Martinez v. Waldstein

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15-P-455 Appeals Court

FRANCISCO MARTINEZ, trustee,1 & another2 vs. THOMAS G.
WALDSTEIN.

No. 15-P-455.

Middlesex. January 13, 2016. - April 29, 2016.

Present: Cypher, Meade, & Neyman, JJ.

Collateral Estoppel. Judgment, Preclusive effect. Negligence,
Misrepresentation. Contract, Misrepresentation. Practice,
Civil, Judgment on the pleadings, Affidavit. Subrogation.

Civil action commenced in the Superior Court Department on
July 2, 2014.

The case was heard by Kimberly S. Budd, J., on a motion for
judgment on the pleadings.

Peter S. Brooks for the plaintiffs.
Damian R. LaPlaca for the defendant.

NEYMAN, J. Francisco Martinez, trustee of the Baystate

Portfolio Trust (trust), and Eric AmRhein (collectively,

plaintiffs), appeal from a judgment of the Superior Court

dismissing their complaint alleging misrepresentation and

1
Of the Baystate Portfolio Trust.
2
Eric AmRhein.
2

violation of G. L. c. 93A, § 11, against the defendant, attorney

Thomas G. Waldstein, on the basis of issue preclusion. This is

the second appeal to this court arising out of the plan to

purchase the mortgage and foreclose on a property located at 3

Ronald Road in Sudbury (the property) in order to eliminate

junior mortgages on the property. See U.S. Bank, N.A. v.

Martinez, 86 Mass. App. Ct. 1111 (2014) (Baystate I). The

plaintiffs' claims in the present action hinge on their

allegation that they reasonably relied on Waldstein's

representations in an affidavit regarding mortgage priorities on

the property. A Superior Court judge (motion judge) granted

Waldstein's motion for judgment on the pleadings, concluding

that the plaintiffs could not establish that they reasonably

relied on Waldstein's representations because a different

Superior Court judge (trial judge) had found otherwise in

Baystate I.3 The plaintiffs contend that the motion judge erred

in applying issue preclusion because the issue of reasonable

reliance was not actually litigated in Baystate I, and thus was

neither identical to any issues raised in Baystate I nor

essential to the judgment in Baystate I. We affirm.

3
Martinez, as trustee of the trust, was the named defendant
in Baystate I. Martinez and AmRhein are the named plaintiffs in
the instant case. The motion judge found that AmRhein, the sole
beneficiary of the trust, was in privity with Martinez, the
trustee. The plaintiffs do not challenge this finding on
appeal.
3

1. Background. We first summarize the relevant facts from

the motion judge's decision on Waldstein's motion for judgment

on the pleadings, taking those facts stated by the plaintiffs as

true. See Mass.R.Civ.P. 12(c), 365 Mass. 754 (1974); Jarosz v.

Palmer, 436 Mass. 526, 530 (2002) (Jarosz). We then look to the

entire record of Baystate I, with a view toward comparing the

issues adjudicated therein with the issues raised by the

plaintiffs in the present action. See Boyd v. Jamaica Plain Co-

op. Bank, 7 Mass. App. Ct. 153, 160 (1979) (when asked to

determine whether issue has been previously litigated, and thus

precluded, "we look to the entire record . . . to ascertain what

issues were tried and determined and were essential to the

judgment").

a. The present action. In September, 2004, Peter Venuto

purchased the property and gave a $745,000 mortgage to

Countrywide Financial Corporation (Countrywide). In early 2005,

Waldstein aided Venuto in transferring ownership of the property

to King R.E., LLC, which subsequently granted a $2.65 million

mortgage of the property to First Trade Union Bank (First

Trade). The First Trade mortgage was subordinate to the

Countrywide mortgage.

In November, 2006, Waldstein helped Venuto refinance the

Countrywide mortgage, representing both Venuto and Countrywide

in the transaction, and serving as agent for the title insurer.
4

Waldstein failed to obtain a subordination of the First Trade

mortgage, and thus the refinanced Countrywide mortgage became

subordinate to the First Trade mortgage. On or about February

11, 2010, Countrywide assigned its mortgage of the property to

U.S. Bank, N.A. (U.S. Bank). Shortly thereafter, First Trade

and U.S. Bank began foreclosure proceedings on the property. In

June of that year, U.S. Bank commenced Baystate I, seeking

equitable subrogation and a declaration that First Trade's

mortgage was subordinate to U.S. Bank's mortgage. Venuto

provided to Waldstein a copy of the papers regarding Baystate I,

thus giving Waldstein notice of the legal proceedings.

In July, 2011, while Baystate I was pending, Venuto

approached his friend, AmRhein, with a plan for AmRhein to

purchase the First Trade promissory note and an assignment of

the First Trade mortgage. On or about July 7, 2011, Waldstein

provided to AmRhein an affidavit (the affidavit)4 that stated,

inter alia, that the First Trade mortgage was in "First

position" and the Countrywide mortgage was in "Second position";

"[a] subordination of mortgage was prepared subordinating said

4
The plaintiffs' complaint in the present action avers that
"Waldstein provided AmRhein with an affidavit," but omits the
critical fact that AmRhein's attorney (not Waldstein) drafted
the affidavit for Waldstein's signature, and asked AmRhein to go
to Waldstein's office to pick up a signed copy. As we discuss
infra, the trial judge's findings in Baystate I present a more
comprehensive account of the plaintiffs' scheme to eliminate the
junior liens on the property.
5

First Trade . . . mortgage to the . . . Countrywide mortgages[5]

but was never executed and does not exist to [Waldstein's]

knowledge"; and a purchaser of the First Trade promissory note

could rely on the representations contained in the affidavit.

On July 8, 2011, AmRhein directed Martinez (as trustee of

the trust) to purchase the First Trade promissory note and an

assignment of the First Trade mortgage. The plaintiffs alleged

in their complaint that soon after the purchase of the First

Trade note and mortgage, the plaintiffs obtained knowledge of

Baystate I and assumed First Trade's defense. They further

alleged that they reasonably relied upon the affidavit

"certifying that the First Trade Mortgage was a first priority

or senior mortgage" and that "if Waldstein had disclosed

[Baystate I] that was then pending by US Bank against First

Trade, [p]laintiffs would not have acquired the First Trade

Promissory Note and the First Trade Mortgage."

b. Baystate I. Nearly eleven months before the plaintiffs

filed their complaint in the present action, U.S. Bank, in an

equitable subrogation action, sought a declaration that its

mortgage interest should be in the first priority position,

which would relegate the First Trade mortgage owned by the

plaintiffs to the second priority position. In Baystate I, the

5
The affidavit references two Countrywide mortgages, both
of which were subordinate to the First Trade mortgage at the
time Baystate I was commenced.
6

trial judge, proceeding without a jury, made extensive factual

findings and granted U.S. Bank's request to hold the first

priority position on the property. The trial judge found that

AmRhein was aware, or should have been aware, of the claim of

Countrywide (the predecessor-in-interest to U.S. Bank) to the

first priority position. He further found that AmRhein planned

with Venuto to take advantage of Waldstein's mistake in order to

extinguish the junior mortgages, and thus the trust was not a

bona fide purchaser such that it should be shielded from the

doctrine of equitable subrogation. A panel of this court

affirmed the judgment in an unpublished decision issued pursuant

to our rule 1:28. See U.S. Bank, N.A. v. Martinez, 86 Mass.

App. Ct. 1111 (2014).

Several findings of the trial judge in Baystate I are

particularly critical to the present case, including the

following:

"AmRhein was aware, or should have been aware, of the claim
of Countrywide to the first lien position. Venuto came to
AmRhein, his close friend, with the plan for him (AmRhein)
to buy the First Trade Mortgage, for AmRhein to foreclose
on Venuto's house, and thereby wipe out the junior
mortgages. AmRhein was aware that it was only through
Waldstein's mistake or negligence that First Trade was in
the superior position and he knew, or should have known,
that Countrywide or its assignee would pursue its claim to
first priority. I do not find credible AmRhein's testimony
that he was not aware of this lawsuit."

The trial judge further found that AmRhein was aware from the

first meeting with Venuto that there was a dispute between the
7

banks over which had the priority lien position, and he

(AmRhein) was aware that there should have been a subordination

by First Trade to the Countrywide mortgage, which had not

occurred. The trial judge found that AmRhein knew of Baystate

I, and that AmRhein, with the help of his attorney, formed the

trust to acquire the First Trade mortgage. The trial judge

determined that prior to the purchase of the First Trade

mortgage, AmRhein's attorney had drafted the affidavit for

Waldstein's signature (see note 4, supra), which contained

statements regarding the first and second lien positions that

"were known already and were easily ascertainable." Finally,

the trial judge found that AmRhein, through the trust, paid

$204,000 for the assignment of the mortgage and the loan, which

had a balance of $1.4 million and an apparent first lien

priority.

2. Standard of review. "A defendant's rule 12(c) motion

is 'actually a motion to dismiss . . . [that] argues that the

complaint fails to state a claim upon which relief can be

granted.'" Jarosz, 436 Mass. at 529, quoting from Smith &

Zobel, Rules Practice § 12.16 (1974). As we would with a motion

to dismiss, we review the judge's ruling de novo. Ridgeley

Mgmt. Corp. v. Planning Bd. of Gosnold, 82 Mass. App. Ct. 793,

797 (2012). "In deciding a rule 12(c) motion, all facts pleaded

by the nonmoving party must be accepted as true." Jarosz, supra
8

at 529-530, citing Minaya v. Massachusetts Credit Union Share

Ins. Corp., 392 Mass. 904, 905 (1984). However, a judge is "not

required to accept as true those 'facts which the court could

take judicial notice are not true.' Hargis Canneries, Inc. v.

United States, 60 F. Supp. 729, 729 (D.C. Ark. 1945)." Jarosz

v. Palmer, 49 Mass. App. Ct. 834, 836 (2000), S.C., 436 Mass.

526 (2002). See Jarosz, supra at 530 ("[W]e see no reason that

a judge may not also consider on a rule 12[c] motion those facts

of which judicial notice can be taken. Further, a judge may

take judicial notice of the court's records in a related

action").

3. Issue preclusion. "The doctrine of issue preclusion

provides that when an issue has been 'actually litigated and

determined by a valid and final judgment, and the determination

is essential to the judgment, the determination is conclusive in

a subsequent action between the parties whether on the same or

different claim.'" Id. at 530-531, quoting from Cousineau v.

Laramee, 388 Mass. 859, 863 n.4 (1983). Here, the plaintiffs

challenge the motion judge's conclusion that the issue of

reasonable reliance was actually litigated in Baystate I, was

identical to issues adjudicated in Baystate I, and was essential

to the court's decision in Baystate I.6

6
The plaintiffs contend that because the issue of
reasonable reliance was not litigated in Baystate I, the issues
9

a. Actually litigated. In determining whether an issue

was actually litigated for preclusion purposes, courts ask

whether the issue was "subject to an adversary presentation and

consequent judgment that was not a product of the parties'

consent." Jarosz, supra at 531 (quotation marks and citation

omitted). See Restatement (Second) of Judgments § 27 comment d

(1982). The plaintiffs argue that the issue of reasonable

reliance was not actually litigated because Baystate I centered

on the mortgage priority dispute, whereas the present action

addresses AmRhein's reliance on Waldstein's representations.

We first examine the nature of the misrepresentation

alleged in the plaintiffs' complaint. As found by the trial

judge in Baystate I, the affidavit, upon which the plaintiffs

purportedly relied, contained averments that were all true, and

all known to AmRhein. That notwithstanding, the plaintiffs

still allege that "AmRhein was unaware of [Baystate I] when he

directed Martinez to purchase an assignment of the First Trade

Mortgage." Therefore, the plaintiffs contend, the omission in

the affidavit of any reference to the existence of the pending

U.S. Bank claim constituted the actionable misrepresentation.

Had the affidavit "disclosed the existence of" Baystate I, the

presented here are neither identical, nor essential, to the
court's decision in Baystate I. Thus, all of the plaintiffs'
arguments are effectively contingent on whether the issue of
reasonable reliance was actually litigated in Baystate I.
10

plaintiffs allege, they would not have purchased the First Trade

mortgage. This claim is belied by AmRhein's knowledge and state

of mind, which was fully litigated in Baystate I.

There is no dispute that the parties in Baystate I fully

litigated the issue whether the trust was a bona fide purchaser

such that it should be shielded from the doctrine of equitable

subrogation. An essential issue inherent to this consideration

was the innocence of the trust. The trial judge in Baystate I

determined that the trust was not a bona fide purchaser for

value, but rather was an entity formed as part of the ploy to

take advantage of Waldstein's mistake (in failing to obtain a

subordination of the First Trade mortgage) and wipe out the

junior Countrywide liens. As found by the trial judge, AmRhein

already knew, or should have known, of Countrywide's claim to

the first lien position, and that Countrywide or its assignee

would pursue its claim to first priority. The statements in the

affidavit regarding the first and second lien positions "were

known already and were easily ascertainable," and AmRhein knew

that First Trade was in the superior position solely through

Waldstein's mistake or negligence. Furthermore, AmRhein spoke

to Waldstein about the contents of the affidavit and the

substance of the First Trade purchase. Thus, Baystate I

established that AmRhein knew of the existence of the U.S. Bank

claim and that the purported misrepresentation (the omission
11

from the affidavit of the "existence" of the U.S. Bank claim)

had been litigated and resolved on the merits. In light of this

determination in Baystate I, the plaintiffs' claim of reasonable

reliance in the present case fails as a matter of law. We thus

agree with the motion judge's conclusion that the "plaintiffs'

claim that they relied upon Waldstein's representations was

fully litigated (and rejected) in [Baystate I]." Accordingly,

the plaintiffs are precluded from relitigating this issue.

The plaintiffs insist, however, that even if they had

actual knowledge of Baystate I, the inquiry does not end there.

They advance two theories to try to salvage their argument that

their reliance upon the affidavit was nonetheless reasonable.

The claims are without merit.

First, they allege that their reliance was reasonable

because Waldstein, as an attorney, had a duty to advise them of

the U.S. Bank claim of priority in Baystate I. The affidavit

merely states, in relevant part, that the First Trade mortgage

was in first position, the Countrywide mortgage was in second

position, and a subordination of the First Trade mortgage to the

Countrywide mortgage was prepared but "never executed and does

not exist to [Waldstein's] knowledge." As determined in

Baystate I, AmRhein already knew all of this information.

Waldstein's representations, drafted by AmRhein's attorney no

less, do not aver that the mortgage priorities would remain in
12

the same position. Contrast Kirkland Constr. Co. v. James, 39

Mass. App. Ct. 559, 562-564 (1995) (reversing allowance of rule

12[b][6] motion to dismiss where nonclient plaintiff alleged

that defendant-lawyers induced it into contract, intended that

plaintiff would rely on their allegedly false written

representations, and plaintiff reasonably so relied).

Furthermore, the trial judge in Baystate I discredited AmRhein's

contention that he and Waldstein did not discuss the contents of

the affidavit or the substance of the proposed purchase of the

First Trade mortgage. The plaintiffs' claim of reliance also

ignores the finding that their actions were part and parcel of

the "plan" to eliminate the junior mortgages. Thus, their

argument is unpersuasive.

Second, the plaintiffs allege that even if their reliance

on the affidavit was tantamount to wilful blindness, their

misrepresentation claim should survive the rule 12(c) motion.

At oral argument before this panel, the plaintiffs cited McEvoy

Travel Bureau, Inc. v. Norton Co., 408 Mass. 704 (1990), to

support this contention.

McEvoy Travel Bureau, Inc., involved a distinctive set of

facts and does not stand for the proposition proffered by the

plaintiffs.7 There, the Supreme Judicial Court held that in view

7
Nearly seventeen years after its decision in McEvoy Travel
Bureau, Inc., the Supreme Judicial Court characterized it as
13

of the thirty-year relationship between the parties and the

commitments already undertaken by the plaintiff at the

defendant's request (which included moving its office to the

defendant's building at considerable expense, hiring necessary

extra personnel, and purchasing computer systems and equipment),

the plaintiff could have reasonably relied on the defendant's

representations that it would not invoke a sixty-day termination

clause that it described as "inoperative" and "meaningless."

Id. at 708. Thus, McEvoy Travel Bureau, Inc., does not support

the contention that reasonable reliance may be predicated on

wilfully blind acceptance of a third party's representation,

which is known by the relying party to be false. Indeed,

Massachusetts law is to the contrary. See Kuwaiti Danish

Computer Co. v. Digital Equip. Corp., 438 Mass. 459, 468 (2003),

citing Restatement (Second) of Torts § 541 (1977) ("The

recipient of a fraudulent misrepresentation is not justified in

relying upon its truth if he knows that it is false or its

falsity is obvious to him"). Moreover, the present case does

not fall into the category of cases where parties are trying to

conceal or lull other parties into ignoring obvious red flags.

"the only recent case where this court has upheld a
misrepresentation claim in the face of a written contract."
Masingill v. EMC Corp., 449 Mass. 532, 541 (2007). The detailed
facts of McEvoy Travel Bureau, Inc., supra at 706-709, are
summarized in Masingill, supra at 541-542, and we need not
repeat them here.
14

Ibid. The alleged misrepresentation in the present case

consisted of the failure of Waldstein to disclose, in the

affidavit prepared by AmRhein's attorney, the existence of a

priority dispute that was already known to AmRhein. This

alleged "omission" could not have concealed the existence of

facts already known to AmRhein.

b. Identical issues. The plaintiffs argue that because

the issue of reasonable reliance was neither raised nor

litigated by the parties in Baystate I, the issues decided there

could not have been identical to the issue in the current

adjudication. Because we hold, as discussed supra, that the

issue of reasonable reliance was actually litigated in Baystate

I, the argument is unavailing. Furthermore, "even if there is a

lack of total identity between the issues involved in two

adjudications, the overlap may be so substantial that preclusion

is plainly appropriate." Commissioner of the Dept. of

Employment & Training v. Dugan, 428 Mass. 138, 143 (1998),

citing Restatement (Second) of Judgments § 27 comment c (1982).

Here, the overlap is clear, as the critical issue in both cases

was the plaintiffs' knowledge and awareness of the existence of

the priority dispute. See id. at 142-143 (findings made in

prior disciplinary adjudication regarding employee's conduct and

state of mind precluded her from contesting in subsequent

proceedings whether she had engaged in deliberate misconduct).
15

Accordingly, the issue raised in the present action was

sufficiently identical to those litigated in Baystate I for

purposes of issue preclusion.

c. Essential to the judgment. As discussed supra, the

critical issue in Baystate I and the present action was whether

AmRhein knew of the existence of the U.S. Bank claim. In

Baystate I, the trial judge found, inter alia, that AmRhein knew

or should have known that U.S. Bank would pursue its claim to

first priority and knew that First Trade's superior position was

due solely to Waldstein's mistake. We agree with the motion

judge that this "finding (which obviously leads to the

conclusion that the plaintiffs did not rely on Waldstein's

representations) was essential to the determination [in Baystate

I] that US Bank was entitled to equitable subrogation because it

meant that the Trust was not an innocent purchaser of the First

Trade mortgage."

4. Conclusion. For the reasons stated, we conclude that

the motion judge properly determined that the plaintiffs'

misrepresentation and G. L. c. 93A8 claims were barred by the

doctrine of issue preclusion.

Judgment affirmed.

8
The plaintiffs make no attempt to distinguish the
applicability of issue preclusion to their G. L. c. 93A, § 11,
claim from its applicability to their misrepresentation claims.
Thus, any such argument has been waived. See Mass.R.A.P.
16(a)(4), as amended, 367 Mass. 921 (1975).