Colony Apartments v. Abacus Project Management, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-2109
COLONY APARTMENTS, Chapel Hill,
Plaintiff - Appellant,
versus
ABACUS PROJECT MANAGEMENT, INCORPORATED,
Defendant & Third Party Plaintiff - Appellee,
AIMCO RESIDENTIAL GROUP, L.P.,
Defendant - Appellee,
and
EICHLER, FAYNE & ASSOCIATES; INSIGNIA
PROPERTY MANAGEMENT,
Defendants,
and
BALCOR REALTY INVESTORS, LTD,
Third Party Defendant.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Alexander Williams, Jr., District Judge.
(CA-00-1514-AW)
Argued: May 22, 2006 Decided: July 25, 2006
Before WILKINS, Chief Judge, and MOTZ and KING, Circuit Judges.
Affirmed in part and reversed and remanded in part by unpublished
per curiam opinion.
ARGUED: Stanley James Reed, LERCH, EARLY & BREWER, CHARTERED,
Bethesda, Maryland, for Appellant. Rodney F. Page, BRYAN, CAVE,
L.L.P., Washington, D.C.; Sheila Christine Stark, DLA PIPER RUDNICK
GRAY CARY US, L.L.P., Reston, Virginia, for Appellees. ON BRIEF:
William B. Schroeder, LERCH, EARLY & BREWER, CHARTERED, Bethesda,
Maryland, for Appellant. Rebecca A. Ford, BRYAN, CAVE, L.L.P.,
Washington, D.C., for Appellee AIMCO Residential Group, L.P.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
PER CURIAM:
In 1996, Colony Apartments-Chapel Hill L.P. (“Colony”) bought
an apartment complex in Chapel Hill, North Carolina that, it
subsequently learned, contained severe structural flaws caused by
water damage to wooden floor joists. After discovering the damage,
Colony filed this diversity action against two companies involved
in the sale of the complex. First, Colony sued Abacus Project
Management, Inc., which prepared a structural analysis for Colony’s
lender, claiming that Abacus committed professional negligence and
made negligent misrepresentations. Second, Colony sued AIMCO
Residential Group, L.P., which managed the property, claiming that
an AIMCO employee made negligent and fraudulent representations
about the condition of the complex. The district court awarded
summary judgment to both Abacus and AIMCO. We affirm with respect
to AIMCO, but reverse the grant of summary judgment to Abacus.
I.
In 1996, Colony purchased a 14-building, 198-unit apartment
complex located in Chapel Hill, North Carolina for $7.1 million.
Two of Colony’s five general partners, Michael Brodsky and Victor
Rosenberg visited the complex prior to Colony’s purchase. Brodsky
made two trips to the complex in the summer of 1996, spending a
total of four hours on the premises. In September 1996, Rosenberg
spent approximately two to two-and-a-half hours on site. Brodsky
3
and Rosenberg each spoke with the resident property manager (and
AIMCO employee) William Peebles. When asked about any major
maintenance issues, Peebles told Brodsky only that there were
problems with some of the heating and air conditioning units, and
with wooden columns on the exterior of some of the buildings.
Colony financed the purchase of the building with a loan from
Eichler, Fayne & Associates (“EF&A”). Prior to closing the sale,
EF&A hired Abacus to perform a Fannie Mae Delegated Underwriting
Service Physical Needs Assessment Report (“DUS Report”) for the
property. That DUS Report revealed no major structural damage.
Colony ultimately obtained a copy of that report from John Eames,
a representative of First State Holdings, Inc., which had
contracted to buy the property prior to Colony’s purchase of it.
In 1998, Colony learned of severe structural damage to the
building, particularly water damage in the first floor units. In
October 1999, Colony hired Bay Design to perform an engineering
report. That report indicated the structural problems should have
been discovered by Abacus when it prepared the DUS Report.
On May 24, 2000, Colony filed this action alleging that Abacus
committed professional negligence and made negligent
misrepresentations in producing the DUS Report, and that AIMCO made
negligent and fraudulent misrepresentations through its employee,
William Peebles. In response, Abacus and AIMCO filed three
motions: (1) a motion for summary judgment on the merits, (2) a
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second motion for summary judgment on statute of limitations
grounds, and (3) a motion to strike plaintiffs’ proposed expert
testimony in light of inadequate disclosure. The district court
granted defendants’ second summary judgment motion (on limitations
grounds), denying the first summary judgment motion and motion to
strike as moot.
Colony retained new counsel on appeal. After oral argument,
we reversed the judgment of the district court, holding that the
action was not barred by the statute of limitations. See Colony
Apartments v. AIMCO Residential Group, L.P., 63 Fed. Appx. 122 (4th
Cir. 2003).
On May 11, 2004, after remand, both Abacus and AIMCO moved to
renew their motions for summary judgment. Three days later, on May
14, Colony filed a motion for leave to “File Supplemental and
Amended Rule 26(a)(2) Expert Witness Disclosure Statement.” The
district court denied Colony’s motion to supplement, finding that
it had not met the “excusable neglect” standard imposed by Federal
Rule of Civil Procedure 6(b), but granted Abacus and AIMCO’s
motions to renew their summary judgement motions on the merits.
Colony then requested permission to update its previously
filed opposition to defendants’ summary judgment motions. After
denying that motion, again finding that Colony failed to establish
excusable neglect, the district court granted Abacus and AIMCO’s
motions for summary judgment. Colony noted a timely appeal.
5
II.
Colony first alleges that the district court erred in granting
summary judgment to Abacus. It disputes the court’s finding that
Abacus owed no duty to Colony.
To determine whether Abacus owed a duty to Colony -- a third
party with which it had no contractual relationship and to whom it
did not give its report -- North Carolina courts1 apply the
analysis set forth in the Restatement (Second) of Torts § 552
(1977). See Raritan River Steel Co. v. Cherry, Bekaert & Holland,
367 S.E.2d 609, 617 (N.C. 1988); Ballance v. Rinehart, 412 S.E.2d
106, 109 (N.C. App. 1992). Under this approach, a professional
providing information owes a duty to any “person or one of a
limited group of persons for whose benefit and guidance [the
professional] intends to supply the information or knows that the
recipient intends to supply it.” Restatement (Second) of Torts
§ 552 (1977).
“It is not enough that the maker merely knows of the ever-
present possibility of action in reliance upon it, on the part of
anyone to whom it may be repeated.” Id. cmt. h; Ballance, 412
S.E.2d at 109. At the same time, however, “[t]he Restatement’s
text does not demand that the [professional] be informed by the
1
In diversity actions we follow the law of the forum state.
See Limbach Co. LLC v. Zurich American Ins. Co., 396 F.3d 358, 361
(4th Cir. 2005). Maryland’s choice of law rule requires us to
apply the law of North Carolina, where the tort occurred. Rhee v.
Combined Enterprises, Inc., 536 A.2d 1197, 1198-99 (Md. App. 1988).
6
client himself of the [work product]’s intended use.” Raritan, 367
S.E.2d at 617. “If he knows at the time he prepares his report
that specific persons, or a limited group of persons, will rely on
his work, and intends or knows that his client intends such
reliance, his duty of care should extend to them.” Id.
The question in this case, then, is whether Colony was one of
a class of persons that Abacus intended would rely on the DUS
Report, or whether Abacus knew that EF&A so intended. The district
court, relying on a disclaimer in the DUS Report forbidding any
party other than EF&A from relying on the report without Abacus’s
consent, concluded that Colony did not fall within the class
described by § 552. The disclaimer, however, cannot bear the
weight the district court placed on it.
At oral argument, Abacus’s counsel conceded that
notwithstanding the disclaimer, First State Holdings, Inc. was
entitled to rely on the report because its name appeared on the
cover page of the DUS Report. At the time, First State intended to
borrow money from EF&A to purchase the complex,2 and EF&A
specifically requested that Abacus list First State as a recipient
of the DUS Report. This concession demonstrates that Abacus knew
someone other than EF&A was going to rely on the DUS report. And
it raises questions not addressed by the district court --
2
The record does not explain how Colony, rather than First
State, came to purchase the complex.
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specifically, whether EF&A intended that any eventual purchaser
would rely on the report, and what Abacus knew of EF&A’s intent.
This ambiguity precludes summary judgment, which is
appropriate only if there are no disputed issues of material fact,
viewing the record in the light most favorable to the non-moving
party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 585-87 (1986); Fed. R. Civ. P. 56(c). The
parties clearly dispute whether EF&A intended that a specific
purchaser, or any purchaser, rely on its report. That dispute is
undoubtedly material; Abacus even conceded that the case would be
very different if the report were addressed to a generic purchaser
rather than to First State. Therefore, we reverse the grant of
summary judgment to Abacus, and remand to the district court for
further proceedings.
III.
Colony next asserts that the district court erred in awarding
summary judgment on its negligent and fraudulent misrepresentation
claims against AIMCO. Its allegations arise out of conversations
between an AIMCO employee, William Peebles, and two Colony
representatives, Michael Brodsky and Victor Rosenberg. Peebles
served as the on-site property manager for Colony Apartments
beginning in July 1995, approximately one year before the sale of
8
the building.3 Colony alleges that Peebles misrepresented the
condition of the building in responding to questions from Brodsky
and Rosenberg. Specifically, when asked what maintenance issues
existed at the property other than normal repairs, Peebles
indicated that “the property was in fine condition and there were
no items to worry about other than the heating and cooling of the
property, as well as some exterior wood columns that needed to be
replaced.”
Colony asserts that this was a misrepresentation because
Peebles was aware of “extensive structural repairs to units
suffering from water damage.” Brief of Appellant at 35. AIMCO
contests this assertion, noting that Colony points to no evidence
demonstrating Peebles’ knowledge of significant structural repairs,
and that in a deposition the contractor who performed these repairs
recalled only one repair made during the time Peebles worked at the
complex.
This factual dispute, however, does not preclude summary
judgment. Even assuming that Peebles was aware of, but remained
silent about, the structural damage, Colony’s reliance on his
statements was objectively unreasonable. That reliance would
directly contradict the terms of the written sale agreement, which
states:
3
At the time of the sale, Insignia Residential Group, LP
employed Peebles. Insignia is now known as AIMCO.
9
Seller acquired title to the property by foreclosure . .
. . Seller can make no representations or warranties
relating to the condition of the Property . . . .
Purchaser acknowledges and agrees that it will be
purchasing the Property . . . based solely upon its
inspections and investigations . . . and that Purchaser
will be purchasing the Property . . . “AS IS” and “WITH
ALL FAULTS” . . . . Purchaser acknowledges that . . .
neither Seller nor its consultants, brokers, or agents
have made any representations or warranties of any kind
upon which Purchaser is relying as to any matters
concerning the Property . . . including, but not limited
to, the condition of the land or any improvements
comprising the Property . . . .
Moreover, the sale agreement included an integration clause
providing that “[t]his Agreement constitutes the entire agreement
between the parties and supersedes all other negotiations,
understandings, and representations made by and between the parties
and the [sic] agents, servants, and employees.”
Given these contract terms, Colony’s asserted reliance on
Peebles’s statements is objectively unreasonable. See, e.g.,
Hardee’s of Maumelle, Ark., Inc. v. Hardee’s Food Sys., Inc., 31
F.3d 573, 576 (7th Cir. 1994); Motor City Bagels, LLC v. American
Bagel Co., 50 F. Supp. 460, 472, 474 (D. Md. 1999); Rosenberg v.
Pillsbury Co., 718 F. Supp. 1146, 1152-53 (S.D.N.Y. 1989).
Moreover, even absent this contractual language, we would find
Colony’s reliance unreasonable. “The right to rely on
representations is inseparably connected with the correlative
problem of the duty of a representee to use diligence in respect of
representations made to him.” Libby Hill, 303 S.E.2d at 569
(quotation marks omitted). Colony failed to act with the required
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diligence when it relied on Peebles’s statements. Despite
negotiating to purchase a $7.1 million building, Colony decided not
to spend the $25,000 required for an engineer to perform a building
assessment. Instead, Brodsky and Rosenberg simply made three trips
to the property. While on site, Brodsky spoke to the property
manager and maintenance supervisor, as well as a few tenants, and
viewed approximately twenty to thirty units. And although Brodsky
reviewed statements of how money was spent on capital improvements,
he did not ask to review maintenance records. Rosenberg spent only
two and a half hours on site, meeting with Peebles and visiting the
model apartment and one other occupied unit.
This limited diligence failed to uncover structural defects
that, according to Colony’s own complaint, “were readily
discernible” at the time it bought the building. Colony cannot
escape the consequences of its failure to act with adequate
diligence by claiming that it justifiably relied on the vague oral
representations of the building manager who was neither an engineer
nor an architect, and had worked at the thirty-five year old
property only for one year.
Because both negligent and fraudulent misrepresentation claims
require a plaintiff’s reliance be reasonable, See Raritan, 367
S.E.2d at 612; Libby Hill Seafood Restaurants, Inc. v. Owens, 303
S.E.2d 565, 568 (N.C. App. 1983), Colony cannot prevail against
AIMCO. We affirm the grant of summary judgment to AIMCO.
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IV.
Colony next argues that the district court abused its
discretion in denying Colony’s request, after our remand, to
supplement its expert disclosure under Federal Rule of Civil
Procedure 26. This argument fails.
Rule 26 requires a party to notify the court “if the party
learns that in some material respect the information disclosed is
incomplete or incorrect.” Fed. R. Civ. P. 26(e)(1). But this duty
does not permit a party to make an end-run around the normal
timetable for conducting discovery. Instead, it requires that “any
additions or other changes to this information shall be disclosed
by the time the party’s disclosures under Rule 26(a)(3) are due.”
Id. (emphasis added). Because Rule 26(a)(3) requires that
disclosure be made at the time “directed by the court,” the
relevant deadline for supplementation of expert witness disclosures
in this case was the end of the discovery period provided by the
district court’s original scheduling order -- a date that passed
six months prior to the district court’s first grant of summary
judgment.
As Colony’s motion was untimely under Rule 26, Rule 6(b)(2)’s
“excusable neglect” standard applies. That Rule provides in
relevant part:
When by these rules . . . or by order of court an act is
required or allowed to be done at or within a specified
time, the court for cause shown may at any time in its
discretion . . . upon motion made after the expiration of
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the specified period permit the act to be done where the
failure to act was the result of excusable neglect.
Fed. R. Civ. P. 6(b)(2) (emphasis added). “‘Excusable neglect’ is
not easily demonstrated, nor was it intended to be.” Thompson v.
E. I. DuPont de Nemours & Co., 76 F.3d 530, 534 (4th Cir. 1996).
In determining whether a party has shown excusable neglect, a court
will consider: (1) the danger of prejudice to the non-moving party;
(2) the length of delay and its potential impact on judicial
proceedings; (3) the reason for the delay; and (4) whether the
movant acted in good faith. Id. at 533. The most important factor
is the third -- the reason for the delay. Id. at 534. Merely
establishing these elements does not entitle a party to relief;
rather, “whether to grant an enlargement of time still remains
committed to the discretion of the district court.” Id. at 532
n.2. We therefore review an excusable neglect ruling for abuse of
discretion. See United States v. Borromeo, 945 F.2d 750, 754 (4th
Cir. 1991).
The district court concluded that Colony’s motion resulted
from its desire to “improve its case and attempt to correct what it
perceives as the mistakes of prior counsel.” The court also found
that Colony, “plainly concerned that the Motion to Strike [Colony’s
expert] will be successful,” sought to “address[] the Defendant’s
stated concerns about the adequacy of expert designations
previously provided by Colony’s former counsel.” Finally, the
court concluded that Colony had not sufficiently demonstrated its
13
expert’s unavailability (although it left open the possibility of
allowing Colony to replace that expert if the case proceeded past
summary judgment). Like the district court, we think it clear that
the failings of prior counsel do not constitute excusable neglect.4
See, e.g., Thompson, 76 F.3d at 533 (“[T]he [Supreme] Court
specifically observed that it was appropriate to hold a client
accountable for the mistakes of counsel.”). We therefore affirm
the district court’s decision not to allow Colony to supplement its
expert disclosures.
V.
Finally, Colony asserts that the district court erred in
permitting Abacus and AIMCO to renew their summary judgment motions
and in denying Colony’s request to supplement its opposition to
those motions. These arguments too must fail.
Colony cites no authority -- and we know of none -- to support
the proposition that the district court lacked the authority to
permit renewal of the summary judgment motions on the merits. The
4
Colony implies that the district court erred in concluding
that it was only seeking to update the work of its prior counsel.
See Brief of Appellant at 48-49 (noting that supplementation was
required to introduce evidence about the “Arizona litigation”
between Abacus and EF&A). The district court considered and
rejected that interpretation of Colony’s motivation for filing its
motion to supplement. We are bound by that factual finding unless
it is clearly erroneous. See In re Vitamins Antitrust Class
Actions, 327 F.3d 1207, 1209 (D.C. Cir. 2003). We do not think it
is.
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parties fully briefed those motions, and their arguments were in no
way affected by our prior ruling. Thus, the court acted entirely
within its discretion.
Colony’s claim that the district court erred by denying it the
right to update its oppositions also fails. Colony’s request came
after the expiration of the pre-trial discovery order and briefing
schedule. Colony had plenty of time to file its response to these
summary judgment motions. Indeed, it did file a response. Hence,
in order to file this untimely, updated brief, Colony must satisfy
the excusable neglect standard of Rule 6(b)(2).
As with the motion to supplement, Colony cannot demonstrate
excusable neglect because it cannot establish sufficient reason for
the delay. The district court again attributed to Colony “a desire
to re-do much of prior counsel’s efforts, now finding them somewhat
lacking.” We agree, and therefore find no abuse of discretion in
the district court’s refusal to allow Colony to supplement its
opposition to summary judgment.
VI.
For all the foregoing reasons, the judgment of the district
court is
AFFIRMED IN PART AND REVERSED
AND REMANDED IN PART.
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