Opinion
No. 12–P–233.
2013-06-17
MFT CORPORATION & another v. BNB GROUP BOSTON, INCORPORATED, & another.
The judge's later rulings indicate that he was attempting to apply that formulation, not to modify it. At the same time, while we disagree with Pezzano that the judge instead decided to apply a loose “totality of the circumstances” formulation, it does not follow that Benson is entitled to all of the damages he now claims. We turn now to the particular elements of damages at issue.
By the Court (MEADE, MILKEY & HANLON, JJ.).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
This case involves the Assaggio restaurant in the North End of Boston. The defendants took over the operation of the restaurant from the plaintiffs until the contractual arrangement between them fell apart. Following a jury-waived trial, a Superior Court judge ruled that both sides were at fault in various respects, and that each side was entitled to some damages and attorney's fees from the other. After a lengthy series of posttrial motions, the judge entered a final judgment requiring the plaintiffs to pay the defendants a total of $27,083.11 (a net figure derived from the individual damages and attorney's fees each side owed). On cross-appeals, the parties argue that the judge erred in determining the specific amount of damages and attorney's fees due, and that the judgment should be modified accordingly. For the reasons set forth infra, we conclude that the amount of the judgment should be modified. Background. As drawn from the judge's findings, the facts are as follows. As of 2005, Assaggio was owned by plaintiff Frank Pezzano, and operated by his company, plaintiff MFT Corporation (MFT). According to MFT's 2004 tax return, the restaurant turned only a very modest profit that year ($6,000). Pezzano approached defendant Andrew Benson, a regular customer of the restaurant, about taking over the business. Benson had never run a restaurant but had achieved business success in other spheres. Under the arrangement they worked out, Benson would lease the restaurant from Pezzano beginning on October 3, 2005, for a period of just over three years (with extensions possible).
Under the executed lease, Benson would pay annual rent of $144,000 (which was twice the rent that MFT had been paying to Pezzano). In addition, pursuant to a separate management contract, Benson agreed to pay an annual management fee to MFT of $126,000 ($10,500 per month), and to cover the restaurant's ongoing expenses, including real estate taxes. In return, Benson could reap any profits.
Benson leased the property through his company BNB Group Boston, Incorporated, while providing a personal guarantee. For convenience, we will refer to Benson and his company collectively as Benson.
Whether the restaurant would be able to turn any profit was a live question given the restaurant's track record in 2004, and the fact that its future expenses would be increased significantly by Benson's having to pay the management fees, real estate taxes, and twice the previous rent.
In convincing Benson to enter into the arrangement, Pezzano told him that the 2004 tax return did not accurately represent the restaurant's profitability, because he had a practice of including on his tax returns for Assaggio some $150,000 in expenses that were actually attributable to other restaurants that he owned.
The restaurant would no longer have to pay Pezzano an annual salary, but those savings amounted to only $26,000.
That representation was false.
Benson also claimed that Pezzano told him that he had underreported the restaurant's 2004 income by another $150,000, netting actual profits of over $300,000. The judge did not credit that testimony.
Pezzano made two other false representations to Benson. One was that the restaurant was being transferred to Benson's control free of any debt to its suppliers (in fact, $56,000 in trade debt was owed). The other was that the restaurant equipment was new and in good working order (in fact, Benson incurred another $56,000 in unexpected equipment maintenance and repairs expenses during his short tenure).
By January, 2006 (that is, three months after the restaurant changed hands), Benson began to appreciate the difficulties of keeping the restaurant in the black. Pezzano offered to allow Benson to “turn over the keys” and walk away from the deal, an offer that Benson stated he turned down because he had already invested $250,000 of his money into the restaurant. Pezzano then agreed to waive the monthly management fee for three months (January, February, and March). Come April, Benson had become “increasingly disillusioned” about the restaurant's profitability, and he refused to resume payment of the management fee. The following month, he stopped paying rent. MFT served Benson with a notice of default under the management contract on May 18, 2006, and served a notice to quit on June 15, 2006. Benson would not leave, prompting Pezzano to file the current contract action, as well as a summary process action in the Boston Municipal Court. After trial, the judge in the summary process action entered judgment in Pezzano's favor, which engendered various appeals. Benson eventually vacated the premises on or about November 30, 2006, although the summary process litigation continued for over two more years.
The principal dispute was over which party should receive the $30,000 appeal bond that Benson had posted following the dismissal of the appeal based on the failure of Benson to post additional security. That issue eventually was resolved in Pezzano's favor by an unpublished memorandum and order of this court in 2009. See Pezzano v. BNB Group Boston, Inc., 73 Mass.App.Ct. 1127 (2009).
Meanwhile, the current action went to trial, and the judge issued a detailed and thoughtful ruling on June 18, 2009. He concluded that Pezzano had made the three specific misrepresentations detailed above, that these were actionable pursuant to G.L. c. 93A, § 11, and that Benson was entitled to damages for these misrepresentations on a “benefit of the bargain” basis (as well as attorney's fees). See Rice v. Price, 340 Mass. 502, 507–511 (1960). However, the judge declined to order multiple damages, because he concluded that Pezzano believed the three representations to be true when he made them. The judge also ruled that Benson had breached his contractual obligations by failing to pay rent and management fees, and by leaving the restaurant with unpaid debts in a yet-to-be-determined amount. The judge closed his ruling by noting that the precise amount of net damages and attorney's fees would be determined at later proceedings, and by encouraging the parties to resolve the remaining dispute by mediation.
The plaintiffs filed a motion “for correction” of the judge's ruling, arguing that they were entitled to attorney's fees under the lease. By order dated October 26, 2009, the judge allowed that motion, concluding that “to the extent the plaintiffs have incurred attorneys' fees in securing a judgment against the defendants for unpaid rent and management fees under the lease ... plaintiffs are entitled to recover those amounts (subject to the lease's requirement that they be ‘reasonable’).” The plaintiffs thereafter filed an application seeking $183,674.67 in attorney's fees and costs, of which the judge eventually awarded $46,322. Benson filed an application seeking $115,213.59 in fees and costs, of which the judge awarded $90,225. Further details of the judge's ruling on attorney's fees are reserved for later discussion.
After having resolved the issues regarding attorney's fees, and after having determined specifically how much debt Benson left behind when he vacated the premises (an issue contested below but no longer in dispute), the judge proceeded to attempt a final tally. This led to dizzying rounds of motions by both parties asking the judge to reconsider or correct his calculations. Each side argued that—by including or excluding various items in his calculations—the judge erred as a matter of fact, law, or arithmetic. The judge accepted some of these arguments and rejected others, and entered a final judgment on October 22, 2010.
Discussion. A. The elements of Benson's damages. As is set forth below, it is difficult to square what the judge initially said about how Benson's damages should be calculated with some of the details of what he subsequently did in determining those damages. Benson accepts the judge's initial formulation and portrays his straying from it as error. In contrast, Pezzano portrays the judge's initial formulation as merely preliminary, and he suggests that the judge ultimately followed a loose “totality of the circumstances” approach.
As an initial matter, we generally agree with Benson that the judge did not think he was changing his mind in how he was approaching the damages issues. Although the judge did not in his initial order determine the specific net amount of damages that Benson was due, he did lay out with particularity how such damages were to be calculated:
“[T]he total amount of Benson's recovery, if any, is equal to the sum of the costs Benson was told he would not have to bear (including the costs Pezzano said he passed through Assaggio from other restaurants, the debts Benson was told he would not have to bear, and the additional costs for maintenance and repair he could not have expected to pay), less the amounts he owed Pezzano for rent, the management fees, and debts to suppliers and vendors he incurred during his tenure at Assaggio, and that were left unpaid when he vacated the premises on November 30, 2006.”
The judge's later rulings indicate that he was attempting to apply that formulation, not to modify it. At the same time, while we disagree with Pezzano that the judge instead decided to apply a loose “totality of the circumstances” formulation, it does not follow that Benson is entitled to all of the damages he now claims. We turn now to the particular elements of damages at issue.
1. Trade debt of $56,000. As noted, the judge found that Pezzano had misrepresented that the restaurant was free and clear of debt when it was transferred to Benson, when in fact it owed trade debt of $56,000 (which Benson had to pay).
Benson argues that the judge recognized that he would be entitled to reimbursement of this money in his initial ruling, but then erred by not including that as an element of damages in his final calculation. We agree.
Based on industry custom as to when a trade debt is considered “due,” Pezzano argues in passing that the judge erred in finding that Pezzano had misrepresented that there was no outstanding trade debt. The judge's finding was not clearly erroneous. Moreover, Pezzano's argument is inconsistent with his litigation position (adopted by the judge) that Benson was responsible for paying all of the trade debt incurred on his watch.
As part of the final judgment, Benson was required to pay all the unpaid debts the restaurant incurred during his tenure, and there is no reason Benson also should have to pay the debts incurred before his tenure. The explanation the judge offered for why he was not including the $56,000 in outstanding trade debt is untenable. The judge stated that “[t]he $150,000.00 award to the defendants for Misrepresentation Costs includes all unpaid trade debt” and that “[t]here is no additional $56,000 to be added to the $150,000.” However, as reflected in the judge's initial ruling, the $150,000 element of damages was for Pezzano's separate misrepresentation about his practice of padding the tax forms for Assaggio with expenses from other restaurants; it had nothing to do with his misrepresentation about there being no outstanding trade debt for Assaggio. Therefore, Benson's damages must be increased by $56,000, to which $27,450.74 in interest should be added (netting an overall increase in Benson's damages and interest of $83,450.74).
The issue of how interest should be calculated under the circumstances of this case was hotly contested below. The judge concluded that interest would accrue on the plaintiffs' damages at twelve percent from April 1, 2006, until September 1, 2010, and on defendants' damages at twelve percent from August 1, 2006, until September 1, 2010, with no interest to accrue thereafter and no interest on the respective attorney's fees recoveries. Neither side has challenged the judge's ruling on the interest calculations.
2. Annualized treatment of the $150,000. Benson also argues that because the judge found that Pezzano misrepresented Assaggio's income potential by $150,000 per year, he should have calculated damages on that basis as well. Specifically, Benson argues that he should be credited pro rata additional damages for the almost two-month period he stayed in possession beyond a year. There is some force to this argument. However, there is also some force to the counter argument that Benson should not be entitled to such ongoing expectation damages on an indefinite basis so long as he held over possession. In this regard, we note that by the time the “extra” two months came into play, the summary process judgment had already been entered. In addition, Pezzano unilaterally had agreed to modify the original arrangement by waiving three months of management fees (thus mitigating Benson's damages).
Under these circumstances, we conclude that the judge did not abuse his discretion in deciding not to treat the $150,000 damages element on a fully annualized basis. See Twin Fires Inv., LLC v. Morgan Stanley Dean Witter & Co., 445 Mass. 411, 424–425 (2005) (amount of damages is factual issue reviewed for abuse of discretion); Anzalone v. Strand, 14 Mass.App.Ct. 45, 48 n. 2 (1982), quoting from Rice v. Price, 340 Mass. 502, 509 (1960) (“benefit of the bargain” damages “may be modified or supplemented to prevent injustice”).
In fact, the amount of the waived management fees ($31,500) exceeds the additional amount of damages that Benson is seeking on an annualized basis. Pezzano has waived any argument that he is entitled to recover any excess.
3. Equipment repairs. Pezzano briefly argues that Benson should receive no credit for the $56,000 in equipment maintenance and repairs, because any reliance that Benson made on his representations about the state of the equipment was not “reasonable” in the circumstances.
The judge's finding to the contrary is not clearly erroneous.
For example, Pezzano argues that had Benson performed ordinary due diligence, he would have uncovered significant equipment-related expenses incurred in pre–2004 tax years.
To be sure, the amount of due diligence that Benson performed before signing the contracts could be characterized as surprisingly light, especially given his business background. However, there was testimony that Benson sought and was denied additional information, and, in any event, Pezzano was aware that Benson had no background in running a restaurant.
B. Multiple damages. We need not dwell long on Benson's argument that the judge was required to impose multiple damages for Pezzano's c. 93A violations. As we said almost two decades ago, “[w]e do not read the c. 93A cases as mandating that the multiple damages bonus be automatically imposed for any and all forms of misrepresentation. Rather, it is only when the acts of misrepresentation amount to ‘intentional fraud’ that the severe sanction is appropriate.” VMark Software, Inc. v. EMC Corp., 37 Mass.App.Ct. 610, 623 (1994). As Benson accurately points out, some of the judge's subsidiary findings are suggestive of intentional fraud by Pezzano. However, the judge ultimately concluded that Pezzano honestly believed the three misrepresentations to be true when he made them. See Jeffco Fibres, Inc. v. Dario Diesel Serv., Inc., 13 Mass.App.Ct. 1029, 1031 (1982) (multiple damages not warranted where defendant actually believed his representations). Moreover, the judge reached that conclusion after having had the opportunity to observe Pezzano testify at length. We cannot reasonably say that the judge's finding was clearly erroneous, especially where it rests predominantly on a credibility determination.
Benson points out that, with respect to one of the misrepresentations, the judge may have credited Pezzano with knowledge his accountant uncovered only years later. This is not enough to render the judge's finding about Pezzano's honest belief clearly erroneous.
C. Attorney's fees. 1. Whether Pezzano is entitled to any attorney's fees. As noted, the judge ruled that Pezzano contractually was entitled to attorney's fees based on the terms of the lease. Benson concedes that the language of the lease allows Pezzano to collect attorney's fees for some sorts of tenant defaults, but maintains that it does not apply to defaults for nonpayment of rent.
We disagree. Although the lease may not be a model of draftsmanship, Benson's parsing of the contractual language is unreasonable.
Benson does not challenge the amount of the fees that the judge awarded to Pezzano.
The lease provides:
“If the LESSEE shall default ... in the observance or performance of any conditions or covenants on LESSEE's part to be observed or performed under or by virtue of any of the provisions in any article of this lease, the LESSOR ... may remedy such default ... at the expense of the LESSEE. If the LESSOR makes any expenditures ... in connection therewith, including but not limited to reasonable attorney's fees in instituting, prosecuting or defending any action or proceeding, such sums ... shall be paid to the LESSOR by the LESSEE as additional rent.”
The summary process action was an “action or proceeding” undertaken to remedy Benson's breach of the lease (by failing to pay both rent and property taxes). Pezzano is therefore entitled to collect the attorney's fees from that action.
2. Whether Pezzano's fees should be increased. As noted, the judge reduced Pezzano's fees request from $183,674.67, to $46,322. The judge gave two principal reasons for the reduction. First, the judge had previously indicated that Pezzano could recover only those fees incurred in enforcing his rights under the lease, not in defending against Benson's claims of misrepresentation. Pezzano's fees application attempted no apportionment of the hours the attorneys spent between recoverable and nonrecoverable time. Without such information, the judge determined that a fifty percent allocation was appropriate. Second, the judge determined that the hourly rate of $350 charged for an attorney admitted to the Massachusetts bar in 2006 was excessive, and he reduced that rate to $200. On appeal, Pezzano accepts both grounds for reduction, and makes only a very limited argument as to why his fees award should be increased. As he accurately points out, the judge stated that Pezzano was seeking attorney's fees for 452.65 hours of total attorney time (the amount of time claimed by the attorney whose rate the judge reduced). This statement is inaccurate. Pezzano was also seeking recovery for forty-one hours of work spent by a second attorney who did extensive work on the case, including, for example, drafting the complaints in both this case and the summary process case. We agree with Pezzano that the judge appears simply to have overlooked the affidavit submitted by this second attorney.
Applying the fifty-percent discount factor the judge used, and an hourly rate of $300,
There is no evidence in the record to support Benson's view that the judge consciously rejected the hours spent by the second attorney because he had not filed an appearance or for any other reason.
we conclude that Pezzano's fees request should be increased by $6,150.
Pezzano put forward this rate in his appellate brief. He argues that it is a conservative rate for the second lawyer, who has thirty-five years of litigation experience, but that it is also commensurate with the judge's treatment of the hourly rates for Benson's counsel. Benson does not argue that the $300 rate is excessive, and we therefore accept it.
3. Whether Benson's fees should be reduced. As noted, the judge reduced Benson's request for attorney's fees and costs from $115,213.59 to $90,225. The reductions were due to two factors. First, the judge reduced the hourly rates for some of the people whose time was being charged. Second, the judge declined to allow any credit for a former attorney whose time was inadequately documented. Otherwise, the judge deemed all of the requested attorney hours recoverable, even though Benson acknowledged that approximately twenty-five percent of his firm's time could be attributed to work on the summary process case and related appeals.
We agree with Pezzano that Benson is not entitled to attorney's fees pursuant to c. 93A for work done on the summary process action and the related appeals. See Drywall Sys., Inc. v. ZVI Constr. Co ., 435 Mass. 664, 673 (2002), quoting from Miller v. Risk Mgmt. Foundation of the Harvard Med. Insts., Inc., 36 Mass.App.Ct. 411, 421 (1994) (c. 93A “authorizes the award of attorney's fees ‘incurred in connection with said action’ [i.e., the G.L. c. 93A action], but not for other actions”). Of course that rule has special force where, as here, the party seeking fees lost the other action. Therefore, Benson's attorney's fees should be reduced by $22,556.25 (twenty-five percent of $90,225). In addition, we agree with Pezzano that Benson cannot show that he incurred $1,070 in filing fees for the c. 93A action (which was brought as a counterclaim). Thus, Benson's attorney's fees award should be reduced by $23,626.25.
Pezzano additionally argues that once Benson's attorney's fees and costs attributable to the summary process action and related costs are taken off, the remainder of Benson's request cannot stand, because not all the work performed on the present action can be attributed to the successful prosecution of the
c. 93A case, and Benson did not attempt to break down the time into recoverable and nonrecoverable categories. In the alternative, Pezzano argues that the judge should have discounted Benson's fees by the same fifty-fifty ratio he applied to Pezzano's fees. We disagree.
That Benson never paid the rent and management fees in the relevant months was never actively contested, and that debt was in any event established by the summary process action. Our review of the trial transcript in the current action confirms that the current case was fundamentally about Benson's misrepresentation and about how any damages based on them should be measured. To the extent that the present action touched on Pezzano's action for breach of contract, that claim was factually intertwined with Benson's misrepresentation claims. We conclude that while the judge should not have allowed Benson the fees incurred in the summary process action (and related appeals), the judge did not abuse his discretion in awarding Benson his remaining fees. Cf. Twin Fires Inv., LLC v. Morgan Stanley Dean Witter & Co., 445 Mass. at 430–432 (affirming order that did not apportion fees where the judge “determined that the common-law claims and the claims under G.L. c. 93A were largely predicated on identical facts, and thus that the legal effort to establish the two classes of claims was virtually the same”).
Nor was the judge required to employ the same fifty-fifty discount that he applied to Pezzano's fees. Unlike Benson, Pezzano made no effort to segregate the time his attorneys worked on this action from that on the other actions, and, in the end, Pezzano was able to recover fifty percent of the total time his attorneys spent on all the actions. Given the nature of the issues in play, Pezzano's being credited with reimbursement for fifty percent of his overall fees was, if anything, generous to him. Had the judge attempted a refined apportionment of the relative time that each side spent on the disparate aspects of the case, that would not have favored Pezzano.
4. Appellate fees. In his brief, Pezzano requested appellate attorney's fees under the lease. The only point on which Pezzano prevailed in this appeal with regard to his rights under the lease is a small increase in the amount of attorney's fees due. Assuming arguendo that Pezzano had a right to fees for that victory, we would decline to award them. That is because the amount of any such award would be more than offset by a corresponding award of fees to Benson .
Benson did not request appellate attorney's fees, and therefore waived them. However, in considering whether Pezzano should be awarded attorney's fees, it is appropriate to take into consideration the off-setting fees that Benson otherwise would have been entitled to.
Conclusion. For the reasons set forth above, Benson's damages and interest should be increased by $83,450.74, Benson's attorney's fees and costs should be reduced by $23,626.25, and Pezzano's attorney's fees and costs should be increased by $6,150. When these figures are offset against each other and the result is added to the figure in the existing judgment, it nets a new figure of $80,757.60 that the defendants are owed. Accordingly, the final judgment is to be modified by deleting the amount of $27,083.11 and substituting therefor the amount of $80,757.60. As so modified, the final judgment is affirmed.
So ordered.