Opinion
23-P-471
08-22-2024
MITTAS EARLY LEARNING, LLC v. MDC PROPERTIES - WESTFORD RD, LLC, & another.[1]
Scott P. Fink for the plaintiff. Robert M. Shaw (Benjamin M. McGovern also present) for the defendants.
Heard: March 5, 2024.
Civil action commenced in the Superior Court Department on July 20, 2018. Motions for summary judgment were heard by Diane C. Freniere, J., and the case was heard by Camille F. Sarrouf, Jr., J.
Scott P. Fink for the plaintiff.
Robert M. Shaw (Benjamin M. McGovern also present) for the defendants.
Present (Sitting at Boston University School of Law): Green, C.J., Henry, & Ditkoff, JJ.
DITKOFF, J.
In this commercial lease contract dispute, the parties cross-appeal from a judgment after a partial summary judgment order and a bench trial in the Superior Court. We conclude that the partial summary judgment order interpreting the twice-amended contract was proper. Further concluding that the contract provision providing for actual damages "plus $500 per each day" for certain late work constitutes an unenforceable penalty and that the actual damages awarded were proven with reasonable certainty, we affirm. Pursuant to the parties' contract providing attorney's fees to the "prevailing party" to any lawsuit, we award each party appellate attorney's fees for work expended in defending the Superior Court judgment, either as appellee or cross appellee.
1. Background.
In 2013, a developer, FMP Realty Trust, and a franchisor entered into a commercial lease for a property in Tyngsboro, Massachusetts. The lease required the developer to build a child care center and obtain a certificate of occupancy within 180 days of receiving a building permit. The developer missed the deadline by almost two years.
In 2016, the developer and the franchisor signed an amendment to the lease (first amendment), which set a new deadline for a temporary certificate of occupancy and increased the rent. The first amendment would be "null [and] void" if the deadline was not met. The town building inspector verbally authorized the franchisor to move in furniture and furnishings by the deadline, but the certificate of occupancy issued thirty-five days late.
Once the building was occupiable, the developer assigned its rights and obligations to the landlord, MDC Properties -Westford Rd, LLC, and the franchisor assigned its rights and obligations to the tenant, Mittas Early Learning, LLC. In October 2016, pursuant to the lease, the tenant provided the landlord with written notice of unfinished work (punch list), which included heating, ventilation, and air conditioning (HVAC) maintenance issues, for the landlord to complete. The lease entitled the tenant to actual damages plus $500 per day punch list items remained uncompleted after thirty days.
In 2017, the parties executed a second amendment to the lease. The second amendment stated, "Except as expressly amended herein, all the terms and conditions of the Lease as amended shall remain in full force and effect and are hereby ratified and confirmed by the parties hereto." The second amendment required the landlord to repair and maintain the HVAC system. Nonetheless, the HVAC system remained inadequate until February 2020.
At $500 per day, starting thirty days after the punch list was provided, the lease required a payment of actual damages plus approximately $600,000 for the landlord's failure to remedy the HVAC problems sooner.
The tenant sued the landlord and the developer. A motion judge granted partial summary judgment to the defendants, holding that the first and second amendments were enforceable. After a bench trial, the trial judge found that the defendants committed a breach of the lease, as amended, and committed a breach of the implied covenant of quiet enjoyment by failing to resolve the HVAC issues and awarded the tenant $25,000 in actual damages, but not an extra $500 per day. Both sides appealed.
The judge also found that the defendants had not violated the implied covenant of good faith and fair dealing. The plaintiff does not challenge this finding on appeal.
2. Partial summary judgment.
a. Standard of review.
"We review a grant of summary judgment de novo to determine 'whether, viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to judgment as a matter of law.'" Cottrell v. Laidley, 103 Mass.App.Ct. 483, 489 (2023), quoting Chambers v. RDI Logistics, Inc., 476 Mass. 95, 99 (2016). We start by interpreting the contract. "The words of a contract must be considered in the context of the entire contract rather than in isolation," and "[w]hen the words of a contract are clear, they must be construed in their usual and ordinary sense." Brigade Leveraged Capital Structure PIMCO Income Strategy Fund, 466 Mass. 368, 373-374 (2013), quoting General Convention of the New Jerusalem in the U.S. of Am., Inc. v. MacKenzie, 449 Mass. 832, 835 (2007). Similarly, "every word is to be given force so far as practicable," Beninati v. Borghi, 90 Mass.App.Ct. 556, 563 (2016), quoting MacDonald v. Hawker, 11 Mass.App.Ct. 869, 872-873 (1981), to avoid rendering any "part useless or inexplicable." First Specialty Ins. Corp. v. Pilgrim Ins. Co., 8 3 Mass.App.Ct. 812, 819 (2013), quoting Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240, 245 (1986) .
b. Operability of the amendments.
The tenant argues that the first amendment is not operable because, under the terms of the first amendment, if the developer missed certain deadlines, the "Amendment shall immediately be deemed null, void, and of no further force or effect." The tenant alleges that the first amendment was breached when the landlord failed to "obtain at least a [temporary certificate of occupancy] on or before August 10, 2016." The tenant argues that, without the first amendment, it is entitled to over twenty-one months of free rent, one day of free rent for each day that the developer missed the original certificate of occupancy due date. We need not decide whether the first amendment would be void under its own terms because the second amendment revived the first amendment.
Under the second amendment, "[e]xcept as expressly amended herein, all the terms and conditions of the Lease as amended shall remain in full force and effect and are hereby ratified and confirmed by the parties hereto." This language was adopted by the parties after the deadline in the first amendment, so by its plain language, if the first amendment had become void, this provision revived it. This revival is further evinced by the prorated rent agreed to in the second amendment. The parties agreed to the pro rata amount of $3,215.72 for January rent starting January 3, 2017. This amount matches the higher amount due under the table in the first amendment, not the lower amount that would have been due under the unamended lease. Because the second amendment revived the first amendment, the rent tables in the first amendment are operable.
Another provision of the second amendment "waive[d], disclaim[ed], and release[d] any claim for default or breach of the Lease," contingent upon "performance of any and all obligations required" under the second amendment. The tenant argues that, under this provision, because the landlord breached the second amendment to the lease, the second amendment no longer revives the first amendment. This argument conflates different provisions of the second amendment. Although it is certainly true that, when the landlord breached the second amendment to the lease, the waiver of claims for breach of the lease failed, this provision does not impact the separate provision confirming that the lease remains amended by both the first and second amendments.
3. Damages.
a. Standard of review.
In reviewing a judgment entered after a jury-waived trial, we set aside the trial judge's findings of fact only if clearly erroneous. Goddard v. Gaucher, 89 Mass.App.Ct. 41, 44 (2016) . The trial judge's legal conclusions, however, are reviewed de novo. Id.
b. Liquidated damages.
A contractual provision that provides for a penalty for a breach of contract is unenforceable. See Nantasket Beachfront Condominiums, LLC v. Hull Redev. Auth., 87 Mass.App.Ct. 455, 469 (2015). A proper liquidated damages provision, however, is not a penalty. "'Liquidated damages' is a term derived from contract law to identify the amount of damages that the parties agree must be paid in the event of a breach." George v. National Water Main Cleaning Co., 477 Mass. 371, 375 (2017) . "When parties agree in advance to a sum certain that represents a reasonable estimate of potential damages, they exchange the opportunity to determine actual damages after a breach, including possible mitigation, for the 'peace of mind and certainty of result' afforded by a liquidated damages clause." NPS, LLC v. Minihane, 451 Mass. 417, 423 (2008), quoting Kelly v. Marx, 428 Mass. 877, 881 (1999) .
"A contractual liquidated damages provision is entitled to a presumption of validity, especially where ... it was negotiated between two sophisticated parties." Cummings Props., LLC v. Hines, 492 Mass. 867, 873 (2023), quoting Nantasket Beachfront Condominiums, LLC, 87 Mass.App.Ct. at 469. It "will usually be enforced, provided two criteria are satisfied: first, that at the time of contracting the actual damages flowing from a breach were difficult to ascertain; and second, that the sum agreed on as liquidated damages represents a 'reasonable forecast of damages expected to occur in the event of a breach.'" George, 477 Mass. at 375, quoting NPS, LLC, 451 Mass. at 420. "The burden of showing that a liquidated damages provision is unenforceable rests with the party challenging enforcement of the provision." NPS, LLC, supra. "Whether a liquidated damages provision in a contract is an unenforceable penalty is a question of law." I_d. at 419.
Under the lease, if the punch list items were not completed on time, the "Landlord shall pay Tenant the sum of its actual damages plus $500 per each day until completion of all items." This is not actually a liquidated damages clause at all. By adding $500 per day to the actual damages, the clause definitionally guarantees that the damages calculated under the clause will be greater, likely vastly greater, than the actual damages. See SMS Fin. V, LLC v. Conti, 68 Mass.App.Ct. 738, 751 (2007) ("Where liquidated damages are greatly disproportionate to actual damages arising from a breach, the liquidated damages are deemed a penalty and are not enforced"). Rather than "exchange the opportunity to determine actual damages after a breach, including possible mitigation, for the 'peace of mind and certainty of result' afforded by a liquidated damages clause," NPS, LLC, 451 Mass. at 423, quoting Kelly, 428 Mass. at 881, this clause simply adds a penalty to the calculation of actual damages. The trial judge properly discerned that this clause constituted an unenforceable penalty and properly imposed damages for the actual damages suffered by the tenant.
c. Actual damages.
"The plaintiff has the burden of proving [its] damages 'with reasonable certainty.'" Coady v. Wellfleet Marine Corp., 62 Mass.App.Ct. 237, 245 (2004), quoting Agoos Leather Cos. v. American & Foreign Ins. Co., 342 Mass. 603, 608 (1961). Nonetheless, "the amount of damages need not be proved with mathematical precision; the extent of damages often must be left to estimate and judgment." Bleicken v. Stark, 61 Mass.App.Ct. 619, 624 (2004), quoting Our Lady of the Sea Corp. v. Borges, 40 Mass.App.Ct. 484, 488 (1996). "The sole issue before us in deciding whether to uphold the [fact finder]'s damage award is whether [the plaintiff] presented sufficient evidence to permit the [fact finder] to find that the amount of . . . damages had been proven to a reasonably approximate certainty." Brewster Wallcovering Co. v. Blue Mountain Wallcoverings, Inc., 68 Mass.App.Ct. 582, 611 n.65 (2007) .
Here, the tenant proved its damages with reasonable certainty. The proprietor of the tenant testified that the HVAC system problems increased utility costs and required staff to monitor the contractors. Regarding utility costs, the proprietor testified that he compared how much he spent on this facility versus other facilities that he operates, which have similar (but fully functioning) HVAC systems. He estimated that, over the period of four years, he spent $5,000 more on this facility in utility costs. Regarding staff costs, he went "through the log of contractor visits that were made in the last three to four years, and [he had] estimated how much -- how many payroll hours [his] staff would have spent, whether [they're] exempt or not exempt. And based on [his] average pay rate, based on what [his] payroll is, [he could] come up with some estimate." That estimate was $20,000. Although the proprietor couched his estimates using phrases like, "I think it might be $20,000," this "element of uncertainty as to the amount of damages does not bar their recovery." Coady, 62 Mass.App.Ct. at 245, quoting Stuart v. Brookline, 412 Mass. 251, 256-257 (1992). In any event, this imprecision was consistent with the way the proprietor delivered his other testimony at trial, and the judge, sitting as fact finder, could reasonably conclude that the proprietor's use of qualifiers was part of his speaking style as opposed to expressing speculation.
4. Appellate attorney's fees.
Under the lease, "[i]f any action or lawsuit is brought to enforce any of the provisions of this Lease, the prevailing party to any such lawsuit shall be entitled to reimbursement of all reasonable costs and expenses, including reasonable attorney's fees from the non-prevailing party at pre-trial, trial and all appellate levels." All parties request attorney's fees and costs on appeal.
Confusion arises here because both sides are prevailing parties on the appeal, one as appellee and one as cross appellee. The United States Court of Appeals for the Eighth Circuit faced such a situation in Newhouse v. McCormick & Co., 130 F.3d 302, 303-305 (8th Cir. 1997), in which the court concluded that the appellee was entitled to attorney's fees for prevailing on a discrimination claim, and the cross appellee was entitled to attorney's fees for prevailing against a frivolous cross appeal. The court awarded attorney's fees to each party for the work done as appellee or cross appellee. See id. at 304-305. We have previously suggested that the same approach would apply in Massachusetts. See Brady v. Citizens Union Sav. Bank, 91 Mass.App.Ct. 160, 164 & n.10 (2017) (stating that both parties may be considered prevailing parties on appeal, but awarding fees only to party requesting them).
This may not be the right approach in other circumstances. See, e.g., Royal Palm Props., LLC v. Pink Palm Props., LLC, 38 F.4th 1372, 1378 (11th Cir. 2022) (holding that Fed.R.Civ.P. 54, concerning costs at trial level, does not allow for multiple prevailing parties); Domain Protection, L.L.C. v. Sea Wasp, L.L.C., 23 F.4th 529, 540 (5th Cir. 2022) ("When both sides achieve some litigation victories on a claim, there may not be a prevailing party").
We adopt the approach of the Eighth Circuit and award each side its appellate attorney's fees where it prevailed in the current lawsuit, which is this appeal. Here, each party prevailed in its role as appellee or cross appellee in defending the Superior Court judgment. Specifically, the defendants are entitled to fees for the first three parts of their principal and response brief, see Mass. R. A. P. 19 (b) (2), as appearing in 481 Mass. 1642 (2019), which defended the Superior Court's judgment. They are not entitled to fees for the fourth part of that brief, which unsuccessfully asked us to reverse the award of $25,000 in damages to the tenant, or for their reply brief, see Mass. R. A. P. 19 (b) (4), which argued the same. Similarly, the tenant is entitled to fees for the third part of its response and reply brief, see Mass. R. A. P. 19 (b) (3), which defended the $25,000 in actual damages. It is not entitled to fees for its principal brief, see Mass. R. A. P. 19 (b) (1), or for the first and second parts of its response and reply brief, which argued for reversing the judgment and awarding additional damages.
We are cognizant that this will pose practical difficulties in determining what fees are proper for other expenditures that are not so easily separated, such as oral argument preparation time. Each party seeking attorney's fees, however, bears the burden of establishing that the amount requested is reasonable in light of the issues on which it prevailed, see Beninati, 90 Mass.App.Ct. at 5 68; Wodinsky v. Kettenbach, 8 6 Mass.App.Ct. 825, 839 (2015), and will not recover fees where it is unable to meet that burden. See Newhouse, 130 F.3d at 304 (reducing award by approximately one-third because, among other reasons, "work done on his unsuccessful cross-appeal should not be compensated by Newhouse's opponent"); J_d. at 305 ("[E]ven though McCormick was the appellant in the main appeal and its counsel would have had to travel to St. Paul in any event to argue its own appeal, it seeks to charge all of its counsel's travel time, his preargument preparation time, his oral argument time, and his travel and lodging expenses to and in St. Paul to Newhouse. That we cannot abide").
Consistent with the procedure set out in Fabre v. Walton, 441 Mass. 9, 10-11 (2004), each party may submit an application for the part of its appellate attorney's fees and costs attributable to its role as appellee or cross appellee, with supporting documentation, to this court within fourteen days of the date of this opinion. Each party shall have fourteen days thereafter to respond to the other side's application.
Judgment affirmed.