However,

            because of  a  prior settlement  with DEPCO,  only the  third

            party claims are now on appeal.

                                         II.
                                         II.
                                         ___

                                      DISCUSSION
                                      DISCUSSION
                                      __________

                      The limited  partners raise two principal issues on

            appeal:  first, whether  they are entitled to indemnification

            by the attorneys for the amount owed to DEPCO, plus costs and

            attorneys  fees; and  second,  whether they  are entitled  to

            damages against the attorneys under theories  of malpractice,

            breach of  contract, and misrepresentation.   After  reciting

            the standard of review, we discuss each argument in turn.

            A.  Standard of Review
            ______________________

                      Summary judgment  is  appropriate when  the  record

            reflects "no genuine issue as to  any material fact and . . .

            the moving  party is entitled  to a  judgment as a  matter of

            law."  Fed. R. Civ. P.  56(c).  We review a grant  of summary

            judgment  de novo.  See, e.g.,  Colonial Courts Apartment Co.
                      __ ____   ___  ____   _____________________________

            v. Proc Assocs., 57 F.3d 119, 122 (1st Cir. 1995).  We review
               ____________

                                         -8-
                                          8

            the  record  in the  light  most favorable  to  the nonmoving

            party, and indulge all  reasonable inferences in that party's

            favor.  Id.
                    ___

            B.  Indemnification Claim
            _________________________

                      The limited  partners argue that the attorneys must

            indemnify  them because of negligence on  the part of McInnis

            and because of alleged  violation of Massachusetts securities

            laws.  We find indemnification inapposite in this context.  

                      We  begin with general  principles.2   "The concept

            of indemnity is based  upon the theory that one  who has been

            exposed to liability solely  as the result of a  wrongful act

            of  another  should be  able  to  recover from  that  party."

            Muldowney  v. Weatherking  Prods.,  Inc., 509  A.2d 441,  443
            _________     __________________________

            (R.I. 1986)  (citation omitted).   Thus,  one party  may seek

            full reimbursement from another  when he has fully discharged

            a  common, as opposed to "joint," liability.  W. Page Keeton,

            et  al., Prosser and Keeton on the Law of Torts   51 (5th ed.
                     ______________________________________

            1984) (hereinafter, "Prosser & Keeton").  Stated another way,

            "[i]f another person has  been compelled to pay  damages that

            should  have been paid  by the wrongdoer,  the latter becomes

            liable to the former."  Muldowney, 509 A.2d at 443.  
                                    _________

                      The Rhode Island Supreme  Court has made clear that

            an indemnification  cause of  action lies in  two situations:

                                
            ____________________

            2.  The  parties do not  dispute that the  substantive law of
            Rhode Island applies.

                                         -9-
                                          9

            first,  when  there  is  an   express  contractual  provision

            creating a  right of indemnity;3 and,  second, when equitable

            principles give  rise to  a right  to indemnification.   Less

            clear  is the  status  of a  third  theory, that  of  implied

            contractual  indemnification.   Although courts  have assumed

            that an  implied contractual indemnification cause  of action

            exists, see, e.g., A  & B. Constr.,  Inc. v. Atlas Roofing  &
                    ___  ____  ______________________    ________________

            Skylight Co., 867  F. Supp.  100, 107 (D.R.I.  1994); Roy  v.
            ____________                                          ___

            Star Chopper  Co., 442  F. Supp.  1010,  1019 (D.R.I.  1977),
            _________________

            aff'd,  584 F.2d 1124 (1st Cir. 1978), cert. denied, 440 U.S.
            _____                                  _____ ______

            916  (1979),  the  Rhode   Island  Supreme  Court  has  never

            explicitly so held.  For our purposes, we will assume that it

            does.  

                      Rhode  Island courts  will  allow  indemnity on  an

            equitable theory when three conditions obtain:

                      First, the party  seeking indemnity  must
                      be liable to a  third party.  Second, the
                      prospective   indemnitor  must   also  be
                      liable  to the  third party.   Third,  as
                      between  the  prospective indemnitee  and
                      indemnitor,  the  obligation ought  to be
                      discharged by the indemnitor.

            Muldowney, 509 A.2d  at 443-44.  The limited  partners' claim
            _________

            fails on the second and third prongs.  We know of no cause of

            action under which DEPCO would be able to proceed against the

            attorneys, a  point  which the  limited partners  essentially

            concede  in  their brief.    By  implication, therefore,  the

                                
            ____________________

            3.  No such agreement exists in this case.

                                         -10-
                                          10

            limited partners' claim also fails on the third prong.  "`The

            purpose  of  an indemnity  action  is  to  require the  party

            primarily  liable  to  hold  harmless  the  party secondarily

            liable.'"   Id.  at 444 (quoting  Helgerson v.  Mammoth Mart,
                        ___                   _________     _____________

            Inc.,  335 A.2d  339, 341  (R.I. 1975)).   Even  assuming the
            ____

            attorneys were negligent or disregarded securities laws, that

            does nothing to absolve the limited partners of their primary

            liability on the guaranty.  

                      For similar reasons,  the limited partners' implied

            contractual   indemnification   claim   also    fails.   "[A]

            contractual right  to indemnification  will  only be  implied

            when there are unique  special factors demonstrating that the

            parties  intended  that  the  would-be  indemnitor  bear  the

            ultimate  responsibility . . .  or when there  is a generally

            recognized special relationship between the parties."  Araujo
                                                                   ______

            v. Woods  Hole, Martha's Vineyard, Nantucket  S.S. Auth., 693
               _____________________________________________________

            F.2d 1,  2 (1st Cir. 1982) (citing Roy, 442 F. Supp. at 1019)
                                               ___

            (other citation omitted).  The limited partners fail to point

            to anything in the  record demonstrating the parties intended

            that the attorneys would bear ultimate responsibility for the

            guaranty.  Further, even  assuming a separate attorney-client

            relationship  existed  between the  limited partners  and the

            attorneys,  that is  not  the kind  of "generally  recognized

            special  relationship"   that  gives  rise   to  an   implied

            indemnitee-indemnitor relationship.   Cf. Prosser &  Keeton  
                                                  ___

                                         -11-
                                          11

            51  (special  relationships include,  inter  alia, employer's
                                                  _____  ____

            vicarious liability for the tort of a servant; an independent

            contractor, or an innocent partner,  or a carrier held liable

            for  the acts of another; an automobile owner held liable for

            the conduct of  the driver).  While  we do not  foreclose the

            possibility that an intent  to indemnify could possibly exist

            in the  attorney-client context, there is  simply no evidence

            supporting such a conclusion here.4

                      To sum  up, because there was  no express agreement

            to indemnify, and because the record  does not support either

            of the  other theories  of indemnification, we  conclude that

            the district  court properly  granted summary judgment  as to

            this claim.

            C.  Damages Claims
            __________________

                      The  limited  partners  also  asserted  claims  and

            sought  damages  for   professional  negligence,  breach   of

            contract,   and  misrepresentation.     The   district  court

                                
            ____________________

            4.  The    limited   partners   argue   that   a   claim   of
            indemnification lies whenever a putative  indemnitor fails to
            perform  his   "contractual  obligations  in   a  workmanlike
            manner."   Without  regard  to whether  the limited  partners
            state  a correct principle of  law, their argument is without
            force  because,  as we  discuss  fully  below, there  was  no
            contractual relationship between the limited partners and the
            attorneys.   Nor do we  agree with the  limited partners that
            they   acceded   to   enforceable   rights   as   third-party
            beneficiaries of  the contract between the  attorneys and the
            partnership.    We detect  no  evidence  indicating that  the
            partnership engaged  the attorneys' services with  the intent
            to  benefit the limited partners.  Cf. Davis v. New Eng. Pest
                                               ___ _____    _____________
            Control Co., 576 A.2d 1240, 1242 (R.I. 1990).  
            ___________

                                         -12-
                                          12

            determined that the limited partners' claims were time-barred

            as  they filed the present action more than three years after

            discovery of  the attorneys' alleged negligence.   Because we

            conclude that no attorney-client relationship existed in this

            case, we do not reach the statute-of-limitations issue.

                      Recovery  under the  damages  claims  rests on  the

            premise  that an attorney-client relationship existed between

            the limited  partners  and the  attorneys.5   See  Church  v.
                                                          ___  ______

            McBurney,  513 A.2d 22, 23 (R.I. 1986).  To determine whether
            ________

            such a relationship existed  in this case, we start  with the

            basic  proposition that  a  partnership is  a singular  legal

            entity, and  that when that  entity retains an  attorney, the

            partnership is the  client.   See, e.g., Ronald  E. Mallen  &
                                          ___  ____

            Jeffrey  M. Smith, Legal Malpractice    20.7, at  260 (3d ed.
                               _________________

            1989) (hereinafter, "Mallen & Smith").  Thus, an attorney for

            a  partnership  or for  a  general partner  does  not thereby

            undertake  representation  of  limited  partners.   Id.    An
                                                                ___

            attorney,  however,  may  expressly  or  impliedly  undertake

            simultaneous representation  of the partnership and a partner

            or limited partners.  Id. at 261.
                                  ___

                      The  Rhode Island  Supreme Court  has often  stated

            that   an  attorney-client  relationship  is  contractual  in

            nature,  and thus  is  the product  of  an agreement  of  the

                                
            ____________________

            5.  For  purposes  of  its  discussion,  the  district  court
            assumed that such a relationship existed in this case.

                                         -13-
                                          13

            parties and may be implied from their conduct.  Again, absent

            such a  contractual  relationship, the  attorneys would  have

            owed no duty  to the limited partners.  See  Church, 513 A.2d
                                                    ___  ______

            at 23.  We have said that, to imply a contract, including one

            between  an attorney and a client, the law requires more than

            an individual's  subjective, unspoken belief that  the person

            with whom he is dealing has become his lawyer.  Sheinkopf  v.
                                                            _________

            Stone, 927 F.2d 1259,  1260 (1st Cir. 1991).  Rather, if such
            _____

            a  belief is "to  form a foundation for  the implication of a

            relationship of trust and  confidence, it must be objectively

            reasonable under the totality of the circumstances."  Id.
                                                                  ___

                      Although  the  existence   of  an   attorney-client

            relationship  is  critical  to  their  success,  the  limited

            partners  offer only  minimal  argumentation  on this  point.

            After  close  examination,  we  conclude   that  the  limited

            partners'  claim  ultimately  rests  on  a subjective  belief

            completely  unsupported by  any indicia  that the  belief was

            objectively  reasonable or that the limited partners actually

            relied  on such  a belief.   Cf.  id. at  1266.   The limited
                                         ___  ___

            partners   point  principally   to  events   surrounding  the

            September 14  meeting as  evidence establishing  that McInnis

            agreed to represent their  interests separately.  However, at

            that  meeting McInnis recommended  that, because of potential

            conflicts  of interest,  the limited  partners might  wish to

            retain separate counsel.   Later, after  consultation between

                                         -14-
                                          14

            the general and limited  partners, general partner Lavin told

            McInnis that  the "group"  wanted McInnis to  represent them.

            Even construed in a light  favorable to the limited partners,

            we think  McInnis was reasonable in  understanding "group" to

            mean  the limited partnership as an entity.  Beyond this, the

            limited partners  point to  nothing that would  indicate that

            McInnis  agreed to  represent  them as  limited partners  and

            McInnis denies  having ever  agreed to represent  the limited

            partners.   Cf. Mallen & Smith   7.2 (whether attorney-client
                        ___

            relationship  created  depends  on  intent  of  the  parties,

            including that of  the attorney).   After the  nature of  the

            limited partners'  liability became  clear to them,  they did

            not seek  McInnis's help. Instead, two of  them (the Hayeses)

            sought separate counsel.

                      In  contrast,  the  record  strongly  supports  the

            implication  that  the   only  attorney-client   relationship

            involved in this transaction was that between McInnis and the

            partnership.   Again,  McInnis made  clear that he  agreed to

            represent the partnership while  suggesting that the  limited

            partners  seek   separate  counsel.    Although   not  itself

            determinative, McInnis  billed the partnership  directly, and

            the partnership paid all  fees out of partnership funds.   At

            least   through   August   1988,   the   scope  of   McInnis'

            representation appears to have  been limited to preparing the

                                         -15-
                                          15

            partnership    agreement,   reviewing    partnership's   loan

            documentation, and reviewing the purchase and sale agreement.

                      In the final analysis, we conclude that the limited

            partners  rely  on  nothing  more  than  repeated  conclusory

            assertions  about  the  nature  of  their  relationship  with

            McInnis, assertions  that are  completely unsupported  by any

            objective indicia.   That  is not  enough to survive  summary

            judgment  on  the  question  of  whether  an  attorney-client

            relationship actually  existed.   See Sheinkopf, 927  F.2d at
                                              ___ _________

            1266.   Consequently,  the  district court  properly  granted

            summary judgment on appellants' claims for damages.6

                                         III.
                                         III.
                                         ____

                                      CONCLUSION
                                      CONCLUSION
                                      __________

                      For  the foregoing  reasons,  the  decision of  the

            district court is affirmed.
                              affirmed.
                              ________

                                
            ____________________

            6.  Appellants present  a third theory of  recovery, grounded
            in Rhode Island's consumer protection statute.  See R.I. Gen.
                                                            ___
            L.   6-13.1.   By its terms, that statute  authorizes actions
            by either  the Attorney  General or  persons who  purchase or
            lease "goods  or services  primarily for personal,  family or
            household  purposes."  Id. at   6-13.1-5.2(a).  We agree with
                                   ___
            the  district court  that the  limited  partners do  not fall
            within this narrow definition.  

                                         -16-
                                          16