Lay v. USA et a l . CV-05-131-PB 1/5/06 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Ross Lav

v. Case No. 05-cv-131-PB Opinion No.

United States, Ruth E. Franks, and Charter Trust Company

MEMORANDUM AND ORDER

This action arises from plaintiff Ross Lay's purchase of

real estate at a tax foreclosure auction. He alleges that the

defendants negligently misrepresented the balance owed on two

mortgages that encumbered the property at the time of the sale.

Ruth E. Franks and Charter Trust ("defendants") have moved for

summary judgment, arguing that they did not owe Lay a duty of

care with respect to the alleged misrepresentation.1 I grant

their motion for the reasons set forth below.

I. BACKGROUND2

Lay purchased the subject property at a foreclosure auction

1 Lay's claims against the United States under the Federal Tort Claims Act,

(b), were dismissed for lack of subject matter jurisdiction. See Order dated October 3, 2005 (Doc. N o . 22).

2 I construe the facts in the light most favorable to Lay, the non-moving party. in September 2002. Compl. 5 17. Prior to the foreclosure sale,

the property was owned by Red Hill Health Center, P.A. ("Red

Hill"), whose sole stockholder is Peter Hope.

5 7. Red Hill

acquired the property in 1989 and subsequently qranted two

mortqaqes on it to Peter's father, Theodore Hope.

55 7-8.

In 1994, Theodore assiqned both mortqaqes to New London Trust

Company (later acquired by Charter Trust Company) as trustee of

the Theodore S. Hope Revocable Trust.

5 9. After Theodore

died, the trustee assiqned the balance due on the mortqaqes to

Peter pursuant to the terms of the trust.3

5 10.

In 2002, the Internal Revenue Service (IRS) foreclosed on

several tax liens on the property and notified potential bidders

that the property was beinq conveyed subject to outstandinq local

property taxes and the two mortqaqes oriqinally qranted to

Theodore Hope.

55 12-13. The notice stated that there was

no balance due on the two mortqaqes.

After receivinq the notice. Lay contacted the IRS aqent who

was in charqe of conductinq the sale to inquire about the

property.

5 14. The aqent told Lay that the IRS had

3 Althouqh the Complaint states that Theodore Hope died in 1995, other evidence in the record indicates that he died in 1998 and the assiqnment occurred in 1999. See Def. Mot. Summ. J. Ex. B (Franks Aff. 5 6; Letter from Franks to Peter Hope dated June 16, 1999) .

- 2 - obtained information from the trust company indicating that there

was no balance owed on the mortgages as a conseguence of Theodore

Hope's death.

After Lay purchased the property at the tax

auction, Peter Hope assigned the two mortgages to Robert and

Laurie McDaniels.

5 18. The McDaniels then leased the

property to Henley Holding Group, LLC ("Henley") .

In

October 2003, Lay instituted proceedings in state court to obtain

possession of the property.

5 19. The McDaniels

subseguently foreclosed on the mortgages, took title to the

property as the high bidders and conveyed the property to Henley.

5 20.

In the current action. Lay alleges that the defendants were

negligent in representing to the IRS agent that the mortgages had

zero balances.4

55 30, 36. The defendants move for summary

judgment, arguing that they did not owe Lay a duty of care with

respect to the alleged misrepresentation.

4 Lay asserts a separate negligence claim against the defendants based on a breach of their alleged "duty to assess properly and verify that there were no outstanding liens, mortgages or encumbrances, including but not limited to, the two mortgages held by Peter Hope . . . ." Compl. 5 29. This claim is merely a restatement of Lay's negligent misrepresentation claim because it too is based on Lay's claim that his damages were caused by his reliance on defendants' misrepresentations.

- 3 - II. STANDARD OF REVIEW

Summary judgment is appropriate only "if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law." Fed. R. Civ. P.

56(c). A genuine issue is one "that properly can be resolved

only by a finder of fact because [it] may reasonably be resolved

in favor of either party." Anderson v. Liberty Lobby, Inc.,

(1986). A material fact is one "that might affect

the outcome of the suit."

.

_____ In ruling on a motion for summary judgment, I construe the

evidence in the light most favorable to the nonmovant. See

Navarro v. Pfizer Corp.,

(1st Cir. 2001). The

party moving for summary judgment "bears the initial

responsibility of . . . identifying those portions of [the

record] which it believes demonstrate the absence of a genuine

issue of material fact." Celotex Corp. v. Catrett,

(1986). Once the moving party has met its burden, the burden

shifts to the nonmovant to "produce evidence on which a

reasonable finder of fact, under the appropriate proof burden,

could base a verdict for it; if that party cannot produce such

- 4 - evidence, the motion must be granted." Ayala-Gerena v. Bristol

Myers-Sguibb Co.,

(1st Cir. 1996) (citing Celotex,

; Anderson,

). Neither conclusory

allegations, improbable inferences, nor unsupported speculation

are sufficient to defeat summary judgment. Carroll v. Xerox

Corp.,

(1st Cir. 2002).

III. ANALYSIS

"Under New Hampshire law, whether a defendant's conduct

creates a sufficiently foreseeable risk of harm to others

sufficient to charge the defendant with a duty to avoid such

conduct is a guestion of law." lannelli v. Burger King Corp.,

(2000) (guotation omitted). A duty may arise

from a special relationship between the parties or from "the need

for protection against reasonably foreseeable harm." Hungerford

v. Jones,

(1998) (guotation omitted).

[W]ith respect to negligence actions, it is necessary to adopt well-defined guidelines in order to prevent the imposition of remote and unexpected liability on defendants. The policy considerations of avoiding both infinite liability and uncertainty in the law must be balanced against the need to compensate those plaintiffs whose injuries derive, however remotely, from the defendant's negligence.

Williams v. O'Brien,

(1995) (citation and

- 5 - quotation omitted).

The New Hampshire Supreme Court has adopted the position of

the Restatement (Second) of Torts in regard to a professional's

liability for negligently supplying information to a third party.

Demetracopoulos v. Wilson,

(1994); Spherex,

Inc. v. Alexander Grant & Co.,

(1982). A

professional may be liable for negligent misrepresentation if,

"in the course of his business, profession or employment, or in

any other transaction in which he has a pecuniary interest," he

"supplies false information for the guidance of others in their

business transactions." Restatement (Second) of Torts § 552(1)

(1976) .

Liability in this context is restricted to "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." Id. § 552(2)(a) (emphasis added).

Liability is limited in this way because "the risk of liability

to which the [maker of the representation] subjects himself by

undertaking to give the information . . . is vitally affected by

the number and character of the persons [receiving it], and

particularly the nature and extent of the proposed transaction."

Id. § 552 cmt. h. "It is not enough that the maker merely knows

- 6 - of the ever-present possibility of repetition to anyone, and the

possibility of action in reliance upon it, on the part of anyone

to whom it may be repeated." Id.

The following example illustrates the scope of a

professional's liability to unknown third parties:

In 1934, A Company, a firm of surveyors, contracts with B to make a survey and description of B's land. A Company is not informed of any intended use of the survey report but knows that survey reports are customarily used in a wide variety of real estate transactions and that it may be relied upon by purchasers, mortgagees, investors and others. The survey is negligently made and misstates the boundaries and extent of the land. In 1958 C, relying upon the report that B exhibits to him, purchases the land from B, and in conseguence suffers pecuniary loss. A Company is not liable to C.

Id. § 552 cmt. h, illus. 12.

Similarly, in this case, the evidence in the record suggests

that Franks was not informed that the information concerning the

mortgage balances might be used by potential bidders at a

possible foreclosure sale.5 Franks' sworn testimony is that the

5 Lay argues that summary judgment in this case is premature because discovery has not been completed. Obj. to Mot. Summ. J. Ex. 1 (Decl. of George T. Campbell). Although discovery may not be complete in this case, extensive discovery has taken place in the state court case and Lay has relied on depositions taken in that case to oppose summary judgment. Lay did not reguest an extension of time to respond to the defendants' summary judgment motion and has failed to meet the benchmarks reguired to obtain relief under Rule 56(f). See Resolution Trust Corp. v. N. Bridge Assocs., Inc.,

(1st Cir. 1994).

- 7 - agent did not tell her why he was inquiring about the mortgages

and she "assumed he needed that information for tax purposes."

Franks Aff. 5 10. Franks also testified in the state court case

that she did not discuss foreclosure of the tax liens or sale of

the property with anyone from the IRS. Franks Dep. at 31-32.

Without this information, Franks could not have anticipated the

extent to which the information would be disseminated and the

purposes for which it would be relied upon. I thus conclude

that, under the circumstances presented here. Lay is not within

the class of persons to whom the defendants may have owed a duty

of care concerning their assessment of any balances due on the

Red Hill mortgages.

IV. CONCLUSION

Defendants' Motion for Summary Judgment (Doc. No. 15) is

granted. The clerk is instructed to enter judgment accordingly.

SO ORDERED.

/s/Paul Barbadoro___________ Paul Barbadoro United States District Judge January 5, 2006

cc: George T. Campbell, III, Esq. David P. Slawsky, Esq.