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USCA1 Opinion
September 4, 1992 UNITED STATES COURT OF APPEALS
September 4, 1992 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
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No. 91-2317
No. 91-2317
A. GREER EDWARDS, JR.,
A. GREER EDWARDS, JR.,
Plaintiff, Appellant,
Plaintiff, Appellant,
v.
v.
JOHN HANCOCK MUTUAL LIFE
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY,
INSURANCE COMPANY,
Defendant, Appellee.
Defendant, Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge]
[Hon. Robert E. Keeton, U.S. District Judge]
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Before
Before
Breyer, Chief Circuit Judge,
Breyer, Chief Circuit Judge,
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Cyr, Circuit Judge,
Cyr, Circuit Judge,
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and Fust ,* District Judge.
and Fust ,* District Judge.
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Maria L. Sveikauskas for appellant.
Maria L. Sveikauskas for appellant.
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Edward S. Rooney, Jr., with whom Lyne, Woodworth & Evarts was on
Edward S. Rooney, Jr., with whom Lyne, Woodworth & Evarts was on
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brief, for appellee.
brief, for appellee.
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*Of the District of Puerto Rico, sitting by designation.
*Of the District of Puerto Rico, sitting by designation.
CYR, Circuit Judge. Plaintiff A. Greer Edwards, Jr.,
CYR, Circuit Judge.
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appeals a district court judgment dismissing his action against
John Hancock Mutual Life Insurance Company [hereinafter
"Hancock"] to recover damages allegedly caused by an
underinclusive property description in the notices of foreclosure
sale relating to certain Nevada ranch properties. Count I of the
complaint, a negligence claim, was dismissed as time-barred. The
breach of contract claim in count II was dismissed on the grounds
that Hancock had assumed no contractual obligation with respect
to the foreclosure sale and that the trustees under the Nevada
deeds of trust were not Hancock's agents.
I
I
BACKGROUND
BACKGROUND
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As these claims were dismissed pursuant to Fed. R. Civ.
P. 12(b)(6), we review the order of dismissal de novo, Garita
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Hotel Ltd., Partnership v. Ponce Federal Bank, 958 F.2d 15, 17
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(1st Cir. 1992); McCoy v. Massachusetts Institute of Technology,
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950 F.2d 13, 15 (1st Cir. 1991), accepting all well-pleaded
allegations in the complaint and drawing all reasonable
inferences in favor of the plaintiff, see Dartmouth Review v.
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Dartmouth College, 889 F.2d 13, 16 (1st Cir. 1989). According to
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the complaint, during 1975 and 1976 Hancock loaned approximately
$1,000,000 to a general partnership in which Edwards remains the
only interested partner. The Hancock loans were secured by first
2
deeds of trust on two Nevada ranch properties owned by the
partnership. Farmers Home Administration later extended loans
secured by second deeds of trust on the same properties.
The partnership defaulted on its loan obligations to
Hancock, which instituted foreclosure proceedings in July 1985.
The notices of the foreclosure sale specifically excluded
mineral, oil and gas rights from the property interests to be
sold at public auction. At the auction, Farmers Home Administra-
tion, the only bidder, acquired both ranch properties for
approximately $1,232,000. Freeport-McMoran Gold Company had
"expressed great interest" in acquiring the properties and was in
attendance at the auction, but refrained from bidding due to the
mineral rights exclusion.
After paying Hancock approximately $1,250,000 to
release its interest in the ranch properties, Farmers Home
Administration instituted an action against Edwards in the United
States District Court for the District of Nevada to recover a
deficiency approximating $600,000. On January 5, 1988, the
Nevada federal district court ruled the foreclosure sale invalid
on the ground that the notices of sale violated the Nevada
foreclosure statutes by excluding the mineral, oil and gas
rights. Farmers Home Administration subsequently transferred its
interest in the ranch properties to Edwards for $400,000.
The present action was instituted by Edwards in Suffolk
Superior Court on January 2, 1991, and promptly removed by
Hancock to the United States District Court for the District of
3
Massachusetts. The district court dismissed the negligence claim
as time-barred under the three-year Massachusetts statute of
limitations. It dismissed the breach of contract claim as well,
but with leave to amend. Later, the amended breach of contract
claim was dismissed, with prejudice, and this appeal followed.
II
II
DISCUSSION
DISCUSSION
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A. Negligence Claim
A. Negligence Claim
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Edwards does not contest the district court ruling that
count I alleged a negligence claim subject to the three-year
limitations period in Mass. Gen. Laws ch. 260, 2A, commencing
at the time of the discovery of the injury to the plaintiff. See
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Joseph A. Fortin Constr. Inc. v. Massachusetts Housing Finance
_______________________________ ______________________________
Agency, 392 Mass. 440, 442, 466 N.E.2d 514, 515 (1984) (cause of
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action in tort accrues upon happening of event likely to put
plaintiff on notice that it has been injured). The district
court ruled that the cause of action for negligence accrued not
later than the foreclosure sale in July 1985. Edwards counters
on appeal that the cause of action accrued on January 5, 1988,
when the Nevada federal district court ruled the notice of
foreclosure sale invalid under Nevada law. Prior to that time,
Edwards contends, his cause of action was "inherently unknowable"
within the meaning of the Massachusetts discovery rule.
4
Hendrickson v.Sears, 365 Mass. 83,85, 310 N.E. 2d131, 132 (1974).
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A cause of action for an inherently unknowable wrong
does not accrue under the Massachusetts discovery rule until the
facts which gave rise to the cause of action, as distinguished
from the legal theory, either became known or should have become
known to the injured party in the exercise of reasonable
diligence. Catrone v. Thoroughbred Racing Asso., 929 F.2d 881,
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885 (1st Cir. 1991) (citing cases). Edwards admits that he was
aware, at the time of the foreclosure sale, that the notices of
sale "except[ed] therefrom all mineral, oil and gas rights on the
property hereinabove described, said rights forming no part of
this guarantee." He contends, however, that the quoted language
is ambiguous as to whether mineral rights were excluded from the
foreclosure sale or simply excepted from the disclaimer of
coverage under the title guarantee. If the latter interpretation
were intended, Edwards argues, he would have had no cause of
action until the Nevada federal district court ruled the notices
of sale underinclusive.
We cannot agree that any ambiguity in the exclusionary
language in the notices of sale affected the accrual of the cause
of action for purposes of the Massachusetts discovery rule. Even
assuming the notices of sale were ambiguous, Edwards nonetheless
was aware of sufficient facts to alert a reasonable person to the
potential negligence claim no later than the time of the
foreclosure sale. Under Massachusetts law, a cause of action
accrues when a reasonable person, in the exercise of due
5
diligence, "would have discovered the damage." Riley v.
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Presnell, 409 Mass. 239, 245, 565 N.E.2d 780, 786 (1991); see
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also Malapanis v. Shirazi, 21 Mass. App. Ct. 378, 383, 487 N.E.2d
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533, 537 (1986) (limitations period begins when reasonably
prudent person "reacting to any suspicious circumstances of which
he might have been aware . . . should have discovered that he had
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been harmed") (emphasis added); Fidler v. Eastman Kodak Co., 714
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F.2d 192, 199 (1st Cir. 1983) ("notice of likely cause is
ordinarily enough to start the statute running") (applying
Massachusetts law). "The controlling question is whether a
plaintiff's knowledge, actual or attributed, of both harm to
[him] and the likely cause of such harm, was sufficient to
stimulate further inquiry which was likely to alert [him] to a
cause of action against a defendant." Hanson Housing Auth. v.
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Dryvit System, Inc., 29 Mass. App. Ct. 440, 446, 560 N.E.2d 1290,
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1294 (1990), review den., 409 Mass. 1101, 565 N.E.2d 792 (1991).
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Edwards does not deny notice of the foreclosure sale.
Moreover, during the Nevada federal district court action in
1986, Edwards apparently raised the invalidity of the notices of
sale under the Nevada statute as a defense to the Farmers Home
Administration deficiency claim. Thus, long before January 1988,
Edwards plainly was on notice of facts sufficient to lead a
reasonable person to believe that the exclusion of mineral rights
in the notices of sale may have harmed him.1
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1The deeds of trust and the opinion of the Nevada federal district
court were attached to the complaint. The consideration given these
documents in the court below did not convert the Rule 12(b)(6) motion
6
Without rendering the limitations period nugatory,
accrual of a cause of action cannot await a judicial
determination that a legal basis exists for the action. See
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Whitcomb v. Pension Dev. Co., 808 F.2d 167, 170 (1st Cir. 1986)
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(claims against insurer, stemming from erroneous tax advice,
accrued no later than receipt of notification of IRS position,
rather than receipt of notice of tax deficiency or date of Tax
Court decision) (applying Massachusetts law); White v. Peabody
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Constr. Co., 386 Mass. 121, 129-30, 434 N.E.2d 1015, 1022 (1982)
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(cause of action accrued when claimants learned they had
sustained harm from leaky roof, not when administrative agency
determined cause of leak); Salin v. Shalgian, 18 Mass. App. Ct.
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467, 469, 467 N.E.2d 475, 477 (1984) (negligent title-
certification claim accrued when real estate purchasers filed
answer in action brought by neighbors alleging misrepresentations
in certificate of title, not when Land Court entered judgment in
favor of neighbors). The negligence claim is time-barred.
B. Breach of Contract Claim
B. Breach of Contract Claim
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The breach of contract claim was dismissed on the
ground that Edwards did not allege sufficient facts to support
reasonable inferences that Hancock breached an agreement with
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into a motion for summary judgment. See Sullivan v. United States,
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788 F.2d 813, 815 n.3 (1st Cir. 1986) (material submitted as part of
the complaint properly considered on motion to dismiss); see also
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James W. Moore, 2A Moore's Federal Practice 12.07 [2.-5] at 12-68
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(on motion to dismiss, "material which is submitted as part of the
complaint, as well as certain items in the record and the public
record, may be considered by the court") (footnotes omitted).
7
Edwards or that the trustees under the deeds of trust were acting
as Hancock's agents in providing the underinclusive notices of
sale. On appeal, Edwards challenges the agency ruling alone.
In Nevada, real estate mortgage deeds take the form of
deeds of trust. Essentially, the encumbered property is conveyed
by the mortgagor (variously referred to in the deed of trust as
the trustor, grantor or borrower) to the trustee, a title
company, as security for repayment of the loan from the mortgagee
(the beneficiary or lender). See Nev. Rev. Stat. 107 (deeds of
___
trust). The default and sale provisions in a Nevada deed of
trust are regulated by statute. See id. 107.080 (trustee's
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power of sale; required notices); 107.090 (filing of notice of
default and sale); 21.130 (notice of sale must "particularly
describe the property" to be sold). The deed of trust
establishes the rights and responsibilities of the parties and
prescribes certain duties to be performed by the trustees.
The complaint sufficiently alleges that the notices of
sale were underinclusive due to their exception of mineral, oil
and gas rights in violation of Nevada law, which requires that
the notice of sale of the foreclosed properties "particularly
describ[e] the property" to be sold. Nev. Rev. Stat. 21.130;
see Turner v. Dewco Services, Inc., 87 Nev. 14, 479 P.2d 462, 465
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(1971) (intent of statute is "to give notice of the sale of the
premises to possible third-party buyers"). The complaint further
alleges that Edwards sustained damages as a consequence of the
underinclusive notices of sale, particularly since Freeport-
8
McMoran Gold Company, which "expressed great interest" in
acquiring the mineral rights, did not bid at the auction sale
upon learning that the mineral rights were excluded.
The deeds of trust required that the trustee give
notice of sale "as then required by law." See infra note 2 & p.
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12. Nevada law, see Nev. Rev. Stat. 107.080(4), requires
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notice of sale to be given "in the manner . . . required by law
for the sale . . . . of real property upon execution." See infra
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note 3. Under Nev. Rev. Stat. 21.130(1)(c)(2), governing real
estate execution sales, the notice of sale must "particularly
describ[e] the property" to be sold.
The second amended complaint, on the other hand,
expressly alleges that, "[i]n its notice of sale, the trustee,
acting under the direction of Hancock, specifically excepted
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the[] [mineral] rights." (Emphasis added.) Additionally, as the
complaint further alleges, Hancock is empowered under the deeds
of trust (apparently in its unrestricted discretion) to appoint
replacement trustees. See infra note 4.
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Under the Restatement (Second) of Agency, a trustee
will be considered the agent of the beneficiary under a trust
agreement if the trustee is subject to the control of the
beneficiary, rather than the terms of the agreement. See
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Restatement (Second) of Agency 14B (comment f.) ("An agent acts
for and on behalf of his principal and subject to his control; a
trustee who is not an agent is not subject to the control of the
beneficiaries . . . The agent owes a duty of obedience to his
9
principal; a trustee is under a duty to conform to the terms of
the trust."); see also Hunter Mining Laboratories, Inc. v.
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Management Assistance, Inc., 104 Nev. 568, 763 P.2d 350, 351
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(1988) (citing Restatement (Second) of Agency 14); Restatement
(Second) of Trusts 8 (comment b.) (same). Whether a trustee is
an agent depends also on the quantum of control the trust
agreement places in the party for whose benefit the trustee is to
act and, in doubtful cases, on the control in fact exercised.
Hunter Mining Laboratories, 763 P.2d at 351 ("In an agency
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relationship, the principal possesses the right to control the
agent's conduct.") (citing Restatement (Second) of Agency 14).
The district court dismissed the second amended
complaint on the ground that Edwards relied "solely on specific
paragraphs" of the deeds of trust as support for the claim that
the trustees acted as Hancock's agents in providing the
underinclusive notices of sale. The court considered it
especially significant that paragraph 8 of the 1975 deed2
"describes the trustee, not [Hancock], as the party that is to
conform the notice of sale to the requirements of law."3
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2The deed of trust provision quoted in the text, see infra p. 12,
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is contained in 8 of the 1975 deed of trust. Covenant No. 6 in the
1976 deed of trust is similar. As concerns the notice of sale,
Covenant No. 6 provides:
The trustees shall first give notice of the time and place of
such sale, in the manner provided by the laws of this state for
the sale of real property under execution . . . .
3Although Nevada law makes it the duty of the trustee to give
notice of the time and place of sale, see Nev. Rev. Stat. 107.080(4)
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("The trustee . . . shall . . . before the making of the sale, give
notice of the time and place thereof in the manner and for a time not
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10
Significantly, it does not appear that the district
court considered 15 of the second amended complaint, which
explicitly alleges that, "[i]n its notice of sale, the trustee,
acting under the direction of Hancock, specifically excepted
the[] [mineral] rights" from the property to be sold at
foreclosure. Nor did the court advert to the allegation in the
second amended complaint that the deeds of trust grant Hancock
unlimited power to replace the trustees.
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less than that required by law for the sale or sales of real property
________ __ ___ ___ ___ ____ __ _____ __ ____ ________
upon execution") (emphasis added), the statute does not expressly
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place with the trustee the duty or power to prepare the property
description or to determine its content.
In pertinent part, the Nevada statute governing the manner of
giving notice of the time and place of a sale of real property upon
execution merely states:
Before the sale of property on execution, notice of the sale
. . . must be given as follows:
. . . .
(c) in case of real property, by:
(1) Personal service upon each judgment debtor or by
registered mail to the last known address of each judgment
debtor;
(2) Posting a similar notice particularly describing
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the property . . . .
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Nev. Rev. Stat. 21.130(1)(c) (emphasis added).
The silence of the execution statute as to the placement of the
duty to describe the property to be sold appears in sharp contrast to
the context of 8 of the 1975 deed of trust. In the event of
Edwards's default, 8 plainly vests in Hancock the discretionary
power to deliver "written notice of default and of election to cause
said property [i.e., the property described in the deed of trust] to
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be sold, which notice Trustee shall cause to be filed for record
. . . ." It seems a reasonable inference from 8 that the property
description contained in the "election to cause said property to be
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sold," as given by Hancock, normally would determine the property
description included in the notice of sale.
11
Paragraph 8 of the 1975 Deed of Trust provides:
Trustor [Edwards] promises and agrees:
8. That upon default by Trustor in payment
of any indebtedness secured hereby or in per-
formance of any agreement hereunder, Benefi-
ciary [Hancock] may deliver a written notice
of default and of election to cause said
property to be sold, which notice Trustee
shall cause to be filed for record, and Bene-
ficiary [Hancock] may also declare all sums
secured hereby immediately due and payable by
delivery to Trustee of written declaration of
default. After the lapse of such time as may
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then be required by law following the
recordation of said Notice of Default, and
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notice of sale having been given as then
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required by law, Trustee, without demand on
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Trustor, shall sell said property at time and
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place fixed by it in said Notice of Sale,
either as a whole or in separate parcels, and
in such order as Beneficiary [Hancock] may
determine, subject to any statutory right
which Trustor may have to direct such order,
at public auction to the highest bidder for
cash in lawful money of the United States,
payable at time of sale. (Emphasis added.)
Thus, while the deeds of trust require that notice of sale be
given as required under Nevada law, the power to determine
whether to declare a default and to elect to sell "said
property," as well as the "order of sale," is expressly reserved
to Hancock. Second, as our attention has been invited to no
provision, either in the deeds of trust4 or in Nevada law, which
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4The 1975 deed provides:
That the Beneficiary hereunder may, from time to time,
appoint another trustee or trustees to execute the trusts hereby
created.
The 1976 deed provides:
12
would inhibit the beneficiary's power to replace the incumbent
trustees, we must assume there were no such limitations on
Hancock's power.5 Third, as we have said, the complaint alleges
not only that the deeds of trust entitled Hancock to direct and
control the trustees but that Hancock "did direct and control
[them] in all [their] actions," most pertinently by excepting the
mineral rights from the property to be sold.
Crediting these allegations in the light most favorable
to Edwards, as we must for present purposes,6 we can only
conclude that the trustees acted as Hancock's agents in providing
potential purchasers notably Freeport-McMoran Gold Company
underinclusive notices of sale which did not particularly
describe the property covered by the deeds of trust as required
under Nevada law and the deeds of trust. Thus, the allegations
in the second amended complaint presently compel the conclusion
not only that the trustees did not owe allegiance to the terms of
the deeds of trust, see Hunter Mining Laboratories, 763 P.2d at
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351 (citing Restatement (Second) of Agency 14; Restatement
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That the beneficiary or his assigns, may, from time to time,
appoint another trustee, or trustees, to execute the trust
created by the deed of trust or other conveyance in trust.
5Hancock's unrestricted power to replace the trustees would appear
to be a significant factor in determining its right to control the
trustees. See Hunter Mining Laboratories, 763 P.2d at 351 ("In an
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agency relationship, the principal possesses the right to control the
agent's conduct.") (citing Restatement (Second) of Agency 14).
6Feinstein v. Resolution Trust Corp., 942 F.2d 34, 37 (1st Cir.
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1991) (under Rule 12(b)(6) jurisprudence, complaint must be given "a
highly deferential reading"); Correa-Martinez v. Arrillaga-Belendez,
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903 F.2d 49, 52 (1st Cir. 1990) (same).
13
(Second) of Trusts 8 (comment b.)), but that they acted "under
the direction of Hancock," see id., which possessed the ultimate
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power to replace them. See Restatement (Second) of Agency 14B
___
(comment f.) (an agency relationship may be established not only
by the "amount of control agreed to be exercised" but "in
doubtful situations, upon the amount of control in fact exer-
cised."). In sum, Hancock's unlimited power to replace the
trustees, combined with its direction of the trustees in
"specifically except[ing] the[] [mineral] rights" from the
property descriptions included in the notices of sale, precluded
summary judgment on appellant's agency claim. See, e.g., In re
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Lane, 937 F.2d 694, 699 (1st Cir. 1991) (vacating dismissal order
____
on ground complaint "distinctly state[d] a minimally sufficient .
. . claim").
The district court judgment dismissing the negligence
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claim is affirmed; the dismissal of the contract claim based on
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agency is vacated and the case is remanded for further
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proceedings. The parties shall bear their own costs.
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14
Document Info
Docket Number： 91-2317
Filed Date： 9/4/1992
Precedential Status： Precedential
Modified Date： 9/21/2015