Rhode Island Corp. v. McInnis, 1st Cir. (1995)

7/26/2019 Rhode Island Corp. v. McInnis, 1st Cir. (1995)

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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,


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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


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FOR THE DISTRICT OF MASSACHUSETTS

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

____________________

Before


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Torruella, Chief Judge, ___________

Boudin and Stahl, Circuit Judges. ______________

____________________

Mark A. Stull with whom Dennis F. Gorman and Fletcher, T _____________ _________________ ___________

Whipple, P.C. were on brief for appellants. _____________

Allen N. David with whom Harvey Weiner, Maureen Mulli________________ ______________ ______________

Peabody & Arnold were on brief for appellees. ________________

____________________


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September 7, 1995

____________________


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STAHL, Circuit Judge. Limited partnersSTAHL, Circuit Judge.

______________

personally guaranteed the partnership's obligations to

credit union seek indemnification on their guaranty, as we

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

the partnership. The district court entered summary judgme

for the attorneys. We now affirm.

I. I. __


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FACTUAL BACKGROUND AND PRIOR PROCEEDINGS FACTUAL BACKGROUND AND PRIOR PROCEEDINGS ________________________________________

During the heady late eighties, Carol Lavin,

Jamestown, Rhode Island real estate agent, conceived a pl

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

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

development, enlisted her husband Kevin Lavin, her sist

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

project. The new venturers were equally unknowledgeable

the nuances of real estate development.

Lavin approached the parcel's owners, Da

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

willingness to sell their land for $2.7 million. Althou

the price seemed high, the Lavins and Barrons remain


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

capital than they had. In order to remedy this deficienc

Carol Lavin and Janice Barron contacted dozens of potenti

investors, including appellants John and Iola Hayes a

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

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Barrons met with the Hayeses and McGoldrick on sever

occasions to discuss the project. A rosy financi

projection of the completed development forecast a $2 milli

profit for the venturers. Eventually, the Hayeses a

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

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

investors had no prior experience in real estate developmen

On September 14, 1987, Carol Lavin, Janice Barro

and John Hayes met with appellee Steven McInnis, a Rho

Island attorney, about legal representation for the proje

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

project's form and financing. McInnis was advised that t


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Hayeses and McGoldrick wished to limit their investment to

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

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

suggested that rather than a general partnership they for

limited partnership, with the Hayeses and McGoldrick as t

limited partners and the Lavins and Barrons as the gener

partners. McInnis indicated that the prospective limit

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

retain their own attorneys to represent their interest

McInnis agreed to draft the partnership agreement and

represent the limited partnership, later named Cedar Hi

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


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Sometime after the September 14 meeting, t

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

the Lavins and Barrons (hereinafter, "general partners

discussed whether they should retain separate counsel,

suggested by McInnis. By deposition, general partner La

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


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represent us," and she later communicated this decision

McInnis. In his pretrial deposition, McInnis testified t

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

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

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

certain, in their view, relatively routine tasks required

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

denies ever agreeing to represent the limited partne

individually. Throughout the course of the representatio

all attorneys fees were billed to the partnership and paid

partnership funds.

The parties to the transaction eventually hammer

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

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


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

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

loan. In addition, the sellers were each to receive a 12.

limited partnership interest.

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Meanwhile, Carol Lavin attempted to secure ba

financing. The going proved difficult. Three institution

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

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

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

purchase and development of the land. However, as

condition for the loan, Marquette required a person

guaranty from the Lavins, the Barrons, the Hayeses, a

McGoldrick. The Marquette commitment letter, dated Novemb

6, 1987, stated that the limited partners would have

guaranty the loan personally in the event of a partners

default. At some point during November 1987, Carol La

informed McInnis of Marquette's guaranty requiremen


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McInnis, however, did not participate in the negotiatio

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

request his participation. Marquette prepared the guaranty

On December 11, 1987, the general and limit

partners convened at McInnis's office to sign documen

effecting the formation of the partnership and executing ba

documents including the guaranty. There is conflicti

evidence in the record as to whether the limited partne

knew of the personal guaranty requirement prior to t

December 11 meeting, although all three appear to have sign


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-6- 6

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

McGoldrick clearly evidenced his understanding of the natu

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

he was making himself personally liable for the entire lo

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

recall nothing about the meeting or the commitment lette


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although they acknowledge their signatures appear on t

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

commitment letter or prior to signing the guaranty itsel

did any of the partners request McInnis to intervene wi

Marquette to seek removal or modification of the guarant

Closing on the sale occurred on December 15, 1987.

The development quickly floundered. Ultimatel

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

had retained separate counsel. At that time, they demande

futilely, a return of their capital contribution and

release from all Limited Partnership obligations."

January 1989, the partnership defaulted with more than

million outstanding. Marquette failed in early 1991. I

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


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it purchased the development for $850,000.

The receiver and its successor, Rhode Isla

Depositors Economic Protection Corporation ("DEPCO"), sued

____________________

1. The Hayeses now state that they are uncertain abo

whether their signatures appear on the commitment letter.

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

charges. The limited partners, in turn, instituted thir

party claims against McInnis and his law firm, Cameron

Mittleman (collectively, "attorneys"), seeki

indemnification and damages. The district court granted t

summary judgment motions of both DEPCO and the attorne

against the limited partners. This appeal ensued. Howeve

because of a prior settlement with DEPCO, only the thi

party claims are now on appeal.

II. II. ___

DISCUSSION DISCUSSION

__________

The limited partners raise two principal issues


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appeal: first, whether they are entitled to indemnificati

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

attorneys fees; and second, whether they are entitled

damages against the attorneys under theories of malpractic

breach of contract, and misrepresentation. After reciti

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

A. Standard of Review ______________________

Summary judgment is appropriate when the reco

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

the moving party is entitled to a judgment as a matter

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

judgment de novo. See, e.g., Colonial Courts Apartment C

__ ____ ___ ____ __________________________

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


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____________

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the record in the light most favorable to the nonmovi

party, and indulge all reasonable inferences in that party

favor. Id. ___

B. Indemnification Claim _________________________


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The limited partners argue that the attorneys mu

indemnify them because of negligence on the part of McInn

and because of alleged violation of Massachusetts securiti

laws. We find indemnification inapposite in this context.

We begin with general principles.2 "The conce

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

exposed to liability solely as the result of a wrongful a

of another should be able to recover from that party

Muldowney v. Weatherking Prods., Inc., 509 A.2d 441, 4 _________ __________________________

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

full reimbursement from another when he has fully dischar

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

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


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

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

should have been paid by the wrongdoer, the latter beco

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

The Rhode Island Supreme Court has made clear t

an indemnification cause of action lies in two situation

____________________

2. The parties do not dispute that the substantive law

Rhode Island applies.

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first, when there is an express contractual provisi

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

principles give rise to a right to indemnification. Le

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

contractual indemnification. Although courts have assu

that an implied contractual indemnification cause of acti

exists, see, e.g., A & B. Constr., Inc. v. Atlas Roofing___ ____ ______________________ _____________

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

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


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

916 (1979), the Rhode Island Supreme Court has ne

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

does.

Rhode Island courts will allow indemnity on

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' cla _________

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

action under which DEPCO would be able to proceed against t


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attorneys, a point which the limited partners essential

concede in their brief. By implication, therefore, t

____________________

3. No such agreement exists in this case.

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limited partners' claim also fails on the third prong. "`T


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purpose of an indemnity action is to require the par

primarily liable to hold harmless the party secondari

liable.'" Id. at 444 (quoting Helgerson v. Mammoth Mar ___ _________ __________

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

attorneys were negligent or disregarded securities laws, t

does nothing to absolve the limited partners of their prima

liability on the guaranty.

For similar reasons, the limited partners' impli

contractual indemnification claim also fails. "[

contractual right to indemnification will only be impli

when there are unique special factors demonstrating that t

parties intended that the would-be indemnitor bear t

ultimate responsibility . . . or when there is a general


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recognized special relationship between the parties." Arau ___

v. Woods Hole, Martha's Vineyard, Nantucket S.S. Auth., 6 _____________________________________________________

F.2d 1, 2 (1st Cir. 1982) (citing Roy, 442 F. Supp. at 101 ___

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

to anything in the record demonstrating the parties inten

that the attorneys would bear ultimate responsibility for t

guaranty. Further, even assuming a separate attorney-clie

relationship existed between the limited partners and t

attorneys, that is not the kind of "generally recogniz

special relationship" that gives rise to an impli

indemnitee-indemnitor relationship. Cf. Prosser & Keeton___

-11-


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11

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

vicarious liability for the tort of a servant; an independe

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

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

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

possibility that an intent to indemnify could possibly exi


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

supporting such a conclusion here.4

To sum up, because there was no express agreeme

to indemnify, and because the record does not support eit

of the other theories of indemnification, we conclude t

the district court properly granted summary judgment as

this claim.

C. Damages Claims __________________

The limited partners also asserted claims a

sought damages for professional negligence, breach

contract, and misrepresentation. The district cou

____________________

4. The limited partners argue that a claim


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indemnification lies whenever a putative indemnitor fails

perform his "contractual obligations in a workmanli

manner." Without regard to whether the limited partne

state a correct principle of law, their argument is witho

force because, as we discuss fully below, there was

contractual relationship between the limited partners and t

attorneys. Nor do we agree with the limited partners t

they acceded to enforceable rights as third-par

beneficiaries of the contract between the attorneys and t

partnership. We detect no evidence indicating that t

partnership engaged the attorneys' services with the inte

to benefit the limited partners. Cf. Davis v. New Eng. Pe ___ _____ __________

Control Co., 576 A.2d 1240, 1242 (R.I. 1990).___________

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determined that the limited partners' claims were time-barr

as they filed the present action more than three years aft

discovery of the attorneys' alleged negligence. Because

conclude that no attorney-client relationship existed in t

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

Recovery under the damages claims rests on t

premise that an attorney-client relationship existed betwe

the limited partners and the attorneys.5 See Church___ ______

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

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

basic proposition that a partnership is a singular le


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

partnership is the client. See, e.g., Ronald E. Mallen___ ____

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

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

a partnership or for a general partner does not there

undertake representation of limited partners. Id.___

attorney, however, may expressly or impliedly underta

simultaneous representation of the partnership and a partn

or limited partners. Id. at 261. ___

The Rhode Island Supreme Court has often stat

that an attorney-client relationship is contractual

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


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____________________

5. For purposes of its discussion, the district cou

assumed that such a relationship existed in this case.

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

such a contractual relationship, the attorneys would ha

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


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

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

an individual's subjective, unspoken belief that the pers

with whom he is dealing has become his lawyer. Sheinkopf_________

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

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

relationship of trust and confidence, it must be objective

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

Although the existence of an attorney-clie

relationship is critical to their success, the limit

partners offer only minimal argumentation on this poin

After close examination, we conclude that the limit

partners' claim ultimately rests on a subjective beli


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completely unsupported by any indicia that the belief

objectively reasonable or that the limited partners actual

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

partners point principally to events surrounding t

September 14 meeting as evidence establishing that McInn

agreed to represent their interests separately. However,

that meeting McInnis recommended that, because of potenti

conflicts of interest, the limited partners might wish

retain separate counsel. Later, after consultation betwe

-14- 14


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the general and limited partners, general partner Lavin to

McInnis that the "group" wanted McInnis to represent the

Even construed in a light favorable to the limited partner

we think McInnis was reasonable in understanding "group"

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

limited partners point to nothing that would indicate t

McInnis agreed to represent them as limited partners a

McInnis denies having ever agreed to represent the limit

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


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relationship created depends on intent of the partie

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

limited partners' liability became clear to them, they

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

sought separate counsel.

In contrast, the record strongly supports t

implication that the only attorney-client relations

involved in this transaction was that between McInnis and t

partnership. Again, McInnis made clear that he agreed

represent the partnership while suggesting that the limit

partners seek separate counsel. Although not itse

determinative, McInnis billed the partnership directly, a

the partnership paid all fees out of partnership funds.


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least through August 1988, the scope of McInni

representation appears to have been limited to preparing t

-15-

15

partnership agreement, reviewing partnership's lo

documentation, and reviewing the purchase and sale agreemen


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In the final analysis, we conclude that the limit

partners rely on nothing more than repeated concluso

assertions about the nature of their relationship wi

McInnis, assertions that are completely unsupported by a

objective indicia. That is not enough to survive summa

judgment on the question of whether an attorney-clie

relationship actually existed. See Sheinkopf, 927 F.2d___ _________

1266. Consequently, the district court properly grant

summary judgment on appellants' claims for damages.6

III. III. ____

CONCLUSION CONCLUSION __________

For the foregoing reasons, the decision of t


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district court is affirmed. affirmed. ________

____________________

6. Appellants present a third theory of recovery, groun

in Rhode Island's consumer protection statute. See R.I. Ge ___

L. 6-13.1. By its terms, that statute authorizes actio

by either the Attorney General or persons who purchase

lease "goods or services primarily for personal, family

household purposes." Id. at 6-13.1-5.2(a). We agree wi ___

the district court that the limited partners do not fa

within this narrow definition.


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Rhode Island Corp. v. McInnis, 1st Cir. (1995)

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