Martinez v. Waldstein ( 2016 )

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15-P-455 Appeals Court
FRANCISCO MARTINEZ, trustee,1 & another2 vs. THOMAS G.
WALDSTEIN.
No. 15-P-455.
Middlesex. January 13, 2016. - April 29, 2016.
Present: Cypher, Meade, & Neyman, JJ.
Collateral Estoppel. Judgment, Preclusive effect. Negligence,
Misrepresentation. Contract, Misrepresentation. Practice,
Civil, Judgment on the pleadings, Affidavit. Subrogation.
Civil action commenced in the Superior Court Department on
July 2, 2014.
The case was heard by Kimberly S. Budd, J., on a motion for
judgment on the pleadings.
Peter S. Brooks for the plaintiffs.
Damian R. LaPlaca for the defendant.
NEYMAN, J. Francisco Martinez, trustee of the Baystate
Portfolio Trust (trust), and Eric AmRhein (collectively,
plaintiffs), appeal from a judgment of the Superior Court
dismissing their complaint alleging misrepresentation and
1
Of the Baystate Portfolio Trust.
2
Eric AmRhein.
2
violation of G. L. c. 93A, § 11, against the defendant, attorney
Thomas G. Waldstein, on the basis of issue preclusion. This is
the second appeal to this court arising out of the plan to
purchase the mortgage and foreclose on a property located at 3
Ronald Road in Sudbury (the property) in order to eliminate
junior mortgages on the property. See U.S. Bank, N.A. v.
Martinez, 86 Mass. App. Ct. 1111 (2014) (Baystate I). The
plaintiffs' claims in the present action hinge on their
allegation that they reasonably relied on Waldstein's
representations in an affidavit regarding mortgage priorities on
the property. A Superior Court judge (motion judge) granted
Waldstein's motion for judgment on the pleadings, concluding
that the plaintiffs could not establish that they reasonably
relied on Waldstein's representations because a different
Superior Court judge (trial judge) had found otherwise in
Baystate I.3 The plaintiffs contend that the motion judge erred
in applying issue preclusion because the issue of reasonable
reliance was not actually litigated in Baystate I, and thus was
neither identical to any issues raised in Baystate I nor
essential to the judgment in Baystate I. We affirm.
3
Martinez, as trustee of the trust, was the named defendant
in Baystate I. Martinez and AmRhein are the named plaintiffs in
the instant case. The motion judge found that AmRhein, the sole
beneficiary of the trust, was in privity with Martinez, the
trustee. The plaintiffs do not challenge this finding on
appeal.
3
1. Background. We first summarize the relevant facts from
the motion judge's decision on Waldstein's motion for judgment
on the pleadings, taking those facts stated by the plaintiffs as
true. See Mass.R.Civ.P. 12(c), 365 Mass. 754 (1974); Jarosz v.
Palmer, 436 Mass. 526, 530 (2002) (Jarosz). We then look to the
entire record of Baystate I, with a view toward comparing the
issues adjudicated therein with the issues raised by the
plaintiffs in the present action. See Boyd v. Jamaica Plain Co-
op. Bank, 7 Mass. App. Ct. 153, 160 (1979) (when asked to
determine whether issue has been previously litigated, and thus
precluded, "we look to the entire record . . . to ascertain what
issues were tried and determined and were essential to the
judgment").
a. The present action. In September, 2004, Peter Venuto
purchased the property and gave a $745,000 mortgage to
Countrywide Financial Corporation (Countrywide). In early 2005,
Waldstein aided Venuto in transferring ownership of the property
to King R.E., LLC, which subsequently granted a $2.65 million
mortgage of the property to First Trade Union Bank (First
Trade). The First Trade mortgage was subordinate to the
Countrywide mortgage.
In November, 2006, Waldstein helped Venuto refinance the
Countrywide mortgage, representing both Venuto and Countrywide
in the transaction, and serving as agent for the title insurer.
4
Waldstein failed to obtain a subordination of the First Trade
mortgage, and thus the refinanced Countrywide mortgage became
subordinate to the First Trade mortgage. On or about February
11, 2010, Countrywide assigned its mortgage of the property to
U.S. Bank, N.A. (U.S. Bank). Shortly thereafter, First Trade
and U.S. Bank began foreclosure proceedings on the property. In
June of that year, U.S. Bank commenced Baystate I, seeking
equitable subrogation and a declaration that First Trade's
mortgage was subordinate to U.S. Bank's mortgage. Venuto
provided to Waldstein a copy of the papers regarding Baystate I,
thus giving Waldstein notice of the legal proceedings.
In July, 2011, while Baystate I was pending, Venuto
approached his friend, AmRhein, with a plan for AmRhein to
purchase the First Trade promissory note and an assignment of
the First Trade mortgage. On or about July 7, 2011, Waldstein
provided to AmRhein an affidavit (the affidavit)4 that stated,
inter alia, that the First Trade mortgage was in "First
position" and the Countrywide mortgage was in "Second position";
"[a] subordination of mortgage was prepared subordinating said
4
The plaintiffs' complaint in the present action avers that
"Waldstein provided AmRhein with an affidavit," but omits the
critical fact that AmRhein's attorney (not Waldstein) drafted
the affidavit for Waldstein's signature, and asked AmRhein to go
to Waldstein's office to pick up a signed copy. As we discuss
infra, the trial judge's findings in Baystate I present a more
comprehensive account of the plaintiffs' scheme to eliminate the
junior liens on the property.
5
First Trade . . . mortgage to the . . . Countrywide mortgages[5]
but was never executed and does not exist to [Waldstein's]
knowledge"; and a purchaser of the First Trade promissory note
could rely on the representations contained in the affidavit.
On July 8, 2011, AmRhein directed Martinez (as trustee of
the trust) to purchase the First Trade promissory note and an
assignment of the First Trade mortgage. The plaintiffs alleged
in their complaint that soon after the purchase of the First
Trade note and mortgage, the plaintiffs obtained knowledge of
Baystate I and assumed First Trade's defense. They further
alleged that they reasonably relied upon the affidavit
"certifying that the First Trade Mortgage was a first priority
or senior mortgage" and that "if Waldstein had disclosed
[Baystate I] that was then pending by US Bank against First
Trade, [p]laintiffs would not have acquired the First Trade
Promissory Note and the First Trade Mortgage."
b. Baystate I. Nearly eleven months before the plaintiffs
filed their complaint in the present action, U.S. Bank, in an
equitable subrogation action, sought a declaration that its
mortgage interest should be in the first priority position,
which would relegate the First Trade mortgage owned by the
plaintiffs to the second priority position. In Baystate I, the
5
The affidavit references two Countrywide mortgages, both
of which were subordinate to the First Trade mortgage at the
time Baystate I was commenced.
6
trial judge, proceeding without a jury, made extensive factual
findings and granted U.S. Bank's request to hold the first
priority position on the property. The trial judge found that
AmRhein was aware, or should have been aware, of the claim of
Countrywide (the predecessor-in-interest to U.S. Bank) to the
first priority position. He further found that AmRhein planned
with Venuto to take advantage of Waldstein's mistake in order to
extinguish the junior mortgages, and thus the trust was not a
bona fide purchaser such that it should be shielded from the
doctrine of equitable subrogation. A panel of this court
affirmed the judgment in an unpublished decision issued pursuant
to our rule 1:28. See U.S. Bank, N.A. v. Martinez, 86 Mass.
App. Ct. 1111 (2014).
Several findings of the trial judge in Baystate I are
particularly critical to the present case, including the
following:
"AmRhein was aware, or should have been aware, of the claim
of Countrywide to the first lien position. Venuto came to
AmRhein, his close friend, with the plan for him (AmRhein)
to buy the First Trade Mortgage, for AmRhein to foreclose
on Venuto's house, and thereby wipe out the junior
mortgages. AmRhein was aware that it was only through
Waldstein's mistake or negligence that First Trade was in
the superior position and he knew, or should have known,
that Countrywide or its assignee would pursue its claim to
first priority. I do not find credible AmRhein's testimony
that he was not aware of this lawsuit."
The trial judge further found that AmRhein was aware from the
first meeting with Venuto that there was a dispute between the
7
banks over which had the priority lien position, and he
(AmRhein) was aware that there should have been a subordination
by First Trade to the Countrywide mortgage, which had not
occurred. The trial judge found that AmRhein knew of Baystate
I, and that AmRhein, with the help of his attorney, formed the
trust to acquire the First Trade mortgage. The trial judge
determined that prior to the purchase of the First Trade
mortgage, AmRhein's attorney had drafted the affidavit for
Waldstein's signature (see note 4, supra), which contained
statements regarding the first and second lien positions that
"were known already and were easily ascertainable." Finally,
the trial judge found that AmRhein, through the trust, paid
$204,000 for the assignment of the mortgage and the loan, which
had a balance of $1.4 million and an apparent first lien
priority.
2. Standard of review. "A defendant's rule 12(c) motion
is 'actually a motion to dismiss . . . [that] argues that the
complaint fails to state a claim upon which relief can be
granted.'" Jarosz, 436 Mass. at 529, quoting from Smith &
Zobel, Rules Practice § 12.16 (1974). As we would with a motion
to dismiss, we review the judge's ruling de novo. Ridgeley
Mgmt. Corp. v. Planning Bd. of Gosnold, 82 Mass. App. Ct. 793,
797 (2012). "In deciding a rule 12(c) motion, all facts pleaded
by the nonmoving party must be accepted as true." Jarosz, supra
8
at 529-530, citing Minaya v. Massachusetts Credit Union Share
Ins. Corp., 392 Mass. 904, 905 (1984). However, a judge is "not
required to accept as true those 'facts which the court could
take judicial notice are not true.' Hargis Canneries, Inc. v.
United States, 60 F. Supp. 729, 729 (D.C. Ark. 1945)." Jarosz
v. Palmer, 49 Mass. App. Ct. 834, 836 (2000), S.C., 436 Mass.
526 (2002). See Jarosz, supra at 530 ("[W]e see no reason that
a judge may not also consider on a rule 12[c] motion those facts
of which judicial notice can be taken. Further, a judge may
take judicial notice of the court's records in a related
action").
3. Issue preclusion. "The doctrine of issue preclusion
provides that when an issue has been 'actually litigated and
determined by a valid and final judgment, and the determination
is essential to the judgment, the determination is conclusive in
a subsequent action between the parties whether on the same or
different claim.'" Id. at 530-531, quoting from Cousineau v.
Laramee, 388 Mass. 859, 863 n.4 (1983). Here, the plaintiffs
challenge the motion judge's conclusion that the issue of
reasonable reliance was actually litigated in Baystate I, was
identical to issues adjudicated in Baystate I, and was essential
to the court's decision in Baystate I.6
6
The plaintiffs contend that because the issue of
reasonable reliance was not litigated in Baystate I, the issues
9
a. Actually litigated. In determining whether an issue
was actually litigated for preclusion purposes, courts ask
whether the issue was "subject to an adversary presentation and
consequent judgment that was not a product of the parties'
consent." Jarosz, supra at 531 (quotation marks and citation
omitted). See Restatement (Second) of Judgments § 27 comment d
(1982). The plaintiffs argue that the issue of reasonable
reliance was not actually litigated because Baystate I centered
on the mortgage priority dispute, whereas the present action
addresses AmRhein's reliance on Waldstein's representations.
We first examine the nature of the misrepresentation
alleged in the plaintiffs' complaint. As found by the trial
judge in Baystate I, the affidavit, upon which the plaintiffs
purportedly relied, contained averments that were all true, and
all known to AmRhein. That notwithstanding, the plaintiffs
still allege that "AmRhein was unaware of [Baystate I] when he
directed Martinez to purchase an assignment of the First Trade
Mortgage." Therefore, the plaintiffs contend, the omission in
the affidavit of any reference to the existence of the pending
U.S. Bank claim constituted the actionable misrepresentation.
Had the affidavit "disclosed the existence of" Baystate I, the
presented here are neither identical, nor essential, to the
court's decision in Baystate I. Thus, all of the plaintiffs'
arguments are effectively contingent on whether the issue of
reasonable reliance was actually litigated in Baystate I.
10
plaintiffs allege, they would not have purchased the First Trade
mortgage. This claim is belied by AmRhein's knowledge and state
of mind, which was fully litigated in Baystate I.
There is no dispute that the parties in Baystate I fully
litigated the issue whether the trust was a bona fide purchaser
such that it should be shielded from the doctrine of equitable
subrogation. An essential issue inherent to this consideration
was the innocence of the trust. The trial judge in Baystate I
determined that the trust was not a bona fide purchaser for
value, but rather was an entity formed as part of the ploy to
take advantage of Waldstein's mistake (in failing to obtain a
subordination of the First Trade mortgage) and wipe out the
junior Countrywide liens. As found by the trial judge, AmRhein
already knew, or should have known, of Countrywide's claim to
the first lien position, and that Countrywide or its assignee
would pursue its claim to first priority. The statements in the
affidavit regarding the first and second lien positions "were
known already and were easily ascertainable," and AmRhein knew
that First Trade was in the superior position solely through
Waldstein's mistake or negligence. Furthermore, AmRhein spoke
to Waldstein about the contents of the affidavit and the
substance of the First Trade purchase. Thus, Baystate I
established that AmRhein knew of the existence of the U.S. Bank
claim and that the purported misrepresentation (the omission
11
from the affidavit of the "existence" of the U.S. Bank claim)
had been litigated and resolved on the merits. In light of this
determination in Baystate I, the plaintiffs' claim of reasonable
reliance in the present case fails as a matter of law. We thus
agree with the motion judge's conclusion that the "plaintiffs'
claim that they relied upon Waldstein's representations was
fully litigated (and rejected) in [Baystate I]." Accordingly,
the plaintiffs are precluded from relitigating this issue.
The plaintiffs insist, however, that even if they had
actual knowledge of Baystate I, the inquiry does not end there.
They advance two theories to try to salvage their argument that
their reliance upon the affidavit was nonetheless reasonable.
The claims are without merit.
First, they allege that their reliance was reasonable
because Waldstein, as an attorney, had a duty to advise them of
the U.S. Bank claim of priority in Baystate I. The affidavit
merely states, in relevant part, that the First Trade mortgage
was in first position, the Countrywide mortgage was in second
position, and a subordination of the First Trade mortgage to the
Countrywide mortgage was prepared but "never executed and does
not exist to [Waldstein's] knowledge." As determined in
Baystate I, AmRhein already knew all of this information.
Waldstein's representations, drafted by AmRhein's attorney no
less, do not aver that the mortgage priorities would remain in
12
the same position. Contrast Kirkland Constr. Co. v. James, 39
Mass. App. Ct. 559, 562-564 (1995) (reversing allowance of rule
12[b][6] motion to dismiss where nonclient plaintiff alleged
that defendant-lawyers induced it into contract, intended that
plaintiff would rely on their allegedly false written
representations, and plaintiff reasonably so relied).
Furthermore, the trial judge in Baystate I discredited AmRhein's
contention that he and Waldstein did not discuss the contents of
the affidavit or the substance of the proposed purchase of the
First Trade mortgage. The plaintiffs' claim of reliance also
ignores the finding that their actions were part and parcel of
the "plan" to eliminate the junior mortgages. Thus, their
argument is unpersuasive.
Second, the plaintiffs allege that even if their reliance
on the affidavit was tantamount to wilful blindness, their
misrepresentation claim should survive the rule 12(c) motion.
At oral argument before this panel, the plaintiffs cited McEvoy
Travel Bureau, Inc. v. Norton Co., 408 Mass. 704 (1990), to
support this contention.
McEvoy Travel Bureau, Inc., involved a distinctive set of
facts and does not stand for the proposition proffered by the
plaintiffs.7 There, the Supreme Judicial Court held that in view
7
Nearly seventeen years after its decision in McEvoy Travel
Bureau, Inc., the Supreme Judicial Court characterized it as
13
of the thirty-year relationship between the parties and the
commitments already undertaken by the plaintiff at the
defendant's request (which included moving its office to the
defendant's building at considerable expense, hiring necessary
extra personnel, and purchasing computer systems and equipment),
the plaintiff could have reasonably relied on the defendant's
representations that it would not invoke a sixty-day termination
clause that it described as "inoperative" and "meaningless."
Id. at 708. Thus, McEvoy Travel Bureau, Inc., does not support
the contention that reasonable reliance may be predicated on
wilfully blind acceptance of a third party's representation,
which is known by the relying party to be false. Indeed,
Massachusetts law is to the contrary. See Kuwaiti Danish
Computer Co. v. Digital Equip. Corp., 438 Mass. 459, 468 (2003),
citing Restatement (Second) of Torts § 541 (1977) ("The
recipient of a fraudulent misrepresentation is not justified in
relying upon its truth if he knows that it is false or its
falsity is obvious to him"). Moreover, the present case does
not fall into the category of cases where parties are trying to
conceal or lull other parties into ignoring obvious red flags.
"the only recent case where this court has upheld a
misrepresentation claim in the face of a written contract."
Masingill v. EMC Corp., 449 Mass. 532, 541 (2007). The detailed
facts of McEvoy Travel Bureau, Inc., supra at 706-709, are
summarized in Masingill, supra at 541-542, and we need not
repeat them here.
14
Ibid. The alleged misrepresentation in the present case
consisted of the failure of Waldstein to disclose, in the
affidavit prepared by AmRhein's attorney, the existence of a
priority dispute that was already known to AmRhein. This
alleged "omission" could not have concealed the existence of
facts already known to AmRhein.
b. Identical issues. The plaintiffs argue that because
the issue of reasonable reliance was neither raised nor
litigated by the parties in Baystate I, the issues decided there
could not have been identical to the issue in the current
adjudication. Because we hold, as discussed supra, that the
issue of reasonable reliance was actually litigated in Baystate
I, the argument is unavailing. Furthermore, "even if there is a
lack of total identity between the issues involved in two
adjudications, the overlap may be so substantial that preclusion
is plainly appropriate." Commissioner of the Dept. of
Employment & Training v. Dugan, 428 Mass. 138, 143 (1998),
citing Restatement (Second) of Judgments § 27 comment c (1982).
Here, the overlap is clear, as the critical issue in both cases
was the plaintiffs' knowledge and awareness of the existence of
the priority dispute. See id. at 142-143 (findings made in
prior disciplinary adjudication regarding employee's conduct and
state of mind precluded her from contesting in subsequent
proceedings whether she had engaged in deliberate misconduct).
15
Accordingly, the issue raised in the present action was
sufficiently identical to those litigated in Baystate I for
purposes of issue preclusion.
c. Essential to the judgment. As discussed supra, the
critical issue in Baystate I and the present action was whether
AmRhein knew of the existence of the U.S. Bank claim. In
Baystate I, the trial judge found, inter alia, that AmRhein knew
or should have known that U.S. Bank would pursue its claim to
first priority and knew that First Trade's superior position was
due solely to Waldstein's mistake. We agree with the motion
judge that this "finding (which obviously leads to the
conclusion that the plaintiffs did not rely on Waldstein's
representations) was essential to the determination [in Baystate
I] that US Bank was entitled to equitable subrogation because it
meant that the Trust was not an innocent purchaser of the First
Trade mortgage."
4. Conclusion. For the reasons stated, we conclude that
the motion judge properly determined that the plaintiffs'
misrepresentation and G. L. c. 93A8 claims were barred by the
doctrine of issue preclusion.
Judgment affirmed.
8
The plaintiffs make no attempt to distinguish the
applicability of issue preclusion to their G. L. c. 93A, § 11,
claim from its applicability to their misrepresentation claims.
Thus, any such argument has been waived. See Mass.R.A.P.
16(a)(4), as amended, 367 Mass. 921 (1975).