Opinion
11-P-252
11-22-2011
DYAN EAGLES & another v. ARTHUR J. MCCABE, SECOND, & others.
NOTICE: Decisions issued by the Appeals Court pursuant to its rule 1:28 are primarily addressed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, rule 1:28 decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28, issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Dyan Eagles and her solely-owned company, DharmaCrafts, Inc. (Eagles), appeal the trial court judge's grant of summary judgment to MassDevelopment Finance Agency and its investment vehicle, MassDevelopment New Markets CDE #1, LLC. (collectively MassDevelopment). Eagles's suit sought a declaratory judgment that Eagles' guarantees of the loans MassDevelopment made to Arthur McCabe, Second, and his company, 29 South Canal, LLC (LLC) were unenforceable because MassDevelopment knew or had reason to know that McCabe obtained them by fraud. We affirm the grant of summary judgment.
Eagles's claims against Arthur J. McCabe, Second, and 29 South Canal, LLC, were settled and dismissed below.
Factual background. This case arises from allegations by Eagles that McCabe, while serving as her private attorney, took advantage of her trust in him to persuade her to make a $200,000 investment with him and to personally guaranty certain loans to the LLC under false pretenses. The facts indicate Eagles made the investment and guaranteed the loans, but did not receive membership in the LLC as promised by McCabe.
Discussion. We review the appeal of a grant of summary judgment de novo, with all facts construed in favor of the nonmoving party. Miller v. Cotter, 448 Mass. 671, 676 (2007).
On appeal, Eagles alleges that the judge erred in granting summary judgment to MassDevelopment on Eagles's claim that her guarantees were unenforceable. In particular, Eagles argues that the judge erred in finding that she had no reasonable expectation of proving at trial that MassDevelopment knew or should have known that her guarantees were procured by fraud or misrepresentation.
The parties agree that the relevant standard is found in the Restatement (Third) of Suretyship and Guaranty § 12(2) (1996). Under that standard, a secondary obligor's assent to a secondary obligation is voidable by the secondary obligor if it is 'induced by a fraudulent or material misrepresentation . . . upon which the secondary obligor is justified in relying.' Ibid. However, an exception applies if the obligee gives value or materially relies on the secondary obligation 'in good faith and without reason to know of the misrepresentation.' Ibid.
The Restatement (Third) of Suretyship and Guaranty, supra, is consistent with principles of contract and suretyship law that have been adopted in Massachusetts. See New Bedford Inst. for Sav. v. Gildroy, 36 Mass. App. Ct. 647, 655 (1994).
As a preliminary matter, Eagles contends that the judge improperly assigned her the burden of proof regarding MassDevelopment's knowledge of McCabe's fraudulent inducement of Eagles's guaranty. Under the circumstances, however, the allocation of the burden is not outcome determinative.
The burden of proof at trial is relevant to summary judgment because a moving party may only discharge its burden by showing an absence of evidence on an element on which the nonmoving party bears the burden of proof. Manning v. Nobile, 411 Mass. 382, 389 (1991). Since the judge found that MassDevelopment had satisfied its burden by showing that Eagles had 'no reasonable expectation of proving at trial,' citing Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991), MassDevelopment's knowledge of McCabe's fraudulent inducement of Eagles's guaranty, the judge appears to have placed the burden on this element on Eagles. However, we need not determine where the burden rests because summary judgment was properly granted even if it rested on MassDevelopment.
At summary judgment, MassDevelopment denied that it had any reason to know that Eagles's guaranty was fraudulently induced. There is no evidence in the record to suggest otherwise. The mere existence of inconsistencies in the loan application documents (one set listing Eagles as a member of the LLC and one set omitting Eagles from the list of owners), when considered in light of the affidavit signed by Eagles certifying that she was an owner of the LLC, could not have given MassDevelopment notice that McCabe had lied to Eagles about her membership in the LLC or that such a lie was what induced Eagles to guarantee LLC's debt to MassDevelopment. Without such notice, MassDevelopment could only be considered to have 'reason to know' that Eagles's guaranty was procured by fraud or misrepresentation if MassDevelopment had a duty to Eagles, as guarantor, to investigate inconsistencies in the loan documents. As Eagles' counsel conceded at oral argument, MassDevelopment had no such duty. See Shawmut Bank, N.A. v. Wayman, 34 Mass. App. Ct. 20, 24 (1993). Since MassDevelopment's lack of knowledge of the fraud is dispositive of Eagles's claim, there is no genuine issue of material fact and MassDevelopment was entitled to judgment as matter of law.
MassDevelopment denies actual knowledge that Eagles's guaranty was fraudulently induced. Eagles did not provide any direct evidence to the contrary, and no inference of knowledge is possible based on the record. Thus, no reasonable finder of fact could determine that MassDevelopment had actual knowledge of the fraud. Even if MassDevelopment bears the burden of proof on this issue, it 'is a slight one that may be satisfied by [an] affidavit disclaiming any knowledge.' Prestige Imports, Inc. v. South Weymouth Sav. Bank, 75 Mass. App. Ct. 773, 780 (2009) (citation omitted) (analyzing lack of notice in the holder in due course doctrine, which can be satisfied by the absence of either knowledge or reason to know).
Judgment affirmed.
By the Court (Grainger, Fecteau & Agnes, JJ.),