DocketNumber： 94-1598
Filed Date： 6/19/1995
Status： Precedential
Modified Date： 9/21/2015
June 19, 1995 [NOT FOR PUBLICATION]
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 94-1598
TIDEMARK BANK FOR SAVINGS, F.S.B.,
Plaintiff - Appellant,
v.
PETER R. MORRIS, AN INDIVIDUAL,
AND MARSHALL AND STEVENS INCORPORATED,
Defendants - Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patricia Saris, U.S. District Judge] ___________________
[Hon. A. David Mazzone, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge, ___________
Boudin, Circuit Judge, _____________
and Barbadoro,* District Judge. ______________
_____________________
Frederic N. Halstrom, with whom Halstrom Law Offices, PC was ____________________ ________________________
on brief for appellant.
Joseph P. Musacchio, with whom Stephen W. Sutton and Melick ___________________ _________________ ______
& Porter were on brief for appellee Marshal and Stevens, Inc. ________
____________________
____________________
* Of the District of New Hampshire, sitting by designation.
____________________
BARBADORO, District Judge. The plaintiff, Tidemark BARBADORO, District Judge. _______________
Bank for Savings, F.S.B. ("Tidemark"),1 appeals from summary
judgment granted in favor of the defendant, Marshall and Stevens,
Inc. Tidemark argues that the district court erred in its
choice-of-law analysis and, as a result, applied the wrong
substantive legal standard. Finding no error in the choice of
law, we affirm the district court's order.
I. BACKGROUND I. BACKGROUND __________
In 1985, Peter Morris received a $2 million
construction loan from Tidemark to build a summer vacation house
on Martha's Vineyard in Massachusetts. Morris decided to
refinance the loan in 1987, and this time Tidemark agreed to loan
Morris $3.5 million subject to several conditions, including a
requirement that Morris have the property appraised. Morris
engaged Marshall and Stevens to prepare the appraisal, which
valued the property at $5.5 million. Tidemark then made the loan
in reliance on the appraisal and obtained a first mortgage on the
Martha's Vineyard property. Morris subsequently defaulted.
After foreclosure, Tidemark sold the property at a substantial
loss.
Tidemark is a Virginia savings institution with its
principle place of business in Newport News, Virginia. Marshall
____________________
1 Newport News Savings Bank was the plaintiff during the
proceedings in district court. In August 1993, Tidemark Bank for
Savings, F.S.B., was substituted for Newport News Savings Bank.
Although the district court refers to the plaintiff as "Newport,"
we use "Tidemark," which has been the plaintiff's name during the
appeal.
-2-
and Stevens is an Illinois corporation with its principle place
of business in Des Plaines, Illinois. Morris is an Illinois
resident. Tidemark filed its complaint against Marshall and
Stevens in the district of Massachusetts alleging negligence,
negligent misrepresentation, and breach of contract.2 The
district court invoked Massachusetts' choice-of-law rules and
determined that the substantive law of Virginia applied to
Tidemark's negligence and negligent misrepresentation claims,
while Illinois law applied to the contract claim. It then
granted Marshall and Stevens' motion for summary judgment with
respect to all three claims.
Tidemark argues on appeal that the district court
misinterpreted Massachusetts' choice-of-law rules.3 As a
result, Tidemark contends that the district court erroneously
judged its negligence and negligent misrepresentation claims
____________________
2 Tidemark sued Morris in the same action, but later settled
those claims.
3 We assume for purposes of analysis that a choice must be made
between Massachusetts and Virginia law because Tidemark's
negligence and negligent misrepresentation claims would have
survived if they had been judged under Massachusetts law.
Compare Page v. Frazier, 445 N.E.2d 148, 153-54 (Mass. 1983) _______ ____ _______
(recognizing negligence cause of action for misrepresentation to
recover purely economic loss despite lack of privity under
certain circumstances) and Craig v. Everett M. Brooks Co., 222 ___ _____ ______________________
N.E.2d 752, 755 (Mass. 1967) (same) with Ward v. Ernst & Young, ____ ____ _____________
435 S.E.2d 628, 631-32 (Va. 1993) (holding that no cause of
action exists for negligent misrepresentation absent privity) and ___
Blake Construction Co. v. Alley, 353 S.E.2d 724, 726-27 (Va. _______________________ _____
1987) (same).
-3-
under Virginia law, rather than Massachusetts law.4 We review
the district court's resolution of the choice-of-law issue de __
novo. CPC Int'l v. Northbrook Excess & Surplus Ins., Co., 46 ____ _________ _______________________________________
F.3d 1211, 1214 (1st Cir. 1995).
II. DISCUSSION II. DISCUSSION __________
In diversity of citizenship cases, we use the forum
state's choice-of-law rules. Klaxon Co. v. Stentor Elec. Mfg. __________ ___________________
Co., 313 U.S. 487, 496 (1941); American Title Ins. Co. v. East ___ _______________________ ____
West Fin. Corp., 959 F.2d 345, 348 (1st Cir. 1992). Accordingly, _______________
we are guided in our analysis by the applicable decisions of the
Massachusetts Supreme Judicial Court ("SJC").5
Massachusetts eschews any particular choice-of-law
doctrine and instead employs a "functional approach" to choice of
law. Cosme v. Whitin Mach. Works, Inc., 632 N.E.2d 832, 834 _____ _________________________
(Mass. 1994). A court using this approach must consider "various
choice-influencing considerations, including those provided in
the Restatement (Second) of Conflict of Laws (1971), and those
suggested by various commentators." Id. (citation omitted). The ___
____________________
4 Because Tidemark merely alludes to its contract claim, and
neither briefed nor argued any issue concerning that claim, we
deem it abandoned. Ryan v. Royal Ins. Co., 916 F.2d 731, 734 ____ ______________
(1st Cir. 1990); Niziolek v. Ashe, 694 F.2d 282, 284 (1st Cir. ________ ____
1982).
5 Tidemark challenges our denial of its motion to certify the
choice-of-law question to the SJC. Tidemark's failure to seek
certification in the district court "considerably weakens" its
argument for certification. See Boston Car Co. v. Acura Auto. ___ ______________ ___________
Div., Am. Honda Motor Co., 971 F.2d 811, 817 n.3 (1st Cir. 1992). _________________________
Moreover, since sufficient controlling precedent is readily
available on the choice-of-law standard, certification is
unnecessary. Snow v. Harnischfeger Corp., 12 F.3d 1154, 1161 ____ ___________________
(1st Cir. 1993), cert. denied, 115 S. Ct. 56 (1994). ____________
-4-
SJC's most recent decisions on the subject suggest that the first
step in this process is to identify and apply the Restatement
sections that are most analogous to the particular issue in
dispute. See, e.g., New England Tel. & Tel. Co. v. Gourdeau ___ ____ _____________________________ ________
Constr. Co., 647 N.E.2d 42, 44-45 (Mass. 1995); Cosme, 632 N.E.2d ___________ _____
at 834-36; Travenol Labs., Inc. v. Zotal, Ltd., 474 N.E.2d 1070, ____________________ ___________
1073 (Mass. 1985); Bushkin Assocs., Inc. v. Raytheon Co., 473 ______________________ ____________
N.E.2d 662, 668 (1985). The results obtained by using the most
analogous Restatement sections are then evaluated in light of the
more general choice-influencing considerations described in 6
of the Restatement and other similar sources.6 Cosme, 632 N.E.2d _____
at 834-36. Following this approach, we begin by identifying and
applying the section of the Restatement which most closely
applies to Tidemark's claims.
A. Restatement 148(2) A. Restatement 148(2) ____________________
Like the district court, we conclude that 148(2) of
the Restatement is most directly applicable to Tidemark's claims
since that section governs choice-of-law issues where the
defendant's misrepresentation and the plaintiff's reliance
occurred in different states. Restatement (Second) of Conflict
of Laws 148(s) (1971). Section 148(2) lists the following
factors that a court should consider in resolving choice-of-law
questions in such cases:
____________________
6 Although the SJC has not limited itself to the Restatement as
a source of guidance, we confine our analysis here to the
Restatement since the parties do not draw our attention to any
additional choice-of-law principles that should effect our
analysis.
-5-
(a) the place, or places, where the
plaintiff acted in reliance upon the
defendant's representations,
(b) the place where the plaintiff
received the representations,
(c) the place where the defendant made
the representations,
(d) the domicil, residence, nationality,
place of incorporation and place of
business of the parties,
(e) the place where a tangible thing
which is the subject of the transaction
between the parties was situated at the
time, and
(f) the place where the plaintiff is to
render performance under a contract which
he has been induced to enter by the false
representations of the defendant.
Id. We first consider factors (a), (b), (c), which concern the ___
places where the misrepresentations were made, received, and
acted upon.
1. The place or places where the misrepresentations 1. The place or places where the misrepresentations
were made, received, and acted upon. were made, received, and acted upon.
None of these three factors favors Tidemark's position.
Taken chronologically, factor (c), the place where the
misrepresentations were made, favors neither Massachusetts nor
Virginia law. Although the appraisal was partially prepared in
Massachusetts, it was finalized and released from Marshall and
Stevens' Illinois office. Factors (b), the place where the
misrepresentations were received, and (a), the place where the
plaintiff acted in reliance on the misrepresentation, both favor
Virginia law since Tidemark received the appraisal, agreed to
make the loan, and disbursed the loan proceeds from its Virginia
office. The record does not identify the place where the loan
closing occurred. However, even if, as Tidemark alleges, the
-6-
closing had occurred in Massachusetts, that fact is of little
significance since Tidemark's claims concern the effect that the
appraisal had on its Virginia-based decision to make the loan and
its disbursal of the proceeds of the loan from Virginia.
2. Other factors. 2. Other factors.
Factor (d), concerning the parties' states of
incorporation and places of business, also provides no support
for Tidemark's position since Tidemark is a Virginia corporation
based in Virginia, and Marshall and Stevens is an Illinois
corporation based in Illinois. Even if, as Tidemark argues,
Morris should be considered a resident of Massachusetts because
he once used the Martha's Vineyard house as a vacation home, his
place of residence would be irrelevant because Morris is not a
party to the claims at issue here. Factor (f), the place where
the plaintiff performed the contract, favors Virginia law since
Tidemark performed its primary obligation to Morris under the
loan contract by disbursing the loan proceeds from its Virginia
office.
The only factor that supports Tidemark's position is
factor (e), the location of the property which was the subject of
the transaction. The section's comment states that this factor
"is of particular importance when the subject of the transaction
is land." Restatement (Second) of Conflict of Laws 148 cmt. i.
Nevertheless, the location of the property carries comparatively
little weight in this case because the alleged misrepresentations
did not directly affect the property. Instead, the harm that
-7-
Tidemark allegedly suffered occurred primarily in Virginia where
the decision to make the loan was made.
Considering all of the 148(2) factors and their
relative significance, we agree with the district court that, on
balance, the 148(2) factors favor the application of Virginia
law.
-8-
B. Restatement 6(2) B. Restatement 6(2) __________________
Tidemark contends that the district court erred by
failing to interpret the results of its 148(2) analysis in
light of the more general choice-influencing considerations
described in 6(2) of the Restatement.7 As we demonstrate
below, consideration of these factors does not cause us to
question the district court's conclusion.
1. The needs of the interstate system. 1. The needs of the interstate system.
Neither party has suggested that choosing one state's
law over the other would impede the workings of the interstate
system. Although the impact of various states' negligence rules
on interstate banking and the availability of interstate mortgage
transactions might raise concern in some cases, we find no reason
to address such issues on the record presented here.
2. The relevant policies and relative interests of 2. The relevant policies and relative interests of
Massachusetts and Virginia in the negligence Massachusetts and Virginia in the negligence
claims. claims.
Virginia plainly has a significant interest in
____________________
7 Section 6 provides the following factors:
(a) the needs of the interstate and
international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other states
and the relative interest of those
states in the determination of the
particular issue
(d) the protection of justified
expectations,
(e) the basic policies underlying the
particular field of law,
(f) certainty, predictability and
uniformity of result, and
(g) ease in the determination and
application of the law to be applied.
-9-
litigation involving a Virginia plaintiff. Virginia has chosen
not to recognize tort claims to recover purely economic loss for
negligently supplied misinformation absent privity between the
parties. Ward, 435 S.E.2d at 631-32. Instead, under Virginia ____
law, a plaintiff may recover economic losses caused by the
failure of contractual duties only in a contract action. Id. ___
The purpose of Virginia's "economic loss rule" is "to preserve
the bedrock principle that contract damages be limited to those
'within the contemplation and control of the parties in framing
their agreement.'" Richmond v. Madison Management Group, Inc., ________ _______________________________
918 F.2d 438, 446 (4th Cir. 1990) (quoting Kamlar Corp. v. Haley, ____________ _____
299 S.E.2d 514, 517 (Va. 1983)).
Massachusetts, on the other hand, has little interest
in this case. Although Massachusetts' policy would favor
compensating Massachusetts plaintiffs and holding Massachusetts
defendants accountable under its own law, see Cosme, 632 N.E.2d ___ _____
at 836, none of the parties are Massachusetts citizens or
corporations. Further, although the appraised property is
located in Massachusetts, the transaction did not directly affect
the property, and the parties no longer own or have any
connection with the property. Thus, Massachusetts has minimal
interest in the parties and the outcome of this case.
3. Protection of justified expectations. 3. Protection of justified expectations.
This factor is insignificant in negligence actions
where the parties probably acted without considering the
significance of the applicable rule of law. Restatement (Second)
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of Conflict of Laws 6 cmt. g. Tidemark contends, however, that
it expected that Massachusetts law would apply to all actions
related to the loan because the mortgage document contained a
choice-of-law clause specifying that the mortgage would be
governed by Massachusetts law. Marshall and Stevens was not a
party to the mortgage, and Tidemark's claims are not based on the
mortgage agreement. If Tidemark expected Massachusetts law to
apply to potential negligence claims against an appraiser based
on the mortgage agreement, its expectation was unjustified.
4. Basic policies underlying the field of law. 4. Basic policies underlying the field of law.
The policy supporting tort recovery for negligently
supplied information is to encourage honesty and competence in
the undertaking. See Restatement (Second) of Torts 552 cmt. a ___
(1977). Section 552 of the Restatement (Second) of Torts,
pertaining to negligent misrepresentation claims, however, also
recognizes the importance of a countervailing policy to limit the
scope of liability in light of the potentially broad circulation
of misinformation. Id.; see, e.g., Berschauer/Phillips Constr. ___ ___ ____ ___________________________
Co. v. Seattle Sch. Dist. No. 1, 881 P.2d 986, 989-90 (Wash. ___ __________________________
1994); Matthew S. Steffey, Negligence, Contract and Architects' _____________________________________
Liability for Economic Loss, 82 Ky. L.J. 659, 701 (1994); William ___________________________
C. Way, The Problem of Economic Damages: Reconceptualizing the ________________________________________________________
Moorman Doctrine, 1991 U. Ill. L. Rev. 1169, 1186-87 (1991). In ________________
light of this countervailing policy, a solid minority of states,
including Virginia, require privity in order to maintain a
misrepresentation claim. See Bily v. Arthur Young & Co., 834 ___ ____ ___________________
-11-
P.2d 745, 755-59 (Cal. 1992) (finding that approximately nine
states require privity while at least seventeen do not).
Consequently, the policies underlying this area of law are in
conflict and support both states' interpretations.
5. Predictability and uniformity of result. 5. Predictability and uniformity of result.
Predictability and uniformity of results are of limited
significance in negligence actions because parties do not plan
their activities in light of the potential legal consequences.
Restatement (Second) of Conflict of Laws 6 cmt. i. However,
the Restatement also notes that a choice of law that would
further the predictability and uniformity of results would
discourage forum shopping. Id. Because Massachusetts joins a ___
majority of states in allowing economic loss suits without
privity, application of Massachusetts law arguably might further
a uniform legal standard. There is little benefit, however, in
encouraging a majority rule over a significant minority view.
Thus, this consideration is also inconclusive.
6. Ease in determination and application of the law. 6. Ease in determination and application of the law.
Because a federal court was the forum here, we give
less weight to the ease of applying Massachusetts law over
Virginia law. See Allstate Ins. Co. v. Hague, 449 U.S. 302, 326 ___ __________________ _____
(1981) (Stevens, J., concurring). Moreover, Virginia law
relating to claims for economic loss without privity is well-
developed. Thus, we find no obstacles to applying Virginia law
in a Massachusetts federal court in this case. Indeed, Tidemark
faults the district court's choice but not its application of
-12-
Virginia law.
In summary, the predominance and significance of
Virginia's contacts with the parties and relevant occurrences in
this case weighs in favor of applying Virginia law. Based on the
balance of the appropriate choice-influencing considerations, we
hold that the district court's selection of Virginia law was
correct.
IV. CONCLUSION IV. CONCLUSION __________
We conclude that the district court did not err in its
choice of Virginia law. Because Tidemark does not challenge the
district court's interpretation of that law, our review is
complete. The district court's judgment in favor of Marshall and
Stevens is affirmed. ________
-13-
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