Opinion
11-P-245
02-28-2012
INTERNATIONAL FIDELITY INSURANCE CO. v. STEPHEN F. VAZZA & others.
NOTICE: Decisions issued by the Appeals Court pursuant to its rule 1:28 are primarily addressed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, rule 1:28 decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28, issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
International Fidelity Insurance Co. (International) brings this interlocutory appeal, pursuant to G. L. c. 231, § 118, second par., from the denial of its motion for a preliminary injunction to secure assets belonging to the defendants, Stephen F., Richard W., and Janine P. Vazza. International's asserted rationale for seeking the injunction was to protect its right of indemnity should it be required to make payments under surety bonds issued to the defendants in their capacities as personal representatives of the estate of their father, Richard R. Vazza (Vazza). Discerning no error of law, abuse of discretion, or misapplication of the factors governing the consideration of a request for preliminary injunctive relief, we affirm.
Background. On July 10, 2007, Vazza, a Florida resident, died unexpectedly, leaving five adult children, including the three defendants who reside in Massachusetts. In connection with the Vazza estate, which is being probated in Florida, International issued two surety bonds -- the first on behalf of Stephen, as 'curator' or temporary representative of the estate, and the second on behalf of all five Vazza children, whom the Florida Probate Court later appointed to be the estate's permanent personal representatives.
Vazza was a real estate developer who had personally guaranteed a number of financing agreements made in connection with his business. His two sons, Stephen and Richard W., worked with him and provided construction management services for their father's real estate projects. When Vazza died, the estate had to be approved by the lenders as a replacement guarantor. After a period of cooperation between the lenders and the estate in an effort to keep the projects afloat, two banks became disenchanted with the management of the projects. On or about August 17, 2009, one bank notified International that it planned to make a claim against the bond issued on behalf of the personal representatives, based upon their alleged dissipation of estate assets. Shortly thereafter, a second bank filed a complaint in the Florida Probate Court seeking to remove the personal representatives and to impose a surcharge against them for alleged misappropriation in excess of $6,000,000.
On May 28, 2010, citing a provision in the indemnity agreements executed by the personal representatives as a condition of obtaining the bonds, International demanded that the personal representatives provide International with collateral security of $2.4 million on the personal representative bond, plus $1.2 million on the curator bond. When they refused to do so, International brought this suit, seeking specific performance of the collateral security provision, indemnity as to future payments it may be required to make under the bonds, and prejudgment injunctive and other relief (attachments and trustee process).
The provision states that the indemnitors agree '[t]o deposit with the Surety on demand an amount sufficient to discharge any claim made against the Surety on this bond or undertaking. This sum may be used by Surety to pay such claim or be held by Surety as collateral security against loss or cost on this bond or undertaking.'
After hearing, a judge of the Superior Court concluded that International had failed to show sufficient likelihood of success on the merits of its claim for specific performance of the collateral security provision and declined to grant any prejudgment relief. More particularly, the judge ruled that the merits were governed by Florida law, that Florida precedent required International to show that it realistically faced a loss on its bond before being entitled to collateral security, and that International had failed to make that showing.
Discussion. 1. Standard of review. A decision on a request for a preliminary injunction is reviewed for abuse of discretion. Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 615-616 (1980). We examine the same factors as those required to be considered by the judge in the first instance (likelihood of success on the merits, irreparable harm), and consider whether the judge applied proper legal standards and whether the record discloses reasonable support for his evaluation of factual questions. Edwin R. Sage Co. v. Foley, 12 Mass. App. Ct. 20, 25 (1981).
2. Choice of law. The judge did not err in concluding that, pursuant to the functional choice of law approach adopted in Bushkin Assocs., Inc. v. Raytheon Co., 393 Mass. 622, 631-636 (1985), and guided by principles of the Restatement (Second) of Conflict of Laws (1971), Florida law governs the question of International's right to collateral security. Whether analyzed in terms of the specific Restatement provision pertaining to contracts of suretyship, § 194, or more global Restatement provisions, such as § 188, pertaining generally to contracts, and § 6, setting forth overarching choice-of-law principles, it is plain that Florida -- the State where the bond became effective when approved by the Florida court, the duties guaranteed by the bond are being performed, and the claims against the bond have been brought -- has the most significant relationship to the transaction and the parties, and the greatest interest in applying its law to the issue in question.
Under § 194, where the bond agreement is silent as to which State's law should apply, the applicable law is that governing the principal obligation which the contract of suretyship was intended to secure, unless another State has a more significant relationship to the transaction and the parties.
See Restatement (Second) Conflicts of Law § 194; CBS, Inc. v. Film Corp. of Am., 545 F. Supp. 1382, 1386 (E.D. Pa. 1982)
International overstates the significance of Massachusetts as the residence of the defendants and the place where their assets are located. Notably, the Vazza estate has five personal representatives in identical positions vis-a-vis International and the underlying dispute with the bank creditors. Three live in Massachusetts, one lives in Arizona, and one lives in California. Choosing the applicable law based upon the residence of the potential indemnitors would undermine the achievement of 'certainty, predictability and uniformity of result.' Restatement (Second) Conflicts of Law § 6(2)(f).
3. Right to collateral security. Relying upon Florida precedent, Transamerica Premium Ins. Co. v. Cavalry Construction, Inc. 552 So. 2d 225, 227 (Fla. Dist. Ct. App. 1989), the judge correctly analyzed the showing that International was required to make in order to be entitled to collateral security, namely that 'the surety realistically faces loss under [its] bond and is in jeopardy.' Here, International relied simply upon the claims as made by the banks, and, as in Transamerica, 'failed to flesh out the nature and approximate amount of the claims and liabilities it might reasonably anticipate under the bond.' Ibid. On the other hand, the defendants provided substantial documentary evidence that the banks' claims were unlikely to result in loss to International, because the banks knew and consented to the continued management of the Vazza real estate projects by Stephen and Richard W., and to the steps taken by the personal representatives to bring the projects to fruition. On the record presented, the judge did not abuse his discretion in concluding that International had failed to demonstrate sufficient likelihood of success on the merits of its specific performance claim to warrant injunctive relief.
Although the judge's decision did not address the issue of irreparable harm, he would have been entitled to deny injunctive relief on that basis, as well. International has not shown any risk that the defendants, who have considerable assets, would not be in a position to comply with a judgment in its favor.
Order denying motion for a preliminary injunction affirmed.
By the Court (Grasso, Cohen & Carhart, JJ.),