Daniel Scolardi v . Fowler, et a l . 11-CV-298-SM 8/16/12 UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Daniel Scolardi, Trustee of the Daniel Scolardi Living Revocable Trust

and

Paul and Kathleen Fowler, Consolidated Plaintiffs

v. Case N o . 11-cv-298-SM Opinion N o .

Paul Hayward, Paul and Kathleen Fowler,

v.

Gary J. Wood, Esq., and Barbara Serafini, Individually and as Trustee of the Barbara Serafini 1999 Revocable Trust, Consolidated Defendants

O R D E R

These consolidated civil cases arise out of a real estate

transaction, in which Paul and Kathleen Fowler purchased property

from Paul Hayward and Barbara Serafini. The property was

encumbered by a mortgage deed held by Daniel Scolardi, as Trustee

of the Daniel Scolardi Living Revocable Trust (the “Scolardi

Trust”). The mortgage deed secured a loan from the Scolardi

Trust to Hayward in the principal amount of $73,500.00. Because

the Scolardi Trust claims the loan remains unpaid, the trustee (Scolardi) has refused to discharge the mortgage that encumbers

the Fowlers’ recently-purchased property.

The Fowlers, joined by Gary Wood (their attorney) and

Barbara Serafini (one of the sellers) move for summary judgment,

asserting that they are entitled to an order compelling Scolardi,

as trustee, to discharge the mortgage. Scolardi objects. For

the reasons discussed, the motion is denied.

Standard of Review

When ruling on a motion for summary judgment, the court must

“view the entire record in the light most hospitable to the party

opposing summary judgment, indulging all reasonable inferences in

that party’s favor.” Griggs-Ryan v . Smith,

1 2 , 115

(1st Cir. 1990). Summary judgment is appropriate when the record

reveals “no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” Fed. R. Civ.

P. 56(a). In this context, “a fact is ‘material’ if it

potentially affects the outcome of the suit and a dispute over it

is ‘genuine’ if the parties’ positions on the issue are supported

by conflicting evidence.” Int’l Ass’n of Machinists & Aerospace

Workers v . Winship Green Nursing Ctr.,

(1st

Cir. 1996) (citations omitted).

2 Background

On October 8 , 2008, Daniel Scolardi, as Trustee of the

Daniel Scolardi Living Revocable Trust, loaned to Paul S . Hayward

the principal amount of $73,500.00, repayable with interest at a

fixed rate of eighteen percent (18%) per annum. Absent demand,

the loan was to be repaid in full in 24 months. During the term

of the loan, Hayward was obligated to make monthly interest

payments of $1,102.50. The loan was evidenced by a promissory

note (document n o . 2 6 - 2 ) , subject to the terms of a loan

agreement (document n o . 2 2 - 1 ) , and secured by a mortgage deed to

property jointly owned by Hayward and Barbara Serafini, Trustee

of the Barbara Serafini 1998 Revocable Trust (document n o . 2 6 - 2 ) .

That property is known both as “Lot 57.1 Sunset Hill, Grafton

County, New Hampshire,” and “Lot 2 on a plan entitled ‘Major

Subdivision Plan, land of Barbara Serafini, Paul Hayward, Sugar

Hill, New Hampshire.’” See Exhibit A to Loan Agreement (document

no. 22-1) at 7 . For convenience, the court will refer to it

simply as “Lot 2.”

According to Scolardi, an organization known as C , L and M ,

Inc. (“CLM”) “identified this loan opportunity to [him],”

Scolardi Affidavit (document n o . 26-2) at para. 6, and somehow

facilitated the loan that was extended to Hayward. But, he

denies that he authorized CLM to act as the Trust’s agent to

3 collect payments under the loan.

at para. 7 . Neither the

promissory note nor the loan agreement discusses CLM’s role or

responsibility in administering the loan, nor does either

document specifically vest CLM with any authority to act as agent

for the Trust or the trustee. The only reference to CLM in

either document is found in the “Notices” section of the loan

agreement, which provides that:

All notices, demands and communications provided for herein or made hereunder shall be delivered, or sent by certified mail, return receipt requested, addressed in each case as follows, until some other address shall have been designated in a written notice to the other party hereto given in like manner,

BORROWER(S): PAUL S . HAYWARD 10 Sunset Hill Road Sugar Hill, N.H. 03586

SERVICER: C , L and M , Inc. 8595 Southeast Palm Street 1633 Hobe Sound, FL 3345553 [sic]

LENDER: DANIEL SCOLARD [sic], TRUSTEE OF THE DANIEL SCOLARDI LIVING REVOCABLE TRUST 8595 Southeast Palm Street Hobe Sound, FL 33455

at 5 . Scolardi says he insisted that his home address in

Florida be listed as the mailing address for him and CLM, so he

could ensure that he would receive any notices that might

otherwise be provided to a loan “servicer.”

4 In the addendum to the loan agreement (which was executed on

the same day as the loan agreement), the parties agreed as

follows:

Pursuant to paragraph 1 of the Commercial Loan Agreement a portion of the funds advanced under this Agreement may be used by the Borrower to pay administrative and other related costs incurred in this transaction. Borrower and Lender agree that the monthly payment amount of $1,102.50 shall be paid directly from the proceeds of the Loan for a period of twenty four (24) months. Borrower hereby authorizes the Lender and any future holder of the Note or successor in interest to Lender and any servicer of the Loan to pay the amount of $1,102.50 to the holder of said Note.

Id. at 8 (emphasis supplied). According to Scolardi, “After

closing, the sole role of [CLM] was to act as the agent for the

borrower. [CLM] held an escrow of $26,460.00. The sole

authority granted to it was to pay that money to me on a monthly

basis pursuant to the Addendum to the Loan Agreement.” Scolardi

Affidavit at para. 8 (emphasis supplied). Attorney Wood, the

Fowlers, and Serafini, on the other hand, assert that the

reference to CLM as “servicer” in the loan agreement vested it

with at least apparent authority to act as Scolardi’s agent.

Approximately six weeks after Hayward borrowed the money

from the Scolardi Trust and encumbered Lot 2 with the mortgage

deed, Paul and Kathleen Fowler signed an agreement to purchase

the property from Hayward and Serafini for $117,000.00. In

5 exchange for that sum, the Fowlers were to receive a warranty

deed to Lot 2 , free of all liens. As part of the transaction,

Hayward and Serafini hired an attorney to represent their

interests, and the Fowlers hired Attorney Gary Wood to represent

theirs. Attorney Wood acted as the “settlement agent” and, as

such, determined the various parties to whom distributions would

be made from the sale proceeds (e.g., the first mortgage holder;

the second mortgage holder; e t c . ) , as well as the various taxes

and fees that had to be paid as part of the closing (e.g.,

recording fees; real estate transfer tax stamps; current use

penalties; bank wire transfer fees; e t c . ) . See, e.g., Exhibit D

to Defendants’ Memorandum, Borrower’s Closing Statement (document

no. 22-1) at 2 5 ; Seller’s Closing Statement, id. at 2 6 .

According to Wood, Hayward’s attorney told him that CLM “was

the servicer of the Scolardi mortgage.” Exhibit B to Defendants’

Memorandum, Affidavit of Gary Wood, at para. 5 . And, says Wood,

M s . Serafini told him that one of the principals of CLM had

“negotiated the payoff of the mortgage on behalf of the lender.”

Id. at para. 6. S o , believing that CLM was the Scolardi Trust’s

duly authorized servicing agent, Wood contacted CLM to determine

the loan payoff amount. He did not, however, contact CLM at the

address specified in the loan agreement (which, because that was

actually Scolardi’s address, would have put the Scolardi Trust on

6 notice of the impending sale of Lot 2 and allowed Scolardi to

make arrangements to accept the payoff on the loan). Instead,

Attorney Wood contacted CLM at its New Hampshire office.

Attorney Wood says representatives of CLM informed him that

the payoff on the Scolardi loan was approximately $52,600.

Relying upon those representations, Wood transferred proceeds

from the closing in that amount into CLM’s bank account,

apparently expecting that CLM would then secure a discharge of

the mortgage deed to Lot 2 from the Scolardi Trust. CLM,

however, never transferred those funds to Scolardi. And, Wood

never obtained a discharge of the Trust’s mortgage, which remains

as an encumbrance on Lot 2 - hence the Fowlers’ understandable

displeasure.

Subsequently, the Securities and Exchange Commission charged

CLM and a related entity, and their principals, with financial

fraud. See, e.g., SEC v . Scott D. Farah, et a l . , N o . 10-cv-135-

PB (D.N.H. 2010), Complaint (document n o . 1 ) (“From at least

2005, Defendants Farah and Dodge, acting through their businesses

FRM and CLM, operated a fraudulent ponzi scheme that defrauded at

least $10 million from at least 150 investors. The scheme

involved raising investor money to fund purported loans to

specific real estate projects and other businesses.”). In a

7 separate criminal proceeding, those principals - Scott Farah and

Donald Dodge - were charged with multiple counts of wire fraud.

Both men pleaded guilty and were sentenced to lengthy terms of

imprisonment. It has, then, been demonstrated that CLM engaged

in a far-reaching fraudulent financial scheme, and it is clear

that the funds intended to pay off the loan were misappropriated

and were not paid to the Scolardi Trust.

Pending before the court is a motion for summary judgment

filed jointly by Attorney Wood, Paul and Kathleen Fowler, and

Barbara Serafini, (collectively, “defendants”) in which they

assert that, as a matter of law, CLM was vested with authority to

act as the Scolardi Trust’s agent and that the loss occasioned by

CLM’s misappropriation should fall on the Trust. Accordingly,

they say, the “loan payoff” made to CLM constituted full payment

of the Scolardi Trust’s loan, and Scolardi (as trustee) is

obligated to discharge the mortgage that encumbers Lot 2 . The

Trust objects.

Discussion

Defendants advance a single argument in support of their

motion for summary judgment: “As the loan servicer, [CLM] was M r .

Scolardi’s agent, and the payment made to the Scolardi Trust in

accordance with [CLM’s] instructions by the Fowlers satisfied the

8 mortgage, entitling the mortgagors to a discharge in full of the

mortgage obligation.” Defendants’ memorandum (document n o . 22-1)

at 3-4. Although defendants do not seriously contend that CLM

was acting as the Scolardi Trust’s actual agent, they do assert

that “[a]s a matter of law, [CLM] was vested with apparent

authority as an agent of Scolardi [as trustee].” Id. at 4 .

Under New Hampshire law, whether an agency relationship

exists is a question of fact. See VanDeMark v . McDonald’s Corp.,

(2006); Herman v . Monadnock PR-24 Training

Council, Inc.,

5 4 , 758 (2002). As the New Hampshire

Supreme Court has observed,

[T]he necessary factual elements to establish agency involve: (1) authorization from the principal that the agent shall act for him or her; (2) the agent’s consent to so act; and (3) the understanding that the principal is to exert some control over the agent’s actions. . . . Like actual authority, a finding of apparent authority incorporates the three factual elements listed above and exists where the principal so conducts itself as to cause a third party to reasonably believe that the agent is authorized to act.

Dent v . Exeter Hosp., Inc.,

8 7 , 792 (2007) (citations

and internal punctuation omitted) (emphasis supplied).

Here, the sole fact upon which defendants rely to establish

that CLM was vested with apparent authority to act on behalf of

the Scolardi Trust is the reference in the loan agreement to CLM

9 as “servicer.” See Defendants’ memorandum at 4 (“Apparent

authority was conferred by Scolardi when he signed the Loan

Agreement designating [CLM] as the servicer.”). Based upon that

reference, defendants claim that, “Attorney Wood reasonably

believed that [CLM], in its capacity as servicer, had the

authority to act on behalf of Scolardi, the principal.”

But, several uncontested facts tend to undermine the

“reasonableness” of Attorney Wood’s conduct. First, Wood

concedes that he did not look at the documents evidencing the

loan to Hayward, including the loan agreement. Rather, he simply

accepted the statement made by Hayward’s attorney (and, perhaps,

a similar statement by M s . Serafini) that CLM was acting as

Scolardi’s agent. Had Wood looked at the loan agreement, he

would have seen that the mailing address listed for CLM was the

same as Scolardi’s - a curious fact that might well have called

for further investigation, particularly before a disbursement was

sent to a different address. Moreover, as Scolardi’s expert

points out, Attorney Wood never made any attempt to contact

Scolardi and verify that CLM was, indeed, acting as the Trust’s

authorized agent - something he probably should have done. See

generally Expert Report of J. Jefferson Davis, Esq. (document n o .

26-3).

10 While the court has little doubt that CLM held itself out as

the Scolardi Trust’s authorized agent, that is not dispositive.

The New Hampshire Supreme Court has stated that, “the focus of

the apparent-authority inquiry is upon the representations of the

alleged principal, not the alleged agent.” Dent,

(citations omitted). See also Restatement (Third) of Agency

§ 2.03, comment c (2006) (“The doctrine [of apparent authority]

applies to any set of circumstances under which it is reasonable

for a third party to believe that an agent had authority, so long

as the belief is traceable to manifestations of the principal.

. . . An agent’s success in misleading the third party as to the

existence of actual authority does not in itself make the

principal accountable.”).

Conclusion

For the foregoing reasons, as well as those set forth in

Scolardi’s memorandum in opposition to defendants’ motion

(document n o . 2 6 - 1 ) , the existence of genuinely disputed material

facts precludes the entry of judgment as a matter of law in favor

of defendants. Whether Scolardi conducted himself in such a way

as to warrant Attorney Wood’s apparent belief that CLM was

authorized to act as the Trust’s agent is a factual matter that,

at least on this record, cannot be resolved as a matter of law.

11 Defendants’ motion for summary judgment (document n o . 22) i s ,

therefore, denied.

SO ORDERED.

______ St^even J. ^McAuliffe United States District Judge

August 1 6 , 2012

cc: Stephen Lawrence Boyd, Esq. Edmond J. Ford, Esq. Richard K. McPartlin, Esq. Emily G. Rice, Esq. Frank P. Spinella, Jr., Esq. James C . Wheat, Esq.

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