MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2016 ME 131
Docket: Ken-15-234
Argued: February 10, 2016
Decided: August 16, 2016
Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, HJELM, and HUMPHREY, JJ.
DRILLING & BLASTING ROCK SPECIALISTS, INC.
v.
PAUL RHEAUME
JABAR, J.
[¶1] Drilling & Blasting Rock Specialists, Inc., (DBRS) appeals from a
summary judgment entered in favor of Paul Rheaume in the Superior Court
(Kennebec County, Mullen, J.) on Rheaume’s statute of limitations defense to
DBRS’s complaint for intentional and negligent misrepresentation. Viewing
the summary judgment record in the light most favorable to DBRS, we
conclude that the record reflects a factual dispute regarding the
commencement of the limitations period applicable to the intentional
misrepresentation claim. We therefore vacate the summary judgment in part
and remand for adjudication of this factual issue. With respect to the
negligent misrepresentation claim, we discern no dispute of material fact and
2
conclude that the trial court correctly entered summary judgment in
Rheaume’s favor. We accordingly affirm the judgment in part.
I. FACTUAL BACKGROUND
[¶2] The following facts are established by the parties’ statements of
material fact and the evidence referred to therein, are viewed in the light most
favorable to the nonprevailing party, and are undisputed unless otherwise
noted. See Remmes v. Mark Travel Corp., 2015 ME 63, ¶ 3, 116 A.3d 466.
[¶3] Rheaume owned T.W. Dick Company, Inc., (TWD) from 1995 to
2009. On March 9, 2006, Rheaume, acting as president of TWD, executed and
delivered a promissory note and mortgage to Robert McKee in consideration
for McKee conveying to TWD a parcel of real property located on Brunswick
Avenue in Gardiner. McKee’s mortgage on the Brunswick Avenue property
was recorded in the Kennebec County Registry of Deeds the following day.
[¶4] In May 2006, two months after TWD acquired the Brunswick
Avenue property, Rheaume contacted DBRS’s president, Timothy Purington,
to ask whether DBRS might be interested in purchasing the Brunswick Avenue
property from TWD. In August 2006, TWD conveyed the Brunswick Avenue
property to DBRS by a warranty deed that did not mention the outstanding
mortgage to McKee and represented that the property was free of all
3
encumbrances. At the same time, Timothy Purington, acting as president of
DBRS, executed and delivered a promissory note and mortgage to TWD in
consideration for the conveyance by TWD.
[¶5] Rheaume did not tell anyone associated with DBRS that McKee
held a first mortgage on the property or that TWD was obligated to make
payments on the note held by McKee for a period of fifteen years. TWD was
represented by counsel in the transaction and paid for a title search of the
Brunswick Avenue property prior to the closing, but did not disclose the
results of any title search to DBRS.
[¶6] At the closing, DBRS was not represented by counsel, and Timothy
Purington, as president of DBRS, signed a “Notice of Representation,” agreeing
that if DBRS had “any legal questions” regarding the sale of the property it
“should discuss them with independent counsel.” DBRS relied upon the
representations contained in the warranty deed with respect to the absence of
encumbrances on the Brunswick Avenue property. It would not have gone
through with the transaction if it had known that McKee held a first mortgage
on the property.
4
[¶7] According to Rheaume, DBRS contacted him about one week after
the sale and requested a “bill of sale” from McKee. DBRS denies this
statement, and asserts that it did not learn of the McKee mortgage until 2013.
[¶8] At some point after DBRS acquired the Brunswick Avenue
property, TWD defaulted on the promissory note and mortgage held by McKee
and McKee sought to foreclose on the property now owned by DBRS. DBRS
asserts that it has been frustrated in its plan to use the Brunswick Avenue
property for storage, and has incurred damages as a result of the McKee
mortgage and foreclosure.
II. PROCEDURAL HISTORY
[¶9] In October 2013, DBRS filed a complaint against Rheaume and
TWD, seeking compensatory and punitive damages for negligent and
intentional misrepresentation regarding the representation of the absence of
encumbrances on the Brunswick Avenue property. In August 2014, after a
hearing on damages, the court entered a judgment against TWD, awarding
DBRS damages in the amount of $180,925, plus interest and costs. The
judgment did not resolve DBRS’s claims against Rheaume.
[¶10] In October 2014, Rheaume moved for summary judgment,
contending that DBRS could not establish the elements of its claims and that
5
those claims were barred by the six-year limitations period generally
applicable to civil actions. See 14 M.R.S. § 752 (2015). In opposition, DBRS
argued that its misrepresentation claims were not subject to the general civil
limitations period prescribed by section 752, but were instead governed by an
extended limitations period for claims grounded in fraud, which tolls the
limitations period until “6 years after the person entitled [to such an action]
discovers that he has just cause of action.” 14 M.R.S. § 859 (2015). DBRS
argued that the extended limitations period of section 859 would have
commenced in 2013—when it first discovered McKee’s mortgage on the
Brunswick Avenue property—and not at the time of the transaction in 2006,
because it had relied upon the warranty deed’s free-of-encumbrance clause
and had no duty to investigate whether the property was encumbered.
[¶11] Rheaume replied that section 859 was inapplicable to DBRS’s
negligent misrepresentation claim because that claim was not “grounded in
fraud.” Rheaume also argued that, even if the extended limitations period of
section 859 applied to DBRS’s claims, that period would not have been tolled
by operation of the statutory discovery rule. Quoting Kobritz v. Severance,
2007 ME 3, ¶ 13, 912 A.2d 1237, Rheaume asserted that the “limitations
[period] begins to run, pursuant to section 859, when the existence of the
6
cause of action or fraud . . . should have been discovered by the plaintiff in the
exercise of due diligence and ordinary prudence.” (Quotation marks omitted.)
Rheaume further asserted that DBRS would have discovered the McKee
mortgage if it had searched the registry at the time of the sale, and that DBRS’s
failure to search the registry rendered its claims untimely as a matter of law.
[¶12] In April 2015, the court entered a summary judgment in
Rheaume’s favor, concluding that DBRS’s negligent misrepresentation claim
was time-barred by the limitations period of section 752, and that its
intentional misrepresentation claim was time-barred by the limitations period
of section 859. DBRS appealed to us. See 14 M.R.S. § 1851 (2015).
III. DISCUSSION
[¶13] The question presented is whether the trial court erred in
entering summary judgment based on Rheaume’s statute of limitations
defense to DBRS’s claims that Rheaume should be held personally liable for
intentionally and negligently misrepresenting that there were no
encumbrances on the Brunswick Avenue property.
A. Standard of Review
[¶14] We review the entry of a summary judgment de novo, viewing
the evidence and any reasonable inferences that may be drawn therefrom in
7
the light most favorable to the nonprevailing party to determine whether the
summary judgment record supports the conclusion that there is no genuine
issue of material fact and that the moving party is entitled to judgment as a
matter of law. See Brawn v. Oral Surgery Assocs., 2003 ME 11, ¶ 15, 819 A.2d
1014. “We will vacate a summary judgment if there is a genuine issue of
material fact or [if] the trial court committed a legal error.” Id. (citation
omitted). “We will affirm the judgment if the record reflects that there is no
genuine issue of material fact and the movant is entitled to a judgment as a
matter of law.” Francis v. Stinson, 2000 ME 173, ¶ 37, 760 A.2d 209 (quotation
marks omitted). “A fact is material if it has the potential to affect the outcome
of the suit, and a genuine issue of material fact exists when a fact-finder must
choose between competing versions of the truth, even if one party’s version
appears more credible or persuasive.” Angell v. Hallee, 2014 ME 72, ¶ 17,
92 A.3d 1154 (quotation marks omitted).
[¶15] When a defendant asserts in a motion for summary judgment the
affirmative defense of the expiration of a limitations period, the defendant
bears the burden of assembling a record of undisputed facts demonstrating
that the plaintiff’s action is time-barred by the applicable statute of
limitations. Baker v. Farrand, 2011 ME 91, ¶ 31, 26 A.3d 806. To survive a
8
limitations defense raised at summary judgment and proceed to adjudication
of the facts, a plaintiff, either with or without statements of additional
material fact, see M.R. Civ. P. 56(h)(2), bears the burden of demonstrating that
the summary judgment record generates a factual dispute about the running
of the limitations period, see Brawn v. Oral Surgery Assocs., P.A., 2006 ME 32,
¶ 10, 893 A.2d 1011. “When the plaintiff fails to set forth facts showing that
there is a genuine issue for trial on a statute of limitations defense, summary
judgment may be granted on the ground that the applicable statute of
limitations has run.” Id.
[¶16] Which limitations period applies to a given claim is a matter of
statutory construction, reviewed de novo. See Dowling v. Salewski, 2007 ME
78, ¶ 10, 926 A.2d 193. Whether a claim is barred by the applicable
limitations period is a question of law, McKinnon v. Honeywell Int’l, Inc.,
2009 ME 69, ¶ 9, 977 A.2d 420, but whether a plaintiff has exercised sufficient
diligence to avoid a finding that it “should have discovered” the cause of action
earlier for purposes of determining when the limitations period on a fraud
claim commenced is “ordinarily . . . a question of fact,” Kobritz, 2007 ME 3,
¶ 16, 912 A.2d 1237.
9
B. The Timeliness of DBRS’s Intentional Misrepresentation Claim
[¶17] The statute of limitations applicable to actions for fraud and
fraudulent concealment provides as follows:
If a person, liable to any action mentioned, fraudulently conceals
the cause thereof from the person entitled thereto, or if a fraud is
committed which entitles any person to an action, the action may
be commenced at any time within 6 years after the person
entitled thereto discovers that he has just cause of action, except
as provided in section 3580.1
14 M.R.S. § 859. The parties stipulate, and we agree, that section 859
prescribes the limitations period that applies to DBRS’s intentional
misrepresentation claim because that claim is a variant of a cause of action for
fraud,2 which action will lie where a person
(1) makes a false representation (2) of a material fact (3) with
knowledge of its falsity or in reckless disregard of whether it is
true or false (4) for the purpose of inducing another to act or to
refrain from acting in reliance on it, and (5) the other person
justifiably relies on the representation as true and acts upon it to
the damage of the plaintiff.
Sherbert v. Remmel, 2006 ME 116, ¶ 4 n.3, 908 A.2d 622 (quotation marks
omitted).
1 Title 14 M.R.S. § 3580 (2015) concerns fraudulent transfers and is inapplicable here.
2 See Goody v. Md. Cas. Co., 25 P.2d 1045, 1046 (Idaho 1933) (“A false and fraudulent
representation, by one who assumed to have personal knowledge, to the purchaser of real estate
that there is no encumbrance thereon, and upon which representation the purchaser relies, and
acts to his injury, will sustain an action for the tort . . . .” (quotation marks omitted)).
10
[¶18] Even before Maine separated from Massachusetts to assume
independent statehood, the common law afforded an extended limitations
period for actions sounding in fraud. See First Mass. Tpk. Corp. v. Field, 3 Mass.
(3 Tyng) 201, 207 (1807). The Maine Legislature first codified an extended
limitations period for fraud claims in 1841. See Appeal of Deake, 80 Me. 50, 56,
12 A. 790 (1888) (discussing R.S. ch. 146, § 18 (1841)). That early statute
contained a discovery rule nearly identical to the discovery rule of
section 859. Compare R.S. ch. 146, § 18, with 14 M.R.S. § 859. Pursuant to the
text of section 859, a six-year time-bar begins to run on a fraud claim when
the plaintiff “discovers” the claim. 14 M.R.S. § 859. This discovery rule exists
to protect a plaintiff from the injustice of a time-bar that begins to run while a
claim remains undiscoverable. Kobritz, 2007 ME 3, ¶ 13, 912 A.2d 1237.
[¶19] We have long interpreted this discovery rule as a provision that
prevents the commencement of the limitations period until “the existence of
the cause of action or fraud is discovered or should have been discovered by
the plaintiff in the exercise of due diligence and ordinary prudence.” Westman
v. Armitage, 215 A.2d 919, 922 (Me. 1966) (citing Penobscot R.R. Co. v. Mayo,
67 Me. 470, 473 (1878); Appeal of Deake, 80 Me. at 56, 12 A. 790). In this case,
DBRS asks us to abandon the requirement of due diligence imposed on a
11
plaintiff who wishes to reap the benefits of section 859, characterizing the due
diligence requirement as a “vestige of contributory negligence” that conflicts
with a plaintiff’s burden of proving the justifiable reliance element of a fraud
claim in a manner that is both “illogical and inequitable.” We reject DBRS’s
assertion that the due diligence burden is either illogical or inequitable, and
we decline its invitation to overrule our longstanding precedents.
[¶20] To establish the justifiable reliance element of a fraud claim, a
plaintiff need not investigate the truth or falsity of the representation at issue
unless the plaintiff “knows that the statement is false or the falsity is
obvious.”3 Francis, 2000 ME 173, ¶ 39, 760 A.2d 209. A failure to
investigate—in the absence of knowledge or obvious falsity—is justified “not
only when an investigation would involve an expenditure of effort and money
out of proportion to the magnitude of the transaction, but also when it could
be made without any considerable trouble or expense.” Letellier v. Small,
400 A.2d 371, 375 (1979) (quotation marks omitted). The policy behind the
justifiable reliance element reflects fundamental principles of tort culpability,
which assign greater blame to one who intentionally or recklessly makes a
3 Although a plaintiff’s contributory negligence was once a bar to recovery in an action for fraud,
see Crossman v. Bacon & Robinson Co., 119 Me. 105, 109, 109 A. 487 (1920), Maine law has long
recognized that a plaintiff’s negligence is no defense to a defendant’s fraud, see Letellier v. Small,
400 A.2d 371, 375 (1979).
12
false representation than to one who negligently relies on such a
representation. See id.
[¶21] Just as the elements of a fraud claim are defined by reference to
principles of tort law, the contours of the extended statute of limitations
applicable to a fraud claim reflect a balance between competing limitations
purposes in the context of an action for fraud.
[¶22] To the extent that due diligence requires action by the plaintiff
that would not be required for the justifiable reliance element of a fraud claim
(which may not require any action on the plaintiff’s part), any distinction is
fully justified by the principles of tort and equity at play. We therefore uphold
the due diligence doctrine and apply it to the facts of this case below.
1. Summary Judgment on the Issue of Due Diligence
[¶23] DBRS contends that the evidence compels a conclusion that it
exercised due diligence sufficient to prevent the commencement of the
limitations period until the time that it actually discovered the
misrepresentation in the warranty deed because it was entitled to rely upon
the deed and had no reason to disbelieve the representations in it. In the
alternative, DBRS argues that the summary judgment record establishes a
genuine dispute of material fact as to whether it acted reasonably by relying
13
on the warranty deed. Rheaume responds that there is no dispute that the
limitations period began to run at the time of the transaction in 2006, when
DBRS failed to exercise due diligence by checking the registry to verify the
representations in the warranty deed.
[¶24] “Whether a party has exercised due diligence as required to toll
the statute of limitations in cases of fraud is ordinarily considered to be a
question of fact.” Kobritz, 2007 ME 3, ¶ 16, 912 A.2d 1237. However, when
uncontroverted evidence leaves no room for a reasonable difference of
opinion as to whether the plaintiff exercised due diligence and indisputably
demonstrates that the plaintiff should have discovered the fraud, the issue
may be resolved at summary judgment as a matter of law. See Klehr v. A.O.
Smith Corp., 87 F.3d 231, 235 (8th Cir. 1996); Durham v. Bus. Mgmt. Assocs.,
847 F.2d 1505, 1509-10 (11th Cir. 1988); Kramas v. Sec. Gas & Oil, Inc.,
672 F.2d 766, 770 (9th Cir. 1982).
[¶25] In Kobritz, we considered the meaning of “due diligence” in the
context of a fraudulent conveyance of land when the conveyance had been
recorded in the registry of deeds. 2007 ME 3, ¶ 14, 912 A.2d 1237. There,
recognizing that the issue of due diligence is a factual question, and noting
14
that there were disputed issues of material fact, we vacated a summary
judgment. Id. ¶ 25.
[¶26] The case of Westman, 215 A.2d 919, presents another example of
the difficulty of deciding the issue of due diligence as a matter of law. In that
case a creditor claimed that he had been defrauded by a recorded conveyance
of the debtor’s assets and the debtor asserted that the creditor’s complaint
was time-barred. Id. at 920. In vacating a summary judgment entered in the
debtor’s favor, we expressed the view that “recordation of a fraudulent
conveyance will not alone suffice to give constructive notice of the fraud such
as will start the running of the statute of limitations.” Id. at 922. We indicated
that a creditor should not be affirmatively tasked with the burden of
examining public records for a debtor’s fraud unless a circumstance had
transpired which would place a reasonable creditor on inquiry notice that a
fraud might have occurred. Id.
[¶27] Many other courts employ the same concept of inquiry notice
that we used in Westman to define the standard of diligence that is sufficient
to prevent the commencement of the limitations period on a fraud claim. See,
e.g., Brumbaugh v. Princeton Partners, 985 F.2d 157, 162 (4th Cir. 1993)
(“The . . . standard of due diligence requires reasonable investigation of the
15
possibility of misrepresentation once an individual has been placed on inquiry
notice of wrongdoing.”); L.C.L. Theatres, Inc. v. Columbia Pictures Indus., Inc.,
566 F.2d 494, 497 (5th Cir. 1978) (“One will not be charged with knowledge of
fraud merely because he has had the opportunity or power to investigate the
fraud; he must be cognizant of facts that would have caused an ordinary,
reasonable person to investigate.”). The First Circuit Court of Appeals has
stated that a plaintiff’s duty of due diligence is triggered by storm warnings of
the possibility of fraud. Maggio v. Gerard Freezer & Ice Co., 824 F.2d 123, 128
(1st Cir. 1987) (quotation marks omitted).
[¶28] This case involves allegations that the seller of real property
defrauded a purchaser by misrepresenting that the property was free of
encumbrances. Unlike the plaintiffs in Kobritz and Westman, the plaintiff here
could have discovered the misrepresentation in the deed by checking the
registry once, at the time of the property sale, or at any time thereafter.
Central recording systems have long provided a simple, well-understood
method of organizing and maintaining searchable documents to determine
whether title to property is clear. The purpose of the registry, however, is to
protect bona fide purchasers for value from unrecorded property interests,
not to protect those who engage in fraud or to invalidate the interest of a
16
party to a property transaction vis-à-vis the other party to that transaction.
Letellier, 400 A.2d at 376 n.4; 14 Richard R. Powell, Powell on Real Property
§ 82.01[3] (Michael Allan Wolf, ed. 2005). The doctrine of constructive notice
that applies in the law of real property does not transfer to the field of tort law
to “shield a defendant from liability for fraudulent misrepresentation,”
Letellier, 400 A.2d at 376 n.4, or to otherwise start the limitations period
running on the time for bringing a fraud claim as a matter of law.
[¶29] Though searching the registry is arguably the most basic form of
diligence that could be undertaken by a purchaser in a property transaction,
when a warranty deed has been given in which the owner warrants against all
encumbrances, a failure to conduct a title search at the registry will not, as a
matter of law, constitute a failure to exercise due diligence for purposes of
preventing the commencement of the limitations period on a fraud claim.
Whether a plaintiff exercised due diligence depends on the factual
circumstances of a given case, and remains a question of fact even when the
fraud at issue involves misrepresentations in a warranty deed to real
property. Such a factual issue may be resolved at summary judgment only
when the undisputed facts and reasonable inferences, viewed in the light most
17
favorable to the nonprevailing party, leave no room for a reasonable
difference of opinion.
[¶30] When viewed in the light most favorable to DBRS, the record in
this case permits conflicting inferences as to whether DBRS should, in the
exercise of due diligence, have discovered the fraud within six years of its
occurrence. The McKee mortgage was recorded in the Kennebec County
registry before DBRS acquired the property, and DBRS’s transaction with
TWD was a property transfer from a seller that was represented by counsel to
a buyer that was not represented by counsel. Based on these facts, a
fact-finder could rationally infer that a reasonably prudent property
purchaser would verify the accuracy of the representations in the seller’s
warranty deed. However, the record contains no indication that DBRS was on
notice of any facts that would necessarily have caused a reasonable purchaser
to undertake an independent investigation, and therefore a fact-finder could
infer that DBRS acted reasonably by relying upon the warranty deed.
Pursuant to its negotiations with TWD, DBRS obtained a warranty that the
property was free of encumbrances, and thereby obtained an enforceable
assurance that the property was not encumbered. The record does not
establish that DBRS was aware of any facts that would necessarily have
18
caused a reasonable purchaser to doubt the accuracy of the representations
made by Rheaume and set forth in the deed.
[¶31] In light of these conflicting inferences, we conclude that the
record establishes a genuine dispute of material fact as to whether DBRS
exercised diligence sufficient to prevent the commencement of the limitations
period of section 859. The question of whether receipt of a
free-of-encumbrances representation in a warranty deed is sufficient to
satisfy the duty of due diligence and prevent the commencement of the
limitations period on a fraud claim is a factual issue that should be decided by
a jury. We therefore vacate the summary judgment on DBRS’s intentional
misrepresentation claim, and remand for further proceedings consistent with
this opinion.
C. The Timeliness of DBRS’s Negligent Misrepresentation Claim
[¶32] The second issue presented by this appeal is whether the
summary judgment record establishes that Rheaume is entitled to judgment
on his statute of limitations defense to DBRS’s claim for negligent
misrepresentation. DBRS argues that the trial court committed an error of
law in concluding that its negligent misrepresentation claim is time-barred by
19
the limitations period of section 752, and does not benefit from the extended
limitations period of section 859. We disagree.
[¶33] The plain language of section 859 extends only to causes of action
sounding in fraud or fraudulent concealment.4 14 M.R.S. § 859. As noted in
the preceding discussion, fraud is defined in part as a false representation of
material fact made with knowledge of the representation’s falsity or in
reckless disregard of the representation’s truth or falsity. See Barr v. Dyke,
2012 ME 108, ¶ 16, 49 A.3d 1280. By contrast, a negligent misrepresentation
claim does not require proof of intentional or reckless fault and thus does not
sound in fraud. See Chapman v. Rideout, 568 A.2d 829, 830 (Me. 1990)
(explaining that a misrepresentation will be actionable pursuant to a theory of
negligent misrepresentation if the defendant “fails to exercise reasonable care
or competence in obtaining or communicating the information”) (quotation
marks omitted). For this reason, such a claim does not benefit from the
extended statute of limitations set forth in section 859.
4 In its appellate brief, DBRS concedes that its claims are not based upon allegations of
fraudulent concealment.
20
The entry is:
Summary judgment on the negligent
misrepresentation claim affirmed. Summary
judgment on the intentional misrepresentation
claim vacated. Remanded for further
proceedings consistent with this opinion.
On the briefs:
David M. Lipman, Esq., and Peter B. Bickerman, Esq.,
Lipman, Katz & McKee, P.A., Augusta, for appellant Drilling
and Blasting Rock Specialists, Inc.
James A. Billings, Esq., and Matthew D. Morgan, Esq., McKee
Billings, P.A., Augusta, for appellee Paul Rheaume
At oral argument:
Peter B. Bickerman, Esq., for appellant Drilling and Blasting
Rock Specialists, Inc.
Matthew D. Morgan, Esq., for appellee Paul Rheaume
Kennebec County Superior Court docket number CV-2013-276
FOR CLERK REFERENCE ONLY