
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
