USCA1 Opinion
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
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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.
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APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
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Before
Torruella, Chief Judge,
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Boudin and Stahl, Circuit Judges.
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Mark A. Stull with whom Dennis F. Gorman and Fletcher, Tilton &
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Whipple, P.C. were on brief for appellants.
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Allen N. David with whom Harvey Weiner, Maureen Mulligan, and
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Peabody & Arnold were on brief for appellees.
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September 7, 1995
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STAHL, Circuit Judge. Limited partners who
STAHL, Circuit Judge.
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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.
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FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
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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
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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").
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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.
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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
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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
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1. The Hayeses now state that they are uncertain about
whether their signatures appear on the commitment letter.
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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.
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DISCUSSION
DISCUSSION
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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
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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.
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v. Proc Assocs., 57 F.3d 119, 122 (1st Cir. 1995). We review
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the record in the light most favorable to the nonmoving
party, and indulge all reasonable inferences in that party's
favor. Id.
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B. Indemnification Claim
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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
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(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.
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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.
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The Rhode Island Supreme Court has made clear that
an indemnification cause of action lies in two situations:
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2. The parties do not dispute that the substantive law of
Rhode Island applies.
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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 &
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Skylight Co., 867 F. Supp. 100, 107 (D.R.I. 1994); Roy v.
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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.S.
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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
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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
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3. No such agreement exists in this case.
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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,
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Inc., 335 A.2d 339, 341 (R.I. 1975)). Even assuming the
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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
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v. Woods Hole, Martha's Vineyard, Nantucket S.S. Auth., 693
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F.2d 1, 2 (1st Cir. 1982) (citing Roy, 442 F. Supp. at 1019)
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(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
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51 (special relationships include, inter alia, employer's
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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
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The limited partners also asserted claims and
sought damages for professional negligence, breach of
contract, and misrepresentation. The district court
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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
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Control Co., 576 A.2d 1240, 1242 (R.I. 1990).
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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.
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McBurney, 513 A.2d 22, 23 (R.I. 1986). To determine whether
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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 &
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Jeffrey M. Smith, Legal Malpractice 20.7, at 260 (3d ed.
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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
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attorney, however, may expressly or impliedly undertake
simultaneous representation of the partnership and a partner
or limited partners. Id. at 261.
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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
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5. For purposes of its discussion, the district court
assumed that such a relationship existed in this case.
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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
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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.
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Stone, 927 F.2d 1259, 1260 (1st Cir. 1991). Rather, if such
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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.
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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
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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
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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
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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
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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
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1266. Consequently, the district court properly granted
summary judgment on appellants' claims for damages.6
III.
III.
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CONCLUSION
CONCLUSION
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For the foregoing reasons, the decision of the
district court is affirmed.
affirmed.
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6. Appellants present a third theory of recovery, grounded
in Rhode Island's consumer protection statute. See R.I. Gen.
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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
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the district court that the limited partners do not fall
within this narrow definition.
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