Rared Manchester NH LLC v. Rite Aid of New Hampshire Inc

United States Court of Appeals
For the First Circuit

No. 11-2332

RARED MANCHESTER NH, LLC,

Plaintiff, Appellant,

v.

RITE AID OF NEW HAMPSHIRE, INC.; RITE AID CORPORATION,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. George Z. Singal, U.S. District Judge]

Before

Boudin, Selya and Dyk,*
Circuit Judges.

Alton Colwell Stevens, with whom Marden, Dubord, Bernier &
Stevens was on brief, for appellant.
John A. Hobson, with whom Perkins Thompson, P.A. was on brief,
for appellees.

August 29, 2012

___________
*Of the Federal Circuit, sitting by designation.
 SELYA, Circuit Judge. There are no role models in the

tale that we chronicle here. The story line pits a sophisticated

developer against a sophisticated tenant. The parties had done

business for many years and (at least in the developer's view) had

established a template for future transactions. Their current

dispute arose when the tenant forwarded to the developer a

commercial lease containing a material term that deviated from the

parties' previous leases, without specifically drawing the

developer's attention to the change. The developer says that it

did not read the proffered lease "line by line," but nevertheless

signed it. When the developer, years later, discovered the new

term, it protested. Outrage soon morphed into litigation. The

district court, without passing upon the merits of the dispute,

entered summary judgment against the developer on the ground that

the action was time-barred. After careful consideration, we

affirm.

I. BACKGROUND

We rehearse the facts in the light most favorable to the

summary judgment loser, consistent with record support.

Stephen Dubord is both a developer and an attorney. His

principal development entity is Rared Company, Inc. Plaintiff-

appellant Rared Manchester NH, LLC is an entity created by Dubord

for the single purpose of leasing the store involved in this

-2-
litigation. For ease in exposition, we refer to Rared Company and

Rared Manchester NH, LLC collectively as Rared or the lessor.

Defendants-appellees Rite Aid Corporation and its wholly

owned subsidiary, Rite Aid of New Hampshire, Inc. (collectively,

Rite Aid or the lessee) operate a large number of drug stores,

several of which are leased from Rared. By early 1996, Rite Aid

had executed leases for five stores built by Rared.1

Throughout this course of dealing, Dubord (who is also

the sole member of each single-purpose entity) represented the

lessor and Attorney Alan Garubba represented the lessee. Dubord

testified at his deposition that he "[thought] it was the general

understanding" that these early leases would serve as a template

for the parties' future lease transactions. According to Rared's

statement of material facts, see D. Me. R. 56(c), only site-

specific terms were to be changed; and the parties, in their

subsequent course of dealings, always discussed substantive

changes.

On April 2, 1996, the parties entered into their sixth

lease, which was for a store in Manchester, New Hampshire. Under

Article 26 of the lease, the base rent for the premises was set at

$206,047.40 per year, payable in twelve equal monthly installments.

The lease further contained a percentage rent clause calling for

1
The leases were signed by Rared Company, Inc. Each has
since been assigned to its own single-purpose entity.

-3-
Rite Aid to report the store's annual adjusted gross revenue, which

was to be calculated by subtracting certain contractually defined

categories of sales (e.g., the proceeds of sales of cigarettes and

alcoholic beverages) from gross revenue. If 2.5% of adjusted gross

revenue exceeded the base rent amount in any lease year, Rite Aid

was obligated to pay the difference to Rared as additional rent.

The net effect was that Rite Aid would owe as yearly rent either

the base figure or 2.5% of adjusted gross revenue, whichever was

greater.

In these respects, the lease was nearly identical to the

five previous leases executed by and between the parties. The

Manchester lease differed, however, in that Article 26(g) exempted

from the calculation of adjusted gross revenue "sales of

prescription drugs reimbursed by third party payors." This

exclusion was significant because prescription drug sales account

for over half of gross sales at a typical Rite Aid store and, given

this mix of business, the exclusion made it unlikely that the

percentage rent clause would ever be triggered at the Manchester

premises.

Negotiations for the Manchester lease began in February

of 1996, when Garubba mailed Dubord an initial draft of a proposed

lease containing the prescription exclusion.2 On March 11, 1996,

2
For the first time on appeal, Rared says that it cannot be
sure whether the original draft contained the critical language or
whether it was inserted later in the negotiations. This suggestion

-4-
Dubord responded in a letter that requested certain substantive

changes (but did not mention the percentage rent clause). At the

end of this letter, he stated that "[he] ha[d] not read the lease

line by line yet, but based on the assumption that it [wa]s

identical to [Rared's] other leases in all material respects," he

was ready to sign a revised draft. Rite Aid accommodated the

changes requested in the letter but did not reply in any way to the

sentence mentioning Dubord's assumption. Instead, Garubba sent

execution copies of a proposed final draft to Dubord, who signed

and returned them. The lease that Dubord signed contained the

undiscussed prescription exclusion.

In 2005, an unrelated incident at the Manchester store

attracted Dubord's attention. He learned from a manager that the

store, and in particular its pharmacy, had been exceedingly busy.

Dubord investigated further and noticed the prescription exclusion

in the lease. He then worked the numbers and realized that, but

for the prescription exclusion, Rite Aid would have owed amounts in

excess of the base rent starting in 2004.

Dubord protested to Rite Aid and the parties attempted to

reach an amicable resolution of the lessor's claim that the

prescription exclusion had no place in the lease. To that end, the

parties executed a series of tolling agreements beginning on August

was not advanced below and, thus, any argument based upon it is
deemed abandoned. See Sandstrom v. ChemLawn Corp., 904 F.2d 83, 87
(1st Cir. 1990).

-5-
2, 2007. When they failed to reach common ground, Rared invoked

diversity jurisdiction, see 28 U.S.C. § 1332(a)(1), and sued Rite

Aid in Maine's federal district court on May 28, 2010.

Pertinently, the complaint contained counts for breach of

fiduciary duty and misrepresentation (essentially, a claim that the

lessor had been fraudulently induced into entering the lease by the

lessee's failure to respond to Dubord's mistaken assumption).3

Following pre-trial discovery, Rite Aid moved for summary judgment

on the ground that Maine's six-year statute of limitations for tort

actions, see Me. Rev. Stat. Ann. tit. 14, § 752, foreclosed the

suit. Rared opposed the motion. The district court referred the

matter to a magistrate judge, see 28 U.S.C. § 636(b)(1)(B); Fed. R.

Civ. P. 72(b), who recommended that the court grant the motion.

See Rared Manchester NH, LLC v. Rite Aid of N.H., Inc., No. 2:10-

cv-00203, 2011 WL 4005304, at *1 (D. Me. Sept. 6, 2011). On de

novo review, the district court adopted the magistrate judge's

recommendation wholesale and entered judgment accordingly. See

Rared Manchester NH, LLC v. Rite Aid of N.H., Inc., No. 2:10-cv-

203, 2011 WL 4900003 (D. Me. Oct. 14, 2011). This timely appeal

ensued.

3
The complaint initially contained yet another count for
mutual mistake. The district court jettisoned this count and Rared
has not pursued its claim of mutual mistake in this appeal.

-6-
II. ANALYSIS

We review a district court's entry of summary judgment de

novo, taking the facts and all reasonable inferences therefrom in

the light most hospitable to the nonmoving party. Certain

Interested Underwriters at Lloyd's, London v. Stolberg, 680 F.3d

61, 65 (1st Cir. 2012). "We will affirm only if the record reveals

'that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.'" Avery v.

Hughes, 661 F.3d 690, 693 (1st Cir. 2011) (quoting Fed. R. Civ. P.

56(a)). "This standard of review permits us to embrace or reject

the rationale employed by the lower court and still uphold its

order for summary judgment. In other words, we may affirm such an

order on any ground revealed by the record." Houlton Citizens'

Coal. v. Town of Houlton, 175 F.3d 178, 184 (1st Cir. 1999).

The parties agree that Maine law provides the substantive

rules of decision. See Erie R.R. v. Tompkins, 304 U.S. 64, 78

(1938). The lease was executed in Maine, and we are free to accept

this plausible agreement. See, e.g., Katz v. Pershing, LLC, 672

F.3d 64, 72 (1st Cir. 2012); Borden v. Paul Revere Life Ins. Co.,

935 F.2d 370, 375 (1st Cir. 1991).

Rared has cast its remaining claims as tort claims.

Maine has a six-year statute of limitations for tort actions. Me.

Rev. Stat. Ann. tit. 14, § 752. The Manchester lease was executed

on April 2, 1996. If the lessor's cause of action accrued on that

-7-
date, then the time for filing suit expired in April of 2002.

Inasmuch as the parties did not execute the first tolling agreement

until 2007, Rared's suit would be late by more than eight years.

The lessor contests the accrual date. Its principal

argument is that its cause of action did not accrue until 2004 (the

first lease year for which Rite Aid, under the original formula,

would have owed percentage rent). But the notion upon which this

argument rests — that the lessor suffered no injury until the first

year for which percentage rent would have been due — confuses the

injury for which the lessor sues with the damages that the lessor

seeks.

To be sure, "[t]here is generally no cause of action in

tort until a plaintiff has suffered an identifiable, compensable

injury." Bernier v. Raymark Indus., Inc., 516 A.2d 534, 542 (Me.

1986). Injury, however, is not always synonymous with money

damages. Under Maine law, a party is injured when its legal rights

have been violated, even if nominal damages or equitable remedies

are the only forms of recourse available to it at that time. See

Bozzuto v. Ouellette, 408 A.2d 697, 699 (Me. 1997). It follows

that "a cause of action sounding in tort accrues when the plaintiff

sustains harm to a protected interest." Chiapetta v. Clark

Assocs., 521 A.2d 697, 699 (Me. 1987).

Here, harm to the lessor occurred at the time that Rared

executed the lease indenture. The lease contained the undiscussed

-8-
prescription exclusion, and Rared could at that moment have sued on

the same grounds on which it now relies.

Of course, the lessor would not have been entitled to

recompense for pecuniary damages not then incurred. It nonetheless

could have sought other redress at any time after the lease was

signed, including nominal damages, reformation of the contract, or

a declaratory judgment. No more is exigible to start the running

of the limitations period. See Johnston v. Dow & Coulombe, Inc.,

686 A.2d 1064, 1066 (Me. 1996); see also Williams v. Ford Motor

Co., 342 A.2d 712, 715 (Me. 1975) ("'[I]n every case of violation

of the rights of a particular individual, the law implies damage.

It may be but nominal. But still a right of action accrues for

it.'" (alteration in original) (quoting Betts v. Norris, 21 Me.

314, 319 (1842))).

The lessor strives to undermine the compelling conclusion

that the date of execution of the lease is the accrual date for its

tort claims. To this end, it cites Bernier for the proposition

that the date of accrual is the date on which an injury manifests

itself. Bernier, however, is inapposite; that case turned on

Maine's common-law discovery rule, which in narrowly defined

circumstances sets the date of accrual as the time "when the injury

is discovered rather than when the injury was incurred."

McLaughlin v. Superintending Sch. Comm. of Lincolnville, 832 A.2d

782, 788 (Me. 2003).

-9-
 The common-law discovery rule is separate and distinct

from the statutory tolling provision, see Me. Rev. Stat. Ann. tit.

14, § 859, discussed infra. The Maine Supreme Judicial Court

(colloquially known as the Law Court) has "limited the application

of the discovery rule to three discrete areas: legal malpractice,

foreign object and negligent diagnosis medical malpractice, and

asbestosis." Johnston, 686 A.2d at 1066 (footnotes omitted). The

lessor's case does not fit within these confines and, thus, the

common-law discovery rule is not available to salvage the action.

Although what we have said to this point defenestrates

Rared's claim for breach of fiduciary duty, Rared nonetheless

asserts that a statutory tolling provision rescues its claim of

misrepresentation. This provision states:

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 . . . .

Me. Rev. Stat. Ann. tit. 14, § 859.

The lessor's argument that this provision extends the

time for commencement of its misrepresentation action rests, in

part, on its ability to bring a claim for fraud under section 551

of the Restatement. Restatement (Second) of Torts § 551 (1977).

Although the Law Court has not adopted section 551, the lessor

urges that it would do so if presented with the question.

-10-
 Section 551 imposes liability for nondisclosure if there

is a duty to "exercise reasonable care to disclose the matter."

Id. It delineates five circumstances in which this duty arises.

Id. Despite the lessor's importuning that Maine would adopt

section 551, the fact remains that some portions of section 551

contemplate liability for a broader range of nondisclosures than

are contemplated by Maine's existing case law. Falling into this

category is the provision upon which the lessor chiefly relies,

which imposes liability for nondisclosure of "basic facts to the

transaction" if the party "knows that the other is about to enter

into it under a mistake as to them, and that the other, because of

the relationship between them, the customs of the trade or other

objective circumstances, would reasonably expect a disclosure of

those facts." Id. § 551(2)(e).

Although the Law Court has at times embraced other

provisions of the Second Restatement of Torts, see, e.g., Rand v.

Bath Iron Works Corp., 832 A.2d 771, 774 (Me. 2003) (citing

Restatement (Second) of Torts § 552 (1977)), it has neither adopted

section 551 nor cited that provision in any reported case. By the

same token, nothing in any of the Maine cases foretells a

willingness to expand the range of liability for misrepresentation

to the broader precincts patrolled by section 551.

While section 551 may have much to recommend it, so does

a rule that requires sophisticated parties to a commercial

-11-
transaction to read documents before signing them. In all events,

as a federal court sitting in diversity jurisdiction, we ought not

"stretch state precedents to reach new frontiers." Porter v.

Nutter, 913 F.2d 37, 41 (1st Cir. 1990). Concerns both of prudence

and of comity argue convincingly that a federal court sitting in

diversity must hesitate to chart a new and different course in

state law. See Kassel v. Gannett Co., 875 F.2d 935, 949-50 (1st

Cir. 1989).

These tenets have especial force here. In Maine, there

is a well-developed body of case law concerning misrepresentation

by nondisclosure. See, e.g., McGeechan v. Sherwood, 760 A.2d 1068,

1081 (Me. 2000); Fitzgerald v. Gamester, 658 A.2d 1065, 1069 (Me.

1995). These cases provide clear rules for determining when and to

what extent a defendant will incur tort liability for

nondisclosure. The existence of this intricate web of rules, none

of which either implicates or invites the application of section

551, counsels against an assumption that Maine will establish a new

frontier by embracing that Restatement provision. See, e.g.,

Kassel, 875 F.2d at 949-50.

The sockdolager is that Rared chose to bring its action

in the federal court. Where, as here, a party asserting a state-

law claim eschews an available state forum in favor of a federal

forum, it scarcely can be heard to complain when the federal court

follows existing state precedent and refrains from blazing a new

-12-
and more adventurous jurisprudential trail. See, e.g., Jones v.

Secord, 684 F.3d 1, 11 (1st Cir. 2012); Porter, 913 F.2d at 40-41;

Kassel, 875 F.2d at 949-50. We therefore decline to weave section

551 of the Restatement into the existing fabric of Maine law.

This leaves the question of whether the lessor has a

cause of action for fraud under the well-established Maine

precedents governing tort liability for fraudulent nondisclosure.

In Maine, a plaintiff may bring an action for fraud where the

defendant

(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.

Grover v. Minette-Mills, Inc., 638 A.2d 712, 716 (Me. 1994).

In this instance, the alleged misrepresentation consists

of an omission: Rite Aid's failure affirmatively to respond to

Dubord's mistaken assumption regarding the lease terms. For a

"failure to disclose [to rise] to the level of a misrepresentation,

the plaintiff must prove either (1) active concealment of the

truth, or (2) a specific relationship imposing on the defendant an

-13-
affirmative duty to disclose." Fitzgerald, 658 A.2d at 1069.4

Thus, we focus the lens of our inquiry on these two elements.

It is clear beyond hope of contradiction that Rite Aid

did not actively conceal the prescription exclusion. To the

contrary, Rite Aid submitted the lease to Rared with the exclusion

in place. The fact that Dubord did not read the lease to learn the

truth about the change in terms does not mitigate the fact that the

truth was disclosed.

Scrambling to parry this thrust, the lessor insists that

failing to disclose a material fact that induces another to act,

with awareness of the nondisclosure, provides prima facie proof of

active concealment. But the only authorities upon which the

appellant relies for this proposition, Fitzgerald, 658 A.2d at 1069

and McGeechan, 760 A.2d at 1081, will not bear the weight that it

loads upon them. In each of those cases, the undisclosed material

fact was not readily ascertainable by the party asserting the fraud

claim. See Fitzgerald, 658 A.2d at 1069 (explaining that sellers

failed to inform buyer that the well on the property was

contaminated); McGeechan, 760 A.2d at 1081-82 (noting that buyers'

broker did not reveal her interest in the property for sale and

4
The Fitzgerald court apparently used the term "specific
relationship" as a synonym for the more familiar term "special
relationship." This is evident from Fitzgerald's citation to
H.E.P. Dev. Grp., Inc. v. Nelson, which like other Maine cases uses
the term "special relationship." See Fitzgerald, 658 A.2d at 1069
(citing H.E.P. Dev. Grp., Inc. v. Nelson, 606 A.2d 774, 775 (Me.
1992)).

-14-
induced buyers to discuss the terms of their offer so that she

could tailor her own competing offer). When, however, the

undisclosed fact is known all along to the allegedly defrauded

party, or should have been obvious to him, an action for fraud will

not lie. See Kezer v. Mark Stimson Assocs., 742 A.2d 898, 905 (Me.

1999); Letellier v. Small, 400 A.2d 371, 376 (Me. 1979). The case

at hand fits squarely within this framework.

The lessor tries to turn this framework to its advantage

through the use of Letellier. It contends that a party may

actively conceal the truth (here, the change in the percentage rent

formula) even when the complainant has "constructive notice" of the

truth. This contention overreads Letellier. There, the seller

lied to the buyers about certain restrictions on the purchased

property. Letellier, 400 A.2d at 373. Even though the buyers

could have learned about the restrictions by consulting a public

record mentioned in the deed, the court found liability, concluding

that the buyers were not responsible for "investigating the truth

or falsity of the representation." Id. at 376. The Law Court

added, however, that liability for misrepresentation would not

attach if the falsity was "obvious." Id. Letellier thus presents

a situation altogether different from the case at hand: the

contract in that case did not disclose the restrictions, but

instead referenced an exogenous document containing the truth.

Here, however, there was no need to reach out for any exogenous

-15-
document; the truth was obvious on the face of the lease indenture

itself. The lessor was on notice and cannot credibly claim that

the changed term was hidden, inaccessible, or required any

supplemental investigation.

Rared's last-ditch position is that there was a special

relationship between the parties that imposed upon Rite Aid an

affirmative obligation to call the changed term to Dubord's

attention. For support, it points to evidence of the parties'

positive business dealings over the years and the friendly personal

relationship that Dubord had cultivated with several Rite Aid

officials and attorneys. While this evidence highlights the

alleged unsavoriness of Rite Aid's conduct, it is insufficient to

ground a finding of a special relationship.

Maine law is clear-cut concerning the nature of the

relationship required to trigger an affirmative duty to disclose:

"absent a fiduciary or confidential relationship, there is no duty

to disclose information." Brae Asset Fund, L.P. v. Adam, 661 A.2d

1137, 1140 (Me. 1995). A fiduciary or confidential relationship is

shown by "the actual placing of trust or confidence in fact by one

party in another and a great disparity of position and influence

between the parties to the relation." Diversified Foods, Inc. v.

First Nat'l Bank of Bos., 605 A.2d 609, 614 (Me. 1992) (quoting

Ruebsamen v. Maddocks, 340 A.2d 31, 35 (Me. 1975)).

-16-
 In this instance, both the lessor and the lessee are

sophisticated business entities, well-versed in the field of

commercial real estate. They engaged in an arm's-length

transaction, and each of them was represented by counsel at all

material times. There was no measurable disparity of influence.

This, in itself, negates the claim that a special relationship

existed; and without such a relationship, Maine law does not impose

an affirmative duty to disclose.

The lessor urges us to find that the term "special

relationship" is expansive enough to include close business

relationships (like the one that existed here) as well as fiduciary

and confidential relationships. We reject this exhortation. The

Maine cases supply no principled basis for an inference that a

legally cognizable "special relationship" is created whenever two

parties enjoy a sustained course of amicable business dealings.

Notably, the Law Court rejected a similar argument in Eaton v.

Sontag, 387 A.2d 33 (Me. 1978), explaining:

The authorities do agree that
friendship between the parties to a
transaction in itself is not sufficient to
show a confidential relation.
The expression "confidential relation"
. . . has not been construed to include the
relationship of vendor and vendee or seller
and purchaser merely because the parties to
the transaction had known each other for some
time and both or either were favorably
impressed with the other.
. . . That the parties believed in
their mutual honesty, sincerity and
truthfulness on account of their social

-17-
 intercourse is not sufficient to constitute a
confidential relationship . . . .

Id. at 37 (citation omitted).

III. CONCLUSION

On summary judgment, we must take the facts of record in

the light most favorable to the nonmoving party. See Certain

Interested Underwriters at Lloyd's, 680 F.3d at 65. Rite Aid's

conduct, as the lessor describes it, is nothing to be proud of.

Such sleight of hand may well be deserving of opprobrium, but

statutes of limitations serve a valuable purpose, and tawdry (but

not fraudulent) conduct, without more, is not a sufficient reason

to ignore them. Even when a party to a commercial transaction acts

unattractively, the victim has an obligation to make at least some

effort to appraise its rights and act upon them in a timely manner.

In this regard, the Law Court has taken pains to note that when a

contracting party signs "a document without reading, examining, and

understanding it, no one is responsible for the fact excepting

himself, and no court can protect him or any other person competent

to contract from the result of that particular form of

carelessness." Elliott S. Peterson Co. v. Parrott, 152 A. 313, 314

(Me. 1930). So it is here.

We need go no further. For the reasons elucidated above,

we conclude that the district court appropriately determined that

Rared's action was brought too late.

Affirmed.

-18-