Opinion
16-P-188
01-27-2017
DAWN RESTAURANT GROUP, INC. v. LA BOCA CORPORATION.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Following a jury-waived trial in Superior Court, judgment entered for the plaintiff/tenant, Dawn Restaurant Group, Inc. (DRG), on its claims for declaratory judgment and breach of contract. The defendant/landlord, La Boca Corporation, appeals from the judgments, principally claiming that the judge misinterpreted the "buy-out" provision of the applicable lease. La Boca further argues that the judge erred in denying La Boca's motion to dissolve DRG's memorandum of lis pendens. We affirm the judgment, but reverse the order denying the motion to dissolve the memorandum of lis pendens.
Judgment entered for La Boca on DRG's additional claims of fraud/misrepresentation and violation of G. L. c. 93A, § 11, which are not at issue in this appeal.
Background . The judge's findings of fact, rulings of law, and order for judgment (findings), supported by the trial record, included the following. In January, 2009, La Boca purchased the property at 95-101 Plaistow Road in the city of Haverhill (the property) for $600,000. In 2009, DRG (through its principal, Daniel Traficante) and La Boca entered into negotiations to lease the property. DRG intended to open a casual dining restaurant on the property. During negotiations, the real estate agent representing La Boca presented a form triple net lease to Traficante, and advised him that La Boca's principal, King Weinstein, wanted to retain an option to terminate the lease at any time and sell the premises.
Weinstein and Traficante were both experienced businessmen. Weinstein had been in the real estate and property business for many years, while Traficante worked nearly thirty years in the restaurant business, having owned and operated a number of different eateries in various locales.
"Traficante viewed such an option as creating a tenancy at will, which was unacceptable to him. He did not want to put time and effort into improving the premises and establishing a business only to have the property sold out from under him with no compensation. Accordingly, he insisted on a provision that would require La Boca to reimburse him in the event of a termination of the lease."
Traficante thus drafted an addendum to the lease to address that issue, among others. The language in the addendum reflected "to some extent language that was suggested or insisted upon by Weinstein."
In June, 2009, DRG and La Boca signed a five-year triple net lease, with two additional five-year options. Shortly thereafter, they also signed the aforementioned lease addendum, which contained the following "buy-out" provision:
"In the event of a sale, [l]essor may terminate the lease upon 180 days notice and reimburse [t]enant the fair market value for the equipment, improvements and the business amortized over the term of the lease and extensions thereof."
When DRG took possession of the premises, they were in a state of disrepair, having been vacant for approximately two years with no working utilities. DRG repaired the premises, which delayed the opening of the restaurant from August 1, 2009 to late September, 2009. Traficante spent approximately $170,000, exclusive of labor and costs, to open the business.
The relationship between DRG and La Boca was initially good. "Weinstein visited the restaurant soon after it opened. He raised no concerns or objections about any of the work that had been done. To the contrary, Weinstein complimented Traficante on how the renovations had turned out." After about nine months, issues arose regarding DRG's obligations under the lease. Certain rent checks bounced and there were some tax and insurance issues. However, DRG cured all defaults promptly and La Boca, though sending notices of default, accepted all cures and never threatened to terminate the lease.
In June, 2010, Traficante decided to add a walk-up ice cream service at the restaurant. He discussed the renovation plans with Weinstein's agent, which Weinstein subsequently approved. Traficante spent approximately $40,000-$50,000 for the renovations.
In early August, 2010, Weinstein called Traficante, advised that he had an opportunity to sell the property, and asked Traficante if he would be willing to leave the premises. At this time, Weinstein disclosed neither that he had begun discussions in or around June, 2010, with a prospective purchaser who intended to open a "Sonic franchise" on the property, nor that in July, 2010, he had signed a purchase and sale agreement for the property at a price of $930,000. Traficante responded to Weinstein that he was willing to sell his business for $450,000. Weinstein replied that he would pay $50,000, but Traficante could keep his equipment and move the business elsewhere. Traficante responded with what he deemed a "bottom line" offer of $300,000 (not including the equipment). Weinstein rejected the proposal.
In a letter dated August 20, 2010, La Boca, through counsel, formally served a notice to quit on DRG. The letter, delivered to Traficante at his home by constable, informed DRG that the notice served as La Boca's "intention to exercise its rights pursuant [to] the [l]ease [a]ddendum, in the event of a sale of the premises." The letter further stated that "[t]his notice shall serve as [La Boca's] intention to terminate your tenancy because of a sale of the property. You are hereby notified you are requested to quit and deliver up the premises you now rent as tenant ... within 180 days of your receipt of this notice. Please forward [to] this office evidence of your equipment and your expenses paid for capital improvements and so that we are able to arrive at an appropriate value."
"Having been formally notified of the termination of the lease and of [its] obligation to vacate the premises within 180 days, [DRG] began proactively winding down the restaurant operation. [It] ceased all advertising that was not paid for in advance, and ... modified [its] ordering of goods and supplies to deplete [its] inventory as best [it] could." Furthermore, from early August, 2010, through the end of October, 2010, "it became common knowledge around Haverhill" that Sonic Restaurant intended to open up a franchise in DRG's space. On November 24, 2010, a "front-page story appeared in the Lawrence Eagle Tribune stating that Sonic was opening at [DRG's] former location." As a result of such information in the public domain, DRG's staff began leaving to find other opportunities and business fell off dramatically.
As requested by La Boca, DRG had an appraisal prepared, which concluded that the fair market value of the equipment, improvements, and business was $420,000. In a November 12, 2010, letter from its counsel, DRG timely provided the appraisal to La Boca. The letter further stated that "[i]n accordance with the Lease and your notice," DRG was prepared to vacate the premises by February 16, 2011.
By letter dated November 26, 2010, La Boca's attorney responded to DRG's letter and appraisal, advising that La Boca rejected the appraisal as too high, and that the notice to quit "is hereby rescinded." The letter further extended a counteroffer of $175,000. This counteroffer "was not based on any formal business valuation or review of [the restaurant's] financials. Rather it was based on Weinstein's own sense, based on his experience of the business's worth, as well as on advice Weinstein received from one of his business associates who had also bought and sold a number of businesses." DRG "replied to the purported rescission of the notice to quit/counteroffer via a G. L. c. 93A demand letter .... In it, counsel asserted that La Boca had no right to rescind the notice to quit and characterized its attempt to do so a bad faith attempt to leverage a better buyout and its counteroffer as unreasonable." More disagreements, attorney letters, and counteroffers ensued.
DRG filed a verified complaint against La Boca on January 11, 2011, and vacated the premises in February, 2011, within 180 days of DRG's receipt of La Boca's notice to quit. La Boca refused to purchase the restaurant business. After La Boca regained possession of the premises, the sale to Sonic fell through and La Boca relet the premises to another tenant.
Discussion . 1. Buy-out provision . The central issue on appeal is the interpretation of the phrase "in the event of a sale" in the buy-out provision of the lease addendum. La Boca contends that the phrasing is unambiguous and a consummated sale of the property was an unequivocal condition precedent of the buy-out provision, absent which there was no breach of contract by La Boca for refusing to buy out DRG. La Boca further argues that even if this court affirms the judge's determination that the phrasing is ambiguous, any ambiguity should be construed against Traficante, who purportedly drafted the lease addendum on behalf of DRG. Thus, La Boca insists, the judge erred in denying its motion to dismiss DRG's claims for breach of contract and declaratory judgment, and erred in entering judgment for DRG. We disagree.
A choice of law provision in the lease provides that the lease "shall be governed exclusively by the provisions hereof and by the laws of the State of Maine." The parties agreed at trial that breach of contract principles are consistent under Maine and Massachusetts law. Indeed, La Boca's counsel stated that "for all practical purposes, Maine Law and Massachusetts Law, we're all looking at the same thing. The rules are all the same, the concepts are all the same." Accordingly, the judge looked to Massachusetts contract law in the first instance, but also cited similar Maine case law in his findings. Neither party challenges the judge's application of Massachusetts law, and we discern no error in his doing so.
"Determining the existence of a contract ambiguity presents a question of law for the court." Bank v. Thermo Elemental Inc ., 451 Mass. 638, 648 (2008). "An ambiguity arises from language susceptible of different meanings in the eyes of reasonably intelligent persons." Browning-Ferris Indus., Inc . v. Casella Waste Mgmt. of Massachusetts, Inc ., 79 Mass. App. Ct. 300, 307 (2011). "Once a contractual ambiguity emerges, the meaning of the uncertain provision becomes a question of fact for the trier. The fact finder may then consult extrinsic evidence including the circumstances of the formation of the agreement and the intentions and objectives of the parties." Ibid . (citation omitted). In discerning the intent of the contracting parties, courts may look to their conduct. See id . at 309 ("There is no surer way to find out what parties meant, than to see what they have done") (quotation omitted). With respect to a condition precedent, "a court looks to the parties' intent to determine whether they have created a condition precedent." Massachusetts Mun. Wholesale Elec. Co . v. Danvers , 411 Mass. 39, 45 (1991). "To ascertain intent, a court considers the words used by the parties, the agreement taken as a whole, and surrounding facts and circumstances." Id . at 45-46. Furthermore, "[e]mphatic words are generally considered necessary to create a condition precedent that will limit or forfeit rights under an agreement." Id . at 46 (quotation omitted). With these rules of contract interpretation in mind, we now address La Boca's arguments.
In the context of this case, analysis of the ambiguous contract provisions and the existence of a condition precedent both required the judge to ascertain the parties' intent.
Contrary to La Boca's claim, the judge properly found that the buy-out provision was ambiguous because the phrase "in the event of a sale," did not define "whether DRG's right to payment of the fair market value of the business was triggered by the issuance of the formal notice to quit or only upon an actual consummated sale of the premises." La Boca responds that this ambiguity should be construed against Traficante who purportedly drafted the lease addendum on behalf of DRG. However, the judge found, and the record supports, that the language in the lease addendum was the consequence of both parties' respective concerns, "reflecting to some extent language that was suggested or insisted upon by Weinstein" on behalf of La Boca. Moreover, even assuming that Traficante drafted the language at issue, the judge properly gave little weight to that factor. See Browning-Ferris Indus., Inc ., supra at 309-310 (although courts will generally construe ambiguous contractual language against its author, that canon operates with less force where the language emerges from arms-length transactions between experienced business people).
La Boca further claims that the phrase "in the event of a sale," refers to a "consummated sale" of the property; that a consummated sale was a condition precedent to DRG's right to reimbursement for the fair market value of the business; and that the judge's interpretation rendered that phrase meaningless. We disagree. As the judge aptly found, La Boca's contention:
"makes no practical sense, and it would deprive DRG of much of the protection it sought by inclusion of the provision. Quite obviously, the 180-day period within which DRG was required to vacate the premises could not begin on the date that ownership of the property changed hands, as no sale could be completed until the tenant was gone. Recognizing that the parties necessarily understood that DRG would leave before the premises changed hands, if DRG had to wait until the completed closing for its right to compensation to vest it would be placed at grave risk if, for some reason or other, the sale fell through at the eleventh hour. It is inconceivable that DRG would then be held to the lease and have to restart its shuttered operation."
The judge properly looked to the behavior of the parties and noted that La Boca's actions "reflected a belief that the notice to quit was the triggering event of the rights and obligations under the buy-out] provision." These actions included La Boca's request for a valuation from DRG; the formality of the notice to quit, which was written by La Boca's attorney and delivered to Traficante's home by a constable; and La Boca's awareness that DRG was taking affirmative steps to shut down the business, to DRG's potential detriment. In short, La Boca's actions contradicted its claims on appeal, and La Boca's argument would render DRG's expressly bargained for protection illusory. Moreover, had the parties intended a consummated sale to be the triggering event, and not the notice to quit, they could have drafted the buy-out provision to say as much (e.g., "a consummated sale shall be a condition precedent to La Boca's obligation to pay DRG the fair market value of the business ...").
The judge also found that the buy-out provision was ambiguous because it did not specify "whether La Boca had a right to rescind the notice to quit after its issuance." The judge again looked to the parties' intent, and did not err in concluding that La Boca did not have a contractual prerogative to rescind the notice to quit. As the judge found, after La Boca served the notice to quit, and DRG took affirmative steps to comply and wind-down its operation in reliance thereon, La Boca "had no right to say, in effect, ‘never mind.’ Again, reading such a right into the termination provision would defeat to a significant extent the protection that DRG sought when negotiating for the provision." The record supports the judge's findings, and we discern no error. See Browning-Ferris Indus., Inc ., supra at 307-308 ("Any findings by the trial judge, especially upon matters of credibility, will receive usual deferential review under the ‘clearly erroneous' standard of Mass.R.Civ.P. 52(a), as amended, 423 Mass. 1402 [1996]").
2. Other claims . La Boca's remaining claims do not require lengthy comment. We are not persuaded by La Boca's claim that the judge erred in denying its motions to dismiss under Mass.R.Civ.P. 41(b)(2), as appearing in 470 Mass. 1402 (2015). "Our review, as in any case where the judgment is based on findings of fact under rule 52(a), is under the clearly erroneous standard." Mattoon v. Pittsfield , 56 Mass. App. Ct. 124, 139 (2002), citing Smith & Zobel, Rules Practice § 41.10 (1977). Here, La Boca argues that DRG's defaults and breaches of the lease covenants either excused La Boca from its performance obligations or precluded DRG from recovery.
Although the record reflects assorted defaults by DRG at various times, the record also reflects, and the judge found, that any such defaults were either cured or excused by La Boca and did not afford La Boca "a meritorious defense" to DRG's claim of breach. Moreover, as the judge noted, "La Boca never pursued termination of the lease because of any of DRG's conduct as a tenant. Rather, as noted, it invoked the buyout provision and issued a notice to quit thereunder." See, e.g., Kaplan v. Flynn , 255 Mass. 127, 131 (1926) ("Equity relieves against a forfeiture where no real fault is committed, or the breach is induced or waived by conduct"); DiBella v. Fiumara , 63 Mass. App. Ct. 640, 644 (2005) ("If the breach is insignificant or accidental, even if there is a default clause, our courts will not allow termination"). The judge's findings are supported by the record and are not clearly erroneous. See ibid . ("Whether a breach is material is normally a question of fact for the fact finder").
La Boca's claims that the judge erred in his damages calculation and in failing to strike the testimony of one of DRG's expert witnesses, are similarly unavailing. La Boca's contentions constitute challenges to the weight of the evidence, not its admissibility. New England Canteen Serv., Inc . v. Ashley , 372 Mass. 671, 675 (1977) (within trial judge's discretion to determine weight of evidence). See North Adams Apartments Ltd. Partnership v. North Adams , 78 Mass. App. Ct. 602, 607 (2011) (deference is given to trial judge's assessments of experts). The judge carefully considered extensive submissions from the competing experts, accepted part of the testimony from each, and rejected part of the testimony from each, eventually determining a compromise figure between the roughly $450,000 overly optimistic figure that DRG's expert posed and the unreasonably pessimistic figure proposed by La Boca's expert. See Haskell v. Versyss Liquidating Trust , 75 Mass. App. Ct. 120, 127 (2009) ("The trial judge is free to accept one opinion ... and reject another.... The judge may also decide not to adopt the opinion of any expert and determine valuation based on other evidence"). For the detailed reasons articulated in the judge's comprehensive findings, there was no error.
3. Lis pendens . Finally, La Boca contends that the judge abused his discretion in denying its motion to dissolve DRG's memorandum of lis pendens. General Laws c. 184, § 15, inserted by St. 2002, c. 496, § 2, provides, in relevant part, "Upon motion of a party, if the subject matter of the action constitutes a claim of a right to title to real property or the use and occupation thereof or the buildings thereon, a justice of the court in which the action is pending shall make a finding to that effect and endorse the finding upon the memorandum."
In the present case, a judge allowed DRG's "Ex Parte Motion for Attachment or, in the Alternative, Motion for Lis Pendens." La Boca subsequently filed a motion to dissolve the memorandum of lis pendens; it was denied by a second judge, who was also the trial judge. The record reflects that DRG did not assert a claim of right to title to the property or a claim to the use and occupation thereof. Rather, the claim was for money damages. Moreover, at the time the motion to dissolve was filed, DRG had vacated the premises. Accordingly, we must conclude that the motion to dissolve the memorandum of lis pendens should have been allowed. See Shrewsbury v. Seaport Partners Ltd. Partnership , 63 Mass. App. Ct. 272, 276-277 (2005).
DRG contends that the judge did not abuse his discretion in denying the motion to dissolve the memorandum of lis pendens because of the "need for security, as there was no insurance available and La Boca had only one known asset, the property which was involved in this case." This argument is unavailing, as it does not constitute a claim of right to title to the property or a claim to the use and occupation thereof.
We vacate the order denying the motion to dissolve the memorandum of lis pendens and remand to the Superior Court for proceedings consistent with this decision. The judgment is otherwise affirmed.
To the extent that we have not specifically addressed subsidiary arguments in La Boca's brief, they have not been overlooked. "We find nothing in them that requires discussion." Commonwealth v. Domanski , 332 Mass. 66, 78 (1954).
So ordered .
Vacated and remanded in part; affirmed in part