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15-P-310                                             Appeals Court

                JOSEPH FERGUS   vs.   STEVEN A. ROSS.1


                            No. 15-P-310.

           Suffolk.      January 21, 2016. - June 9, 2016.

             Present:   Green, Wolohojian, & Henry, JJ.


             Agency, Scope of authority or employment.


     Civil action commenced in the Superior Court Department on
August 31, 2010.

     The case was heard by Frances A. McIntyre, J.


     Arnold E. Cohen for the defendant.
     Gordon E. Feener for the plaintiff.


     WOLOHOJIAN, J.     We consider here a principal's liability to

a third party for the conduct and representations of his agent

in the context of a private lending transaction.     Following a

bench trial, a judge of the Superior Court concluded that Steven

A. Ross, individually, was bound by promises Bernard Laverty,

Jr., made to Joseph Fergus because Laverty was Ross's agent and

     1
       Individually and as trustee of the Wisconsin Avenue
Lending Trust.
                                                                   2


acted within the scope of his apparent authority.     Judgment

accordingly entered against Ross, individually.     The central

issue on appeal is whether the judge erred in concluding Laverty

had apparent authority to bind Ross to act as closing agent on a

side loan about which Ross did not have actual knowledge.    We

affirm.

     Background.   We summarize the judge's findings, which we

must accept unless clearly erroneous.   See Weiler v.

PortfolioScope, Inc., 469 Mass. 75, 81 (2014).    "A finding is

'clearly erroneous' when although there is evidence to support

it, the reviewing court on the entire evidence is left with the

definite and firm conviction that a mistake has been committed."

J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 792 (1986),

quoting from United States v. United States Gypsum Co., 333 U.S.

364, 395 (1948).   Where there are two permissible views of the

evidence, a judge's finding adopting one view is not clearly

erroneous.   See Pehoviak v. Deutsche Bank Natl. Trust Co., 85

Mass. App. Ct. 56, 65 (2014).2


     2
       It is primarily because of this well-established principle
that we disagree with our dissenting colleague. We recognize
that the trial judge could have reached a contrary conclusion
about Laverty's apparent authority to act as Ross's agent. But
we are not called upon to assess the evidence anew, nor are we
to substitute our own views of the witnesses' credibility or
thought processes for those of the trial judge. Because the
evidence, and the reasonable inferences to be drawn from it,
permitted the trial judge to make the findings and reach the
conclusions that she did, it matters not that another judge
                                                                   3


     Fergus, a middle-aged man with an eighth grade education,

is a public insurance adjuster also in the business of

rebuilding damaged residential properties he comes across in his

insurance work.   Fergus is savvy and smart, but he is not

sophisticated about financial matters or perfecting security

interests.   He had previously bought and sold several

residential properties, financing them through conventional

lenders.   Before the facts giving rise to this case, Fergus had

never dealt with a private lender.

     In the summer of 2007, Fergus required between $75,000 and

$100,000 for the cosmetic work needed to complete the

rehabilitation of a burned-out property on Ruthven Street in the

Dorchester section of Boston.    Fergus could not obtain

conventional financing on the property and so he contacted his

cousin, Catherine Gibbons, a mortgage broker, to ask for her

help.    Gibbons recommended Bernard Laverty, Jr., who had

connections to several "hard money" lenders.3   One of those

connections was Attorney Steven A. Ross, who ran a private

lending practice at Gilmartin, Magence and Ross, LLC (GMR).

Laverty would bring Ross potential borrowers and if Ross "liked"

them, he would make the loan and pay Laverty a referral fee.


hearing the same evidence might have reached a different
conclusion.
     3
       A hard money loan is typically a short-term, high-risk,
and high-interest loan funded by private investors.
                                                                      4


This arrangement began before the transaction at issue in this

case and continued thereafter.     In addition, Laverty had himself

borrowed money from Ross on five or six occasions in the past.4

     At the same time, Laverty happened to need money to close

on a property in Marshfield for which he had signed a purchase

and sale agreement.     Therefore, he pressured Fergus to give him

a side loan of $120,000 out of the proceeds of any loan from

Ross.    To "protect[]" Fergus, Laverty offered to give him a

"deed-in-lieu" on the Marshfield property.    Fergus's notion of

the meaning of a deed-in-lieu was vague, but he understood that

if Laverty did not repay the side loan, he would be able to sell

the Marshfield house.     In Fergus's mind, he would be protected

"either way."   On this basis, Laverty persuaded Fergus to borrow

from Ross more money than he (Fergus) needed.     The side loan was

to be for one month.

     Laverty brought Fergus's need for a "hard money" loan to

Ross's attention and, thereafter, there was no direct

communication between Fergus and Ross.     Instead, all discussions

with Ross were conducted by Laverty, outside of Fergus's

presence.   Laverty was the sole conduit of information to and


     4
       Laverty, a self-described real estate investor whom the
judge considered likely to be a "flipper" (i.e., someone engaged
in buying houses, rehabilitating them, and then reselling them
at a profit), did not make a favorable impression at trial. The
judge described him as a man of dissolute and disheveled
appearance.
                                                                    5


from Ross and, according to Fergus, Laverty "set everything up."

Laverty met with Fergus to discuss the loan terms, arranged (and

was present for) the inspection of the Ruthven Street property

by Ross's wife, delivered the commitment letter to Fergus,

obtained Fergus's signature, and returned it to Ross.

    As noted above, Ross's wife (who had been told that Fergus

needed the loan to complete renovations) inspected the Ruthven

Street property for Ross.    Based on that inspection, Ross knew

or should have known that Fergus needed a loan of only $75,000

to $100,000 to complete the renovations.    Nonetheless, Ross set

the amount of the loan at $260,000 -- more than twice what

Fergus needed.   Fergus never requested a $260,000 loan; in fact,

he never requested any specific amount.    The amount set by Ross

was not a random figure.    It represented not only the $75,000 to

$100,000 that Fergus needed, but also the $120,000 for Laverty's

side loan, and the costs (which included prepaid interest,

origination fees, appraisal fee, and legal fee) associated with

the loan itself -- all of which came out of the loan proceeds at

the time of closing.   Those facts, together with Ross's

knowledge that Laverty was not receiving his customary referral

fee, that Laverty could not be expected to expend time and

energy without compensation, and that Laverty frequently

borrowed money, permitted the judge to find (as she did) that
                                                                   6


Ross could have easily deduced that Laverty was to receive a

side loan from the proceeds of the loan to Fergus.

     All paperwork for the loan was prepared by Ross.     Among

other things, Ross prepared and signed a commitment letter dated

September 7, 2007, containing the terms of the loan.    Laverty

delivered that letter to Fergus on September 10, 2007, the day

before the closing.    Fergus signed the letter and gave it to

Laverty to return to Ross.    On the same day, Fergus handwrote,

and signed, a letter to Ross, which Laverty represented he would

deliver to Ross together with the signed commitment letter.5

That letter reads:

     "To Steve Ross.

          "Bernard Laverty is getting $120,000 from the
     closing on Ruthven St. Roxbury.

          "I'm authorizing the disbursement from tomorrow's
     closing on Ruthven St. so that you can write the
     letter.

                                     "Thank you"

Fergus's intention in writing this letter was to instruct Ross

to prepare the paperwork required for both the loan and the side

loan.    Laverty told Fergus that Ross "would take care of

everything," that Ross would serve as the closing agent with



     5
       The judge did not believe that Laverty gave Fergus's
letter to Ross; instead, she believed that Laverty wanted
written documentation of Fergus's intention to make the
side loan.
                                                                  7


regard to both loans, and that "everything [including the deed-

in-lieu] would be prepared at [Ross's] office."

     The following day, Laverty, who had assisted in

setting up the closing, transported Fergus to Ross's office

(to which Laverty had been thirty or forty times before)

for the closing.6   Ross manifested no surprise at Laverty's

presence at the closing.   Laverty remained throughout the

closing, and encouraged Fergus to sign the closing

documents.   Those documents made no reference to the side

loan, nor did the documents protect Fergus's interest in

the side loan.7


     6
       In accordance with his regular practice, Ross created a
trust solely to fund the Fergus loan. Ross named Ronald
Williams, "an apparent illusion," as the trustee. Ross's use of
a straw suggested to the judge that "Ross and GMR sought the
huge financial return from hard loans as were made to Fergus
without taking on any liability, staying barely within the
letter of the law." Ross's general modus operandi, the judge
found, was likely designed to protect Ross and GMR from
liability under the predatory lending laws. The loan to Fergus
was in the amount of $260,000 for three months at an interest
rate of 8.25 percent over prime, or 16.5 percent.
     7
       Nonetheless, the judge found that Fergus anticipated
that Ross would disburse the $120,000 to Laverty and secure
a deed-in-lieu from him. Fergus believed that, as in a
conventional closing on a conventional mortgage with an
institutional lender, the lawyers would use escrows to make
filings and disbursements in a fashion that would protect
the parties. Fergus anticipated that Ross would hold the
funds for Laverty until Ross received the deed-in-lieu from
Laverty, and did not recognize the practical impossibility
of that idea given that Laverty did not have present title
to the Marshfield property. Fergus did not recognize that
Laverty could not provide the security interest he promised
                                                                   8


     Fergus timely repaid the $260,000 loan, but Laverty

never repaid the $120,000 side loan.     Fergus has no

practical hope or expectation of repayment from Laverty.8

     After a bench trial, the judge found in Fergus's favor

on his negligence claim against Ross.9    Judgment entered in

the defendants' favor on all other counts.10    Since Fergus

has not cross-appealed, the issues before us relate only to

the negligence claim against Ross, individually.

     Discussion.   Ross argues that the judged erred in

concluding that Laverty had authority, as his agent, to bind

Ross to serve as closing attorney for the side loan.      "An agency

relationship is created when there is mutual consent, express or

implied, that the agent is to act on behalf and for the benefit

of the principal, and subject to the principal's control."

Theos & Sons, Inc. v. Mack Trucks, Inc., 431 Mass. 736, 742

(2000).


or that Fergus would be unprotected should Laverty fail to
repay the side loan.
     8
       Laverty has since gone into bankruptcy, and the Marshfield
property that was supposed to secure Fergus's loan to Laverty
has been transferred to a third party.
     9
       The theory of negligence was that Laverty, acting as
Ross's agent, bound Ross to act as closing agent on the side
loan such that Ross had a duty to document the side loan in a
manner that would protect Fergus's interest in it.
     10
       Those were breach of contract, unjust enrichment,
fraudulent misrepresentation, violation of G. L. c. 93A, and
violation of G. L. c. 183C.
                                                                       9


    Here, ample evidence supported the judge's conclusion that

Laverty was Ross's agent with respect to the $260,000 loan.        See

Haufler v. Zotos, 446 Mass. 489, 497-498 (2006).     Ross used

Laverty as his sole conduit of information to and from Fergus.

Laverty arranged and was present for the inspection of the

property, which was conducted by Ross's wife for Ross's

purposes.   Laverty had a prior (and subsequent) history of

receiving referral fees for bringing borrowers to Ross for "hard

money" loans.    Laverty helped arrange the closing and was

present at it.   Ross's acquiescence to Laverty's presence at the

closing is meaningful given Ross's claim that he did not know of

the side loan.   Accepting that claim as true, Ross should have

been puzzled by Laverty's presence at the closing.    Ross's lack

of surprise therefore buttresses the inference that Laverty was

present as Ross's agent.

    "Even where an agent-principal relationship exists,

however, the principal has liability for the agent's acts toward

third parties only if the agent was acting with the actual or

apparent authority of the principal in that transaction."        See

Theos & Sons, Inc. v. Mack Trucks, Inc., supra at 743.     A

principal imbues his agent with apparent authority by "written

or spoken words or any other conduct . . . which, reasonably

interpreted, causes a third person to believe that the principal

consents to have the act done on his behalf by the person
                                                                   10


purporting to act for him."    Haufler v. Zotos, supra at 497

n.22, quoting from Neilson v. Malcolm Kenneth Co., 303 Mass.

437, 441 (1939).   See Kanavos v. Hancock Bank & Trust Co., 14

Mass. App. Ct. 326, 331 (1982) (question of apparent authority

turns on "how, in the circumstances, a third person . . . would

reasonably interpret [the agent's] authority in light of the

manifestations of his principal").    Apparent authority may arise

from a variety of circumstances, including the manner in which

the principal conducts his business.    See Theos & Sons, Inc. v.

Mack Trucks, Inc., supra at 745 n.15; Kanavos v. Hancock Bank &

Trust Co., supra at 332.   "Only the words and conduct of the

principal, however, and not those of the agent, are considered

in determining the existence of apparent authority."    Licata v.

GGNSC Malden Dexter LLC, 466 Mass. 793, 801 (2014).

    Here, the judge found that Ross deliberately insulated

himself from direct contact with Fergus, choosing instead to

communicate solely through Laverty.    Ross relied on Laverty to

communicate Fergus's requirements for the loan.   Similarly, he

used Laverty to communicate the lender's requirements and terms

to Fergus.   Ross appeared to respond to Laverty's communications

from Fergus and to acquiesce in Laverty's activities.    Ross

permitted Laverty to arrange the inspection of the property and

to help arrange the closing.   In sum, Ross entrusted Laverty to

carry out many steps necessary to the successful completion of
                                                                    11


the $260,000 loan.   Ross's conduct was sufficient to support the

judge's conclusion that Laverty was acting with apparent

authority as Ross's agent with respect to the $260,000 loan.

     The record also permitted the judge to conclude that

Laverty's apparent authority extended to the side loan.    It was

Ross who established the amount of the loan -- and he knew or

should have known, based on his wife's inspection, that it

greatly exceeded the amount required by Fergus for renovations

on the Ruthven Street property.   As the judge found, it would

have reasonably appeared to Fergus that Ross increased the

amount beyond what Fergus needed in order to accommodate the

side loan.   Furthermore, Ross knew that Laverty was expending

energy in connection with the loan even though Laverty was not

receiving his customary referral fee.   There was no reason for

Ross to think that Laverty would volunteer his services.

Furthermore,   Ross knew that Laverty frequently needed to borrow

money for his various real estate projects.11


     11
       The judge's finding that Ross could easily have deduced
that Fergus was lending money to Laverty out of the loan
proceeds was amply supported by her subsidiary findings that
Ross knew that (1) Laverty, likely a "flipper" of real estate,
frequently borrowed money in his line of business and had
previously done so from Ross; (2) the amount of the Fergus loan
set by Laverty and GMR was "inflated;" (3) he was not paying
Laverty a referral fee in connection with the $260,000.00 loan;
(4) Laverty was a businessman with no familial or partnership
relationship to Fergus or charitable purpose; and (5) Fergus
expended much energy to ensure the large loan to Fergus closed.
In these circumstances, the judge could have found implied
                                                                   12


    On these facts, the judge was warranted in concluding that

Ross's conduct caused Fergus reasonably to believe that Laverty

had authority to bind Ross to act as closing agent on the side

loan and to protect Fergus's interest in it.   See DeVaux v.

American Home Assur. Co., 387 Mass. 814, 819 (1983); Linkage

Corp. v. Trustees of Boston Univ., 425 Mass. 1, 16-17, cert.

denied, 522 U.S. 1015 (1997).

    Ross's lack of actual knowledge of the side loan does not

compel a different result.   Ross admitted that within "two

minutes," he should have realized that Laverty, a man he had

done business with for several years, was a liability.

Nonetheless, Ross placed Laverty, whose "very appearance was a

sign of trouble," in a position from which he could and did

cause substantial harm to Fergus.   Having accepted the benefits

provided by Laverty, Ross should bear the loss caused by him.

Compare Kansallis Fin. Ltd. v. Fern, 421 Mass. 659, 665 (1996)

("A principal who requires an agent to transact his business,

and can only get that business done if third parties deal with

the agent as if with the principal, cannot complain if the

innocent third party suffers loss by reason of the agent's

act").




ratification by wilful disregard of the facts within Ross's
possession. See Licata v. GGNSC Malden Dexter LLC, supra at
802, and cases cited.
                                                                  13


     Ross argues that, even if Laverty acted within the sphere

of his apparent authority, Laverty's knowledge should not be

imputed to him (Ross) because Laverty "acted fraudulently" and

"engaged in an independent fraudulent act from which [Ross did]

not benefit."     Sunrise Properties, Inc. v. Bacon, Wilson,

Ratner, Cohen, Salvage, Fialky & Fitzgerald, P.C., 425 Mass. 63,

67 (1997).    See Restatement (Third) of Agency § 5.04 (2006).

Ross's argument depends on a finding that Laverty did not intend

to repay the side loan.     The judge, however, found to the

contrary.    The judge credited Laverty's testimony that he

expected to repay the side loan within thirty days with funds he

anticipated receiving in connection with the settlement of an

unrelated case.    The decision to credit this aspect of Laverty's

testimony fell within the judge's purview as the finder of

fact.12   Moreover, the findings that the side loan was not

against the interests of Ross and GMR, and in fact benefited

them, were not clearly erroneous.13    See GTE Prod. Corp. v.

Broadway Elec. Supply Co., 42 Mass. App. Ct. 293, 299-300

     12
       It is true, as Ross points out, that Laverty could not
have provided Fergus with a deed-in-lieu for the Marshfield
property at the closing on the loan to Fergus. This does not
mean, however, that Fergus could not have been protected. As a
condition to the side loan, Laverty could have been required to
ensure that the deed to the Marshfield property would be
properly escrowed at the subsequent closing on that property.
     13
       The inflated loan amount led to higher interest payments
to the beneficiaries of the trust, including Ross's brother-in-
law, and higher origination fees payable to GMR.
                                                                    14


(1997).     Accordingly, Laverty's knowledge of the side loan was

chargeable to Ross.

       Finally, we note that Fergus was an innocent third party

who dealt in good faith with Ross through Laverty.      Fergus

timely repaid the full amount of the loan, including the side

loan, even though he had not been repaid by Laverty and had

received no benefit from the side loan.     Moreover, the judge

found that Fergus reasonably believed Laverty was authorized to

act for Ross with respect to both loans.     In these

circumstances, Laverty's knowledge can be imputed to Ross even

if Laverty's actions were unknown to Ross and adversely affected

him.    See Restatement (Third) of Agency, supra at § 5.04(a)

("For purposes of determining a principal's legal relations with

a third party, notice of a fact that an agent knows or has

reason to know . . . is imputed [to the principal] . . . when

necessary to protect the rights of a third party who dealt with

the principal in good faith").

       For these reasons, we affirm the judgment in favor of

Fergus on his negligence claim against Ross in his individual

capacity.

                                      Judgment affirmed.
     GREEN, J. (dissenting).    I respectfully dissent from the

majority's conclusion that the evidence was sufficient to impose

on Steven A. Ross liability for the actions of Bernard Laverty,

Jr., regarding the side loan.   As the majority acknowledge, the

trial judge found (with support in the evidence) that Ross had

no direct knowledge of the side loan, and indeed from all

appearances it appears that Laverty took great pains to conceal

from Ross any information regarding the side loan.    To overcome

that substantial barrier, the majority (and the trial judge)

rely principally on two factors: (i) that the amount of the loan

Laverty requested on Fergus's behalf exceeded the amount

required for the renovations Fergus planned, and (ii) that

Laverty did not receive from Ross his customary referral fee

incident to the loan Ross made to Fergus.   In my view, neither

factor, alone or in combination, is adequate to support the

conclusion that, in transacting the side loan with Fergus,

Laverty was acting within the scope of his authority as Ross's

agent with respect to the loan from Ross to Fergus.   To the

extent the trial judge "found" that Ross knew of the side loan

(and it is not at all clear that she made any such finding),1 it

was without support in the evidence.


     1
       The trial judge observed that "Ross' actual knowledge of
the [side] loan may not be directly proven," and found
specifically that at the closing, the side loan to Laverty was
not discussed by Ross or in Ross's presence. The closest the
                                                                   2


    First, it is wholly unremarkable that Fergus borrowed more

money than his planned renovations required.   Owners of real

property commonly borrow funds secured by the property, even

when they have no plans to perform renovations of any kind.

Fergus was an investor in a variety of properties, and (for all

Ross may have known) could have planned to use the additional

monies to place a deposit toward purchase of another property,

or to perform maintenance or repairs to another property -- or

even to purchase a new car or take an exotic vacation.   The

majority cites no authority (and I am aware of none) for the

proposition that a lender has a duty to inquire into the

purposes to which a borrower plans to direct loan proceeds, or

that failure to do so will charge the lender with constructive




trial judge came to finding that Ross actually knew of the side
loan is her comment that "I believe [Ross] may well have known
that Laverty was borrowing funds from Fergus." Expressed in
that fashion, it is less a finding that Ross knew of the loan
than speculation regarding the possibility that he may have
known of it. Later, the trial judge observed that "Ross could
easily have deduced that Fergus was lending money to Laverty out
of the proceeds of the loan." For the reasons that follow, to
the extent the judge's comment amounts to a finding that a
reasonable person in Ross's position, possessed of the
information available to him, knew or should have known that
Laverty had arranged for Fergus to lend money to him from the
proceeds of the loan Ross made to Fergus, I believe it rests on
speculation rather than evidence and, accordingly, is clearly
erroneous.
                                                                    3


notice that the borrower has entered into an otherwise

undisclosed arrangement with the lender's agent.2

     Nor, in my view, does the fact that Laverty did not receive

from Ross his customary referral fee carry any substantial

weight with regard to the question of his authority to bind Ross

to the side loan.   Again, for all Ross knew, Laverty might have

arranged for compensation by Fergus, as a finder's fee, for the

services Laverty performed in arranging the loan to Fergus from

Ross.

     To be sure, Fergus comes before the court in a highly

sympathetic posture, having been the victim of a fraud

perpetrated by Laverty against him.   But the circumstances of

the case do not place Laverty's fraudulent conduct within the

scope of his agency or authority on Ross's behalf any more than

if Laverty instead had persuaded Fergus (without Ross's

knowledge) to use $120,000 of the loan proceeds to purchase the

Brooklyn Bridge, swamp land in Florida, or stock in an

Argentinian silver mine.   Had Fergus made any inquiry whatsoever

of Ross about the side loan at the closing, directed either to

the documentation of the loan or of the collateral he had been

     2
       Of course, a prudent lender might wish for its own benefit
to obtain some explanation of the purpose for which a borrower
is borrowing funds. That interest does not equate, however,
into a conclusion that an unexplained request for funds,
supported by the value of the collateral, is suggestive of an
independent financial arrangement between the borrower and the
lender's agent.
                                                                     4


promised to secure it, the case would be entirely different.    As

things stand, however, the majority concludes that Ross may be

held responsible for Laverty's conduct toward Fergus in

connection with the side loan, where the only common thread

between the loan Ross agreed to extend to Fergus and the side

loan Laverty persuaded Fergus to extend to him without Ross's

knowledge was that the proceeds of the loan from Ross to Fergus

served as the source of the funds Fergus lent to Laverty.
