59 Mass. App. Ct. 699 | Mass. App. Ct. | 2003
The defendants, some twenty attorneys, were, at the time this case was brought in 1995, members of the law firm of Davis, Malm & D’Agostine. A jury found them negligent on certain claims of malpractice brought by the plaintiff Lawrence Savings Bank. The bank claimed damages from the defendants’ representation of the bank in connection with five loan transactions, styled here the Peter & Sons loan, the Win-ship loan, the Bank Building loan, the Liberty Millworks loan, and tihe Peter Kelly loan. The trial judge submitted the bank’s negligence, breach of contract, and breach of fiduciary duty counts to the jury in the form of special verdict questions framed in terms of negligence, refusing to charge the jury specifically in terms of breach of contract or fiduciary duty. The special verdict form contained twenty-nine questions divided into
The defendants filed motions for judgment notwithstanding the verdict and for a new trial or remittitur with respect to the Winship, Liberty Millworks, and Peter Kelly loans. These motians were denied, as was a motion for credit for amounts the bank had recovered from Paul Allen, one of the borrowers. Judgment ultimately entered in favor of the bank in the sum of $897,694.30 for loss of principal, plus statutory prejudgment interest in the amount of $521,548.03, and in favor of the bank in the amount of $222,750 for cost of funds, plus statutory interest in the amount of $129,414.69. Both parties appeal.
The defendants claim that the judge erred in denying the motion for judgment notwithstanding the verdict because (1) the acts and knowledge of its authorized representatives must be imputed to the bank, and (2) the evidence was insufficient to support the jury’s verdict with respect to the Winship, Liberty Millworks, and Peter Kelly loans. The defendants also claim that the judge erred in allowing the jury to award the bank “cost of funds” as an element of damages and in embodying such an award in the final judgment; in denying the defendants’
We recite the facts in outline, reserving details as necessary to our discussion of the issues. Certain members of the defendants’ firm acted as counsel to the bank at the closings of a series of loans that the bank made to Paul Allen, his wife, some of his business associates, various entities that he controlled, and others for whom he acted, and was paid, as a “finder.” Allen was one of the bank’s largest and most favored customers. He was particularly close to Jeffrey Diminico, a loan officer and vice-president of the bank. Allen had come to know Diminico when he served as Allen’s loan officer at another bank. When Diminico was discharged from that job, Allen provided him with funds and arranged to have him live in a guest house on Allen’s property. Allen then introduced Diminico to the bank, and successfully encouraged the bank to hire him as vice-president and loan officer.
In the usual circumstance of mortgage lending, a borrower has no choice in the selection of a bank’s attorney, and must pay the bank’s attorney’s fees. No attorney-client relationship is established between the bank and the borrower in these circumstances, a fact that must be made explicit to certain borrowers, see G. L. c. 184, § 17B. Here, members of the defendants’ firm had represented Allen since before his becoming involved with the bank, and had known Diminico prior to his being hired by the bank. After Diminico was hired, Allen introduced the defendants’ firm to the bank, and through Allen’s and Diminico’s efforts, the firm was retained to represent the bank in virtually every major construction and commercial loan
Motions for judgment notwithstanding the verdict. We first consider the claims of error in the denial of the defendants’ motians for judgment notwithstanding the jury’s verdict. The defendants seasonably filed motions for directed verdicts on all counts, together with appropriate memoranda specifying the grounds therefor, both at the close of the plaintiff’s evidence and at the close of all of the evidence. The motions for judgment notwithstanding the verdict were properly before the court. See Mass.R.Civ.P. 50(b), as amended, 428 Mass. 1402 (1998); Bonofiglio v. Commercial Union Ins. Co., 411 Mass. 31, 34-35 (1991). The standard of review with respect to a motion for judgment notwithstanding the verdict is the same as that for a motion for directed verdict; we view the evidence, including all reasonable inferences therefrom, in the light most favorable to the party against whom the motion is directed. See Mazzaferro v. Dupuis, 321 Mass. 718, 719 (1947); Corbin v. Hodson, 9 Mass. App. Ct. 900 (1980). We look to see whether “anywhere in the evidence, from whatever source derived, any combination of circumstances could be found from which a reasonable inference could be drawn in favor of the [nonmoving party].” Raunela v. Hertz Corp., 361 Mass. 341, 343 (1972), quoting from Kelly v. Railway Exp. Agency, Inc., 315 Mass. 301, 302 (1943). See Boothby v. Texon, Inc., 414 Mass. 468, 470 (1993).
In cases involving claims of negligence, we look to see whether, when the evidence is viewed in this manner, the plaintiff has carried its affirmative burden of introducing proof, either by direct evidence or by rational inferences of prob
When reviewing a case involving legal malpractice, we consider whether there was sufficient evidence to warrant a jury’s findings with respect to negligence, causation, apportionment of liability, and support for the damages awarded. See Girardi v. Gabriel, 38 Mass. App. Ct. 553, 557 (1995) (principles of proof and causation in a legal malpractice action do not differ from those governing an ordinary negligence action). As the plaintiff is a corporate entity, we also consider general principles of agency, to determine whether notice to an agent in this instance required a finding that the bank was put on notice of the facts and circumstances surrounding the loans, thus obviating any claim that the bank was unaware of the defendants’ actions.
As to all the loans, the defendants first contend that the acts and knowledge of the bank’s authorized representative, Diminico, must be imputed to the bank. He was the loan officer and vice-president who represented the bank in the loan transactions in question, as an employee of the bank authorized to conduct its business. He retained counsel, made loans, attended the closings, and did various other things that were of the type of conduct he was hired to perform; his conduct was, at least in part, motivated by a desire to serve the plaintiff’s interests. The defendants claim, on authority of Sunrise Properties, Inc. v. Bacon, Wilson, Ratner, Cohen, Salvage, Fialky & Fitzgerald,
We next consider the individual loans.
The Winship loan. Unity Real Estate Trust (Unity), an entity controlled by Allen, agreed to sell property to the Winship Group (Winship). The original documents submitted to the bank in connection with Winship’s loan application, and upon which the loan was approved, included a purchase agreement whereby Winship would pay $3.25 million for the property, and Unity would take back a second mortgage for $750,000. The bank would lend Winship $2.75 million, or eighty-five per cent of the purchase price, which was the bank’s upper limit for loan to value ratio. The bank committed to the loan on this basis. At closing, with the full knowledge and assistance of the defendants, Diminico changed the documents to reflect a $3 million dollar purchase price and a $500,000 second mortgage to Unity. This change increased by a substantial amount the percentage of the purchase price that the bank advanced in its
The defendants argue, on authority of Girardi v. Gabriel, 38 Mass. App. Ct. at 557, that the evidence was insufficient to prove, by reason of the conflict, that the defendants favored one client over another, that the bank was not told of the change, and that it would have acted differently had it been told of the change and thereby avoided the loss claimed. We think the evidence sufficient to sustain the jury’s conclusion that the defendants were negligent and that their negligence was the proximate cause of the bank’s loss. The question of causation is generally one of fact for the jury, and a plaintiff need only show “that there was greater likelihood or probability that the harm complained of was due to causes for which the defendant was responsible than from any other cause.” Carey v. General Motors Corp., 377 Mass. 736, 740 (1979), citing McLaughlin v. Bernstein, 356 Mass. 219, 226 (1969). A jury need not find that a defendant’s negligence was the only factor causing the loss, but only that “it was more probable than not that a defendant’s negligence was a substantial factor in bringing about injury and harm.” Bernier v. Boston Edison Co., 380 Mass. 372, 385-386 (1980).
We think that the claim of the defendants, that the bank later ratified the loan by action of its executive committee, fails as well. Nothing in the evidence suggests that the true facts of the
The Liberty Millworks transaction. This loan developed because of a prior problem loan to L.A. Ferrante Corp. (Ferrante), another entity controlled by Allen. The problem: through Diminico, and with the defendants representing both Ferrante and the bank, the bank had lent $2.8 million to the corporation on an unsecured basis. Some three months later, in the process of merger, the bank was required to fix this loan. The bank entered into negotiations with Allen, represented by one of the defendants, to refinance the loan and obtain security. Allen demanded an additional $5 million in credit in return for providing security; the parties finally settled on an additional $300,000 in credit, of which $217,340 eventually went into default.
The defendants claim that, at the time of the refinancing, they represented Allen and not the bank. We think the record provides ample support for the jury’s finding that attorney Levenson, one of the defendant partners, did in fact represent the bank. In addition to evidence that the defendants ordinarily represented the bank in these types of transactions, there was evidence that Levenson communicated directly with Diminico about the new loan; that he prepared all the loan documents; that he made sure that the documents were signed and recorded; and that he billed the bank for services in connection with the transaction. The existence of an attorney-client relationship is a question to be resolved by the trier of fact, and the relationship need not be express, but can be implied from the conduct of the parties. Page v. Frazier, 388 Mass. 55, 61-62 (1983).
Here, the evidence showed that the bank was forced to extend additional credit to Allen because, in representing the bank just three months prior to the transaction, Levenson had helped in arranging an unsecured $2.8 million loan to Allen. There was
The Peter Kelly loan. Allen procured a loan through the bank for Peter Kelly in the amount of $1 million. Diminico issued a commitment letter in the amount of $1,020,000; of the extra $20,000, $10,000 was used to pay Allen a finder’s fee. The commitment letter provided that one of the defendants would be counsel for the bank, with the understanding that the defendants did not represent the borrower. In connection with the closing, the bank required a zoning opinion with regard to the property. Another of the defendants provided the zoning opinion. That opinion erroneously failed to address the issue of off-site parking, an issue which, on evidence, substantially reduced the value of the collateral.
The defendants first contend that the bank’s claim was barred by the three-year statute of limitations applicable to legal malpractice claims. See G. L. c. 260, § 4. Although some jurisdictions require that issues concerning application of the statute of limitations be decided by the trial judge as a preliminary matter, we have adopted the rule, applicable in a majority of jurisdictions, that where a plaintiff has claimed a trial by jury, any disputed issues relative to the statute of limitations ought to be decided by the jury. Riley v. Presnell, 409 Mass. 239, 247-248 (1991). We review to determine whether there was sufficient evidence before the jury to permit a finding that the bank was not aware of the injury, and whether the judge properly instructed on the law. Robertson v. Gaston Snow & Ely Bartlett, 404 Mass. at 521.
The parties’ disagreement is the familiar one as to when the claim accrued. The defendants claim that the bank should have become aware that it had suffered “appreciable harm” caused
The defendants next claim that, with respect to the loss on this loan as well, there was insufficient evidence of causation and damages to support the jury’s verdict. We disagree. The jury had before it evidence that the low sale price obtained by the bank on sale after foreclosure was directly attributable to the parking and zoning problem, a problem that the zoning opinion, which the bank required in connection with the loan, should have identified prior to closing. This low value represents the basis for the bank’s out-of-pocket damages. We think there is ample support for the jury’s finding in this regard, and that the measure of damages was appropriate.
Cost of funds. In connection with evidence concerning damages, the trial judge, over objection, admitted the bank’s evidence of borrowing costs that it incurs in obtaining money with which to make loans. She then permitted the jury to award
In the ordinary course of its business, a bank calculates the theoretical total cost of its operations, including the cost of funds interest it pays to depositors and lenders, and uses the total cost to establish the interest rate the bank then charges to those who borrow funds. In our opinion, this rate, including the cost of funds component, reflects the value to the bank of the use of the funds that it lends. Prejudgment interest, awarded pursuant to G. L. c. 231, § 6B, is designed “to compensate a damaged party for the loss of use or the unlawful detention of money,” McEvoy Travel Bureau, Inc. v. Norton Co., 408 Mass. 704, 717 (1990), quoting from Conway v. Electro Switch Corp., 402 Mass. 385, 390 (1988). Its purpose is to provide the damaged party with a return on the money it might otherwise have had were it not for the wrongdoing of the other party. McEvoy Travel Bureau, supra.
Other matters. As to the defendants’ remaining claims of error, that the judge erred in denying their motion for a credit on the bank’s recovery on the loans, and that it was error to admit evidence of the Peter & Sons loan closing, the claims are without merit. As to the credit, the only evidence concerning the amount recovered from others included testimony that none of the money recovered was attributable to the losses suffered on the loans at issue. The judge was correct in ruling that the defendants, by failing to so plead, waived any mitigation defense. We think evidence of the Peter & Sons loan was also properly admitted. The bank claimed damages flowing from this loan, which was submitted to the jury, and the evidence was clearly relevant to the question whether Diminico was a “faithless agent” and whether the defendants did or did not rely on his instructions in later loans.
In its cross appeal, the bank claims error in the judge’s (1) denial of the bank’s motion for recusal; (2) refusal to charge the jury on the bank’s count for breach of fiduciary duty; (3) refusal to admit evidence of criminal convictions; and (4) refusal to admit certain evidence of reliance and causation. We note first that the bank seems to press these claims of error only in the event that we overturn all or a portion of the jury’s verdict. We find no merit to any of the bank’s arguments. The decision to withdraw from a case lies within the sound discretion of the trial judge. Commonwealth v. O’Connor, 7 Mass. App. Ct. 314, 320 (1979). Nothing in the record suggests actual bias on the part of the judge, and the record amply shows that the judge searched her conscience and determined that she was free of bias or prejudice. See Commonwealth v. Leventhal, 364 Mass. 718, 721-723 (1974); Haddad v. Gonzalez, 410 Mass. 855, 860-864 (1991). As to the failure to charge on the bank’s count claiming breach of fiduciary duty, we think the trial judge acted appropriately in sending the case to the jury as a negligence
For the foregoing reasons, so much of the corrected judgment as awards the plaintiff bank amounts for cost of funds, and interest thereon, is reversed. The corrected judgment is otherwise affirmed. The orders denying the defendants’ motions for judgment notwithstanding the verdict, remittitur, or for a new trial are affirmed.
So ordered.
There was also some evidence that the zoning opinion may not have reached the bank prior to closing. Given that Diminico was in charge of the loan documents, this fact would not alter our opinion, as ultimately the opinion became part of the supporting documentation for the loan.
To determine its cost of funds, the bank divided the total interest paid during a particular year on all of the bank’s interest-bearing liabilities (i.e., its deposits and amounts borrowed from the Federal Home Loan Bank) by the bank’s total liabilities and stockholders’ equity for that year. The result was a percentage, which represented the average rate of interest the bank paid to its depositors and lenders. The bank then applied these percentages to the outstanding balances of the Winship and Kelly loans, arguing that the amount thus obtained was the cost of making these loans. The calculation did not take into consideration the bank’s capital, on which it paid no interest but which was among the total funds available for loans.
In this case, the value of prejudgment interest, computed at the rate of twelve per cent, far exceeded the interest charged by the bank on either of the loans.
The defendants do not challenge the award of prejudgment interest on the principal damages.