USCA1 Opinion
July 31, 1996 United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
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No. 95-2329
WAINWRIGHT BANK & TRUST COMPANY,
Defendant, Appellant,
v.
GREGORY W. BOULOS, ET AL.,
Third Party Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Steven J. McAuliffe, U.S. District Judge]
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Before
Torruella, Chief Judge,
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Stahl and Lynch, Circuit Judges.
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Errata Sheet
Errata Sheet
The opinion of this Court issued on July 17, 1996, is
amended as follows:
Page 16, line 8, change second "Boulos" to
read "Wainwright"
United States Court of Appeals
For the First Circuit
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No. 95-2329
WAINWRIGHT BANK & TRUST COMPANY,
Defendant, Appellant,
v.
GREGORY W. BOULOS, ET AL.,
Third Party Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Steven J. McAuliffe, U.S. District Judge]
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____________________
Before
Torruella, Chief Judge,
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Stahl and Lynch, Circuit Judges.
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Robert M. Shepard with whom Smith-Weiss and Zall, PC was on brief
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for appellants.
Harold J. Friedman with whom Karen Frink Wolf and Friedman &
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Babcock was on brief for appellees.
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July 17, 1996
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STAHL, Circuit Judge. Appellant Wainwright Bank
STAHL, Circuit Judge.
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and Trust Co. ("Wainwright") retained appellees Gregory W.
Boulos and The Boulos Company (collectively "Boulos")1 as
real estate brokers to sell a distressed property. Boulos
found a buyer, but the deal fell apart at the closing. The
prospective buyer sued Wainwright, who counterclaimed;
Wainwright then sued Boulos, who also counterclaimed. During
the bench trial, Wainwright and the buyer settled, but
Wainwright and Boulos pressed on. Ultimately, the district
court denied Wainwright's claims that Boulos breached his
duties as a broker, and awarded a $65,460 commission to
Boulos. Wainwright appeals, and we affirm.
I.
I.
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Facts
Facts
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We summarize the facts in the light most favorable
to the verdict-winner Boulos, consistent with record support.
Cumpiano v. Banco Santander P.R., 902 F.2d 148, 151 (1st Cir.
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1994). Wainwright held a first mortgage on two dormitory-
style apartment buildings adjacent to the University of New
Hampshire in Durham, New Hampshire. The owner of the
apartments, after defaulting on the mortgage loan, agreed to
allow Wainwright to sell the property in lieu of foreclosure.
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1. Because there is no need to distinguish Gregory W. Boulos
from The Boulos Company (a corporation), for simplicity we
refer to Boulos as an individual.
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Wainwright retained Boulos, a licensed commercial real estate
broker, to market the property.
After a number of unsuccessful offers from other
potential buyers and a reduction in the asking price,
Wainwright accepted a $1.25 million offer from Radhey Khanna,
a real estate investor. Wainwright agreed to finance eighty
percent of both the $1.25 million purchase price and $250,000
of planned improvements to the property. Khanna subsequently
determined, however, that the property's cash flow was less
robust than advertised, and he withdrew his offer.
Khanna remained interested, though, and made
several lower offers that were rejected by Wainwright.
Eventually, Wainwright accepted Khanna's offer of $1.1
million. Boulos, who is not a lawyer, prepared a Purchase
and Sale Agreement ("the P&S") dated August 4, 1994, to
embody the accepted deal. Boulos included in the P&S certain
language provided by Khanna's lawyer.
Khanna had earlier learned from Boulos that
Wainwright intended to record the sale on its own books at an
inflated price, higher than the actual price to which Khanna
and Wainwright agreed. The record suggests that Wainwright
planned to combine the $1.1 million purchase price and the
$250,000 of planned improvements, together comprising
Khanna's "total investment," and record the sale at $1.35
million. The improvements, however, were to be completed
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after Khanna closed the purchase of the apartments. The
$250,000 was to be paid to the contractors that completed the
improvements, not to the bank, and thus the cost of the
planned improvements was in no sense part of the bank's
proceeds from the sale. Khanna indicated that he did not
care what Wainwright did internally as long as it did not
increase his cost of ownership.
Because Khanna's share of the real estate transfer
taxes might conceivably be increased if the taxing
authorities learned that Wainwright recorded an inflated
purchase price, Khanna, through his attorney, had Boulos add
this term to the contract: "The transfer tax will be paid
equally by the Buyer & Seller except Seller will pay the
entire transfer tax on the portion of the sale price above
$1,100,000."
Khanna also wanted to allocate a specific portion
of the purchase price to the furnishings and other personal
property in the apartments, which are depreciated for tax
purposes at a faster rate than the building. With that
intent, Khanna had Boulos add this term: "Purchase price of
the property consists of $250,000 in personal property and
the balance in real estate."
The deal unraveled at the closing. Although Khanna
had been sent draft closing documents, prepared by
Wainwright's counsel, that indicated a $1.1 million total
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purchase price, at the closing Wainwright insisted that the
actual price was $1.35 million. Khanna maintained that the
deal was for $1.1 million for the entire property "as is,"
and that the additional $250,000 was for planned improvements
and was not part of the purchase price. Wainwright has put
forth two rationales for its position that Khanna was to pay
$1.35 million. Initially, in a letter to Boulos arguing that
no commission was due, Wainwright stated that the purchase
price was Khanna's "total investment" of $1.1 million plus
$250,000 of planned improvements. Later, Wainwright took the
position that the real property was to be sold for $1.1
million and the personal property for $250,000, relying on
the two paragraphs added by Khanna (one allocating $250,000
to personal property and "the balance" to real estate; the
other making Wainwright pay transfer tax on the portion of
the sale price above $1.1 million). The parties were unable
to resolve their differences, and this litigation ensued.
II.
II.
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Prior Proceedings
Prior Proceedings
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Khanna filed a petition for specific performance
and money damages in New Hampshire state court. Wainwright
removed the suit to New Hampshire's federal district court
under diversity jurisdiction. Wainwright filed a
counterclaim against Khanna, and a third-party complaint
against its broker Boulos, alleging negligence, negligent
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misrepresentation, and breach of contract by Boulos. In
turn, Boulos counterclaimed against Wainwright, seeking
payment of his commission.
The case was tried to the bench. After the close
of evidence, Wainwright agreed to pay Khanna $85,000 to
settle the claims between them. Boulos and Wainwright
continued to press their third-party claims, and after the
closing arguments, the court orally made the following
findings of fact and rulings of law: the parties intended a
$1.1 million sale of the real and personal property, with
plans for $250,000 of post-closing improvements; the
testimony of Thomas Zocco, Wainwright's senior vice
president, was not credible, and he and Wainwright could not
have reasonably believed that the price was $1.35 million;
the evidence was insufficient to make out any of Wainwright's
claims against Boulos; and Boulos had earned his commission
by producing a ready, willing, and able buyer. Accordingly,
the court awarded Boulos $65,460, representing his six
percent commission on the intended purchase price of $1.1
million, with a minor (and undisputed) adjustment.
Wainwright appeals.
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III.
III.
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Discussion
Discussion
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Wainwright articulates three issues on appeal, all
governed by New Hampshire law:
(1) Did Boulos breach his fiduciary duty to his
client, Wainwright, by negligently preparing the P&S
agreement and by failing to provide a copy of an earlier
draft agreement that contained language that might have
avoided Wainwright's confusion?
(2) Did the district court err in awarding Boulos a
full commission?
(3) Was the final P&S so vague that there was no
valid contract between the parties?
We need not address the third "issue" separately;
whatever relevance it has is subsumed in the first two
issues. Whether or not there was a valid P&S contract
between Khanna (the buyer) and Wainwright (the seller) is
only tangentially relevant to this litigation between Boulos
(the broker) and Wainwright (the seller). Although
Wainwright does not explain exactly why it raises this issue,
we see two relevant aspects. First, contract validity
reflects on Boulos's performance in preparing the P&S
documents; but that is encompassed in Wainwright's arguments
on breach of fiduciary duty. Second, the court based its
commission award to Boulos on its finding that there was an
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agreement for the transfer of the property to Khanna at a
price of $1.1 million; we will deal with that finding in our
discussion of the award to Boulos.
A. Breach of Fiduciary Duty
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We note at the outset that Wainwright's third-party
complaint against Boulos did not allege any breach of
fiduciary duty, but Boulos apparently has not objected to the
gradual transformation (both at trial and on appeal) of
Wainwright's negligence claim into a breach of fiduciary duty
claim. Thus, we will hear Wainwright's arguments as
presented. Wainwright asserts that Boulos breached his
fiduciary duty to Wainwright in two ways: first, by
negligently preparing the P&S, and, second, by breaching the
duty to present all relevant information to Wainwright.
We first address the alleged negligent preparation
of the P&S. The trial court orally ruled on Wainwright's
negligence/breach of fiduciary duty claim against Boulos as
follows:
I'm not sure what the standard is in
terms of a real estate broker who's not a
lawyer drafting a contract for the sale
of real estate. Technically I'm not sure
a real estate broker should be drafting a
contract for the sale of real estate.
Certainly not in New Hampshire, I think
he shouldn't be. I think that's
practicing law without a license. But to
the extent Mr. Boulos prepared this
contract and the bank hasn't presented
evidence regarding the applicable
standard of care or evidence suggesting
that he didn't meet that standard of
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care, I'm inclined to not find a breach
of any duty. Certainly I don't find a
breach of duty of undivided loyalty or
breach of the agency relationship by Mr.
Boulos. There's no evidence to suggest
that he didn't act completely properly.
He provided the bank with all relevant
information.
I don't think Mr. Zocco
[Wainwright's senior vice president] can
reasonably claim to have been confused by
the proposed sale terms that Mr. Boulos
transmitted to him from Mr. Khanna. And
while this contract certainly isn't
perfect and could certainly be better,
it's not inadequate. And its meaning I
think is reasonably determined from the
contract and the evidence presented.
Earlier, in Wainwright's closing argument, the
district court asked whether Wainwright needed expert
testimony on a broker's standard of care in preparing a P&S
agreement and whether Boulos breached it. The court's
questioning clearly indicated its belief that expert
testimony was required. But Wainwright's attorney replied
that the testimony of Boulos -- who had substantial expertise
in his field -- was sufficient to establish the standard of
care, and that the ambiguous contract documents themselves
were sufficient to show a breach of that standard. The court
never expressly ruled on whether expert testimony was needed.
On appeal, both parties have assumed that the
district court required expert testimony, even though it only
stated that "the bank has not presented evidence" on the
standard of care or Boulos's breach thereof. The parties
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exert much effort arguing whether or not an expert was
required. We need not decide that issue, however. Viewing
the record independently, and assuming for the sake of
argument that no expert was needed, we hold that Wainwright
nonetheless failed to present sufficient evidence of either
the applicable standard of care or that Boulos breached it.
Wainwright's burden of proving the standard of care
applicable to the allegedly ambiguous P&S, and a breach
thereof, is difficult -- perhaps impossible -- given the
court's well-supported finding that Wainwright was "planning
on accounting for the sale in some manner other than at the
face value of the contract." The record does not indicate
whether Zocco and Wainwright hoped to confound its regulators
or effect some other purpose. It is obvious, though, that
Zocco injected a significant element of confusion and
duplicity into the transaction. A vague and ambiguous P&S
contract would seem to be exactly what Wainwright wanted,
giving it the "flexibility" to record an inflated price. The
evidence also showed that Boulos probably understood as much.
Moreover, the buyer, Khanna, felt compelled to add
language to protect himself from possible tax increases
resulting from Wainwright's strategy, and Wainwright points
to that same language as a primary source of its purported
confusion. Given the context in which Wainwright asked
Boulos to work, the factfinder must ask: What is the
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standard of care when the client wants to play games with the
figures? And is facial ambiguity a breach of the standard
under such circumstances?
Wainwright asked the district court to rely on the
testimony of Boulos to establish the standard of care. The
only pertinent testimony he provided was this:
[Bank's lawyer]: When you agree to act
as an agent, do you agree with me that
you accept certain responsibilities?
[Boulos]: Yes.
. . . .
[Bank's lawyer]: And you agree that you
owe a responsibility to act in a
professional manner when marketing the
property?
[Boulos]: Correct.
[Bank's lawyer]: You have a
responsibility and obligation to
communicate all information that you
learn from prospective purchasers back to
your client, the seller.
. . . .
[Bank's lawyer]: When you draw up a
purchase agreement on behalf of a seller
such as Wainwright, you have a
responsibility to do that carefully.
[Boulos]: Correct.
[Bank's lawyer]: To make sure that the
language in there is precise and reflects
the agreement of the parties.
[Boulos]: That's correct.
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Thus, all the court heard about the standard of care was that
the broker should "communicate all information," "act in a
professional manner," draft the agreement "carefully," and
provide "precise language" that "reflects the agreement of
the parties."
As the district court ruled, that limited testimony
is insufficient to establish the applicable standard of care
in a complex commercial transaction involving real and
personal property, a financing commitment for both the
purchase and the post-purchase improvement of the property,
and tax consequences that may compel a buyer to allocate the
price in a way that is not necessarily reflective of actual
economic value. And that testimony is certainly not enough
where the seller has indicated its intent to record a sale
price greater than the actual consideration. We hold, even
assuming that no expert testimony was necessary, that
Wainwright failed to establish the standard of care owed by
Boulos. Thus, the district court properly denied
Wainwright's claim that Boulos negligently prepared the P&S
agreement.
Not only did Wainwright fail to establish the
broker's standard of care in this context, it also failed to
present evidence sufficient to allow a reasonable factfinder
to conclude that Boulos breached any duty. First, without
evidence of the standard of care, there is no basis upon
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which a factfinder could determine breach. Moreover, we are
unpersuaded by the argument that the contract itself
indicates a breach of duty. Wainwright apparently argues
that the preparation of this contract was per se negligent
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because it was found by the district court to be ambiguous,
requiring extrinsic evidence to interpret the parties' intent
on a fundamental term, the price. We decline to hold that a
broker who prepares a contract that is facially ambiguous
about the price is necessarily negligent, especially given
the facts and circumstances of this case.
Wainwright also claims that Boulos breached his
duty to present all relevant information about the
transaction, asserting that Boulos should have sent it an
earlier proposed contract that was never executed by Khanna
because it contained an error in the purchase price.
Specifically, after Wainwright orally accepted Khanna's
second, reduced offer of $1.1 million, Boulos drew up a
purchase and sale agreement and sent it to Khanna. Boulos
testified that this agreement contained a typographic error,
indicating a purchase price of $1.35 million, mistakenly
reflecting an earlier offer from another prospective
purchaser. Because of this mistake, Khanna returned the
unexecuted document to Boulos. Wainwright contends that
certain handwritten notations made by Khanna's attorney on
that unexecuted contract would have alerted Wainwright to
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Khanna's mistaken view of the deal. The unexecuted contract
included a term stating that the purchase price consisted of
"$250,000 in personal property." A handwritten notation
added to that term the following: "and $850,000 for real
estate." This was a clearer allocation than was included in
the final P&S at issue, which provided that "the purchase
price of the property consists of $250,000 in personal
property and the balance in real estate."
New Hampshire law imposes a duty on a broker who
has a conflict of interest relating to the transaction to
make a full disclosure of "`all facts which the agent knows
or should know would reasonably affect the principal's
judgment.'" Reinhold v. Mallery, 599 A.2d 126, 129 (N.H.
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1991) (quoting Restatement (Second) of Agency 390). In
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this case, there is no allegation whatever that Boulos was
acting for his own account or had any other conflict of
interest.
The only authority Wainwright presents for its
position states that a broker must disclose "all facts which
are or may be material to the matter . . . or which might
affect the principal's rights and interests or influence his
action." 12 Am. Jur. 2d Brokers 89 (1964), cited in
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Reinhold, 599 A.2d at 129. We assume for the sake of
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argument that a New Hampshire court would follow that rule
even where the broker has no conflict of interest.
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The trial court expressly, and supportably, found
that Boulos "provided Wainwright with all relevant
information." We hold that the judge did not clearly err in
its fact-bound determination that the unexecuted contract was
not relevant. See Juno SRL v. S/V Endeavour, 58 F.3d 1, 4
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(1st Cir. 1995) (explaining that clearly erroneous standard
applies to findings of fact, as well as mixed questions of
law and fact, unless the latter are based on mistaken
impression of applicable legal principles). The district
court's finding that Wainwright had intended to sell all the
real and personal property for $1.1 million was supported by
the evidence. Thus, Wainwright and Khanna were actually in
agreement about the intended purchase price, and the
unexecuted agreement could not have alerted Wainwright to any
problems or confusion. Therefore, we agree with the district
court that the unexecuted contract was not relevant to the
transaction, in that it would not have influenced
Wainwright's actions or affected its judgment.
Accordingly, we affirm the district court's ruling
that Wainwright failed to prove negligence or any other
breach of fiduciary duty on the part of Boulos.
B. The Award of Commission to Boulos
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Wainwright makes two arguments in challenging the
award of a $65,460 commission to Boulos: (1) Boulos must
forfeit his commission because he breached his fiduciary duty
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to his client, Wainwright; and (2) Boulos is entitled to a
commission on the sale of only the real property, and not the
personal property included in the sale. We also consider
Wainwright's enigmatic argument that there was no valid
purchase and sale agreement, and thus (we assume the argument
goes), there can be no commission award to Boulos.
We have already rejected Wainwright's claim that
Boulos breached his fiduciary duty to Wainwright, thus
Wainwright's first argument must fail. The second argument
also fails, because the district court's finding that
Wainwright intended to pay Boulos a commission on the entire
sale of both real and personal property is supported by the
evidence and is not clearly erroneous. Where a contract is
ambiguous on its face, extrinsic evidence is admissible to
prove the parties' intent, Spectrum Enterprises, Inc. v.
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Helm Corp., 329 A.2d 144, 146-47 (N.H. 1974), and the trier
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of fact's determination controls unless clearly erroneous,
Gel Sys., Inc. v. Hyundai Eng'g & Constr. Co., 902 F.2d 1024,
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1027 (1st Cir. 1990).2 Indeed, the record suggests that,
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2. We note that Wainwright could argue, but did not, that
the court erroneously considered extrinsic evidence of the
parties' intent regarding the commission, when the listing
agreement between Wainwright and Boulos unambiguously
specified that the commission was payable on the sale of real
estate, not personal property. But Wainwright never raised
that argument before the district court, and it cannot be
raised for the first time on appeal, even if the bank had
attempted to do so. See Roche v. John Hancock Mut. Life Ins.
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Co., 81 F.3d 249, 257 n.6 (1st Cir. 1996) (explaining that
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arguments may not be raised for the first time on appeal).
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from the outset, Wainwright intended that Boulos market the
entire property, and because the units were operated as
college dormitories, the furnishings were an integral part of
the property. There is no evidence of any discussion between
Boulos and Wainwright about allocating the purchase price
between real and personal property, and the evidence
indicates that the allocation was made solely by Khanna based
on tax concerns.
Finally, Wainwright's argument that there was no
valid agreement between Wainwright and Khanna lacks merit.
Wainwright argues that because the written documents were
ambiguous, there was no "meeting of the minds" and therefore
no valid agreement. From that premise, Wainwright apparently
wants us to conclude that Boulos should get no commission, or
(somewhat differently) that it is impossible to calculate the
correct commission because the parties never agreed on a firm
sale price. We reject the premise, however, and therefore
need not address the possible conclusions. Wainwright's
argument totally ignores the extrinsic evidence that was
presented, which supported the court's finding that
Wainwright and Khanna had indeed intended a sale for $1.1
million. We see no error -- and certainly no clear error --
in the district court's finding that Wainwright understood
and accepted Khanna's offer of $1.1 million.
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IV.
IV.
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Conclusion
Conclusion
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For the foregoing reasons, the decision of the
district court is affirmed. Costs to the appellee.
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