Opinion
20-P-421
08-09-2021
BARBARA RUSSELL[1] v. WEISS RESIDENTIAL RESEARCH.
Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass.App.Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass.App.Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such 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 23.0 or 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. See Chace v. Curran, 71 Mass.App.Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The defendant, Weiss Residential Research (WRR), appeals from a judgment entered after a bench trial in the Superior Court awarding the plaintiff, Barbara Russell, contract damages, prejudgment interest, and costs. WRR claims that the judge erred in finding that the contract was ambiguous and, in the alternative, that he improperly supplied a term regarding Russell's compensation. We affirm.
Background.
We summarize the facts from those stipulated to by the parties and additional findings of fact made by the judge. Russell is an experienced investment banker and advisor who provides, among other things, professional services to startup businesses seeking capital. Russell was also a registered person with Race Rock Capital, LLC (Race Rock), which allowed her to perform limited investment banking functions through Race Rock.
Alan Weiss (Weiss) is the principal and chief executive officer of WRR. In the fall of 2014, Weiss entered into negotiations with Russell for advisory services to raise additional capital for WRR. They discussed Russell assisting in bringing WRR up to a level of financial preparedness necessary for a future round of financing. Russell sent a draft advisory agreement to WRR, which, as relevant here, stated that she would provide advisory services in exchange for a $10,000 monthly retainer for a period of six months. WRR responded that because cash was "a big issue," Russell should be paid out of the "first raise." Russell acknowledged that "liquidity was 'tight'" and agreed to receive one-half of her first retainer and then "aggregate all [other] retainers until the closing of the first . . . round of funding." The advisory agreement was signed by both parties on October 17, 2014, and WRR paid the $5,000 one- half retainer to Russell.
The advisory agreement also provided that as "an investment banker via Race Rock," Russell would be paid "a [five percent] fee on funds raised through the near-term $1-2mm round and the same for the intermediate $5-8mm round."
On October 31, 2014, WRR entered into an agreement with Race Rock to act as a placement agent; the expectation was that Russell would be the broker assigned to WRR. Russell performed all her duties, including traveling to recruit customers and drafting and reviewing documents to shore up WRR's so-called "corporate hygiene" in preparation for the first round of funding.
At the end of the first round, no funds were raised. Russell sought payment for her services under the advisory agreement. WRR refused, claiming that Russell's fee was contingent on WRR obtaining the necessary capital. Russell then filed suit.
It was undisputed that Russell was reimbursed in full for all expenses incurred by her during the term of the contract.
Russell's complaint included claims for breach of contract, quantum meruit, fraud, and unfair and deceptive business practices pursuant to G. L. c. 93A.
Discussion.
At bottom, this dispute turns on the following language in the advisory agreement:
However, given the current restraints, I agree to receive [one-half] of my [first] retainer, due as of this date, and aggregate all [other] retainers until the closing of the first ($1-2mm) round of funding. Thus, at the end of the six-month consulting period, I will be due $55,000, which will come out of [the] proceeds from the financing.
Russell claimed that she was owed $55,000 under the terms of the advisory agreement. WRR claimed that Russell was only to be paid if she obtained the additional capital. Because no funds were raised, WRR claimed it owed nothing to Russell. Russell argued that the advisory agreement was ambiguous and that the terms did nothing more than identify the source of funds and timing for payment, and that she was owed $55,000. The judge found that the advisory agreement was a valid contract, but that the parties failed to "consider[] whether or not Russell would be paid if WRR did not secure additional capital while Russell performed services under the [a]dvisory [a]greement or after her advisory services were completed." Relying on extrinsic evidence, the judge found that "it was reasonable that Russell be paid for the advisory services that she performed regardless of whether WRR secured additional capital." Judgment entered for Russell on her breach of contract claim.
Judgment entered for WRR on the remainder of Russell's claims.
1. Contract ambiguity.
On appeal, WRR contends that the judge erred in finding that the advisory agreement was ambiguous. Whether an ambiguity exists in a contract is a question of law, which we review de novo. Downer &Co., LLC v. STI Holding, Inc., 76 Mass.App.Ct. 786, 792 (2010); Berkowitz v. President &Fellows of Harvard College, 58 Mass.App.Ct. 262, 270 (2003). To determine whether an ambiguity exists, we "must first examine the language of the contract by itself, independent of extrinsic evidence concerning the drafting history or the intention of the parties." Bank v. Thermo Elemental Inc., 451 Mass. 638, 648 (2008). "[A]n ambiguity is not created simply because a controversy exists between parties, each favoring an interpretation contrary to the other's." Suffolk Constr. Co. v. Lanco Scaffolding Co., 47 Mass.App.Ct. 726, 729 (1999), quoting Jefferson Ins. Co. v. Holyoke, 23 Mass.App.Ct. 472, 475 (1987). Rather, "[c]ontract language is ambiguous 'where the phraseology can support a reasonable difference of opinion as to the meaning of the words employed and the obligations undertaken'" (citation omitted). Bank, supra. We consider words in their ordinary and plain meaning within the entire context of the contract; extrinsic evidence may not be considered to create an ambiguity where the plain language is unambiguous. See General Convention of the New Jerusalem in the United States of Am., Inc. v. MacKenzie, 449 Mass. 832, 835-836 (2007).
At oral argument, WRR clarified that it was not disputing that there was a valid contract.
Here, "[n]either party's interpretation of the contract[] commends itself to us to the exclusion of the other . . . and the agreement[] by [itself does] not reveal an answer to the question at issue . . . . This is the essence of ambiguity." President &Fellows of Harvard College v. PECO Energy Co., 57 Mass.App.Ct. 888, 895-896 (2003). The judge found that there was an ambiguity in the advisory agreement because it was silent as to how Russell would be paid if additional financing was not raised. Because we agree that this created an ambiguity, we next turn to the issue of parol evidence.
2. Parol evidence.
"Once a contractual ambiguity emerges, the meaning of the uncertain provision becomes a question of fact for the trier." Browning-Ferris Indus. v. Casella Waste Mgt. of Mass., Inc., 79 Mass.App.Ct. 300, 307 (2011) . We review the judge's findings under the clearly erroneous standard. See Martin v. Simmons Props., LLC, 467 Mass. 1, 8 (2014).
Although extrinsic evidence may be used to determine a logical meaning consistent with the intentions of the parties, an ambiguity may simply be a question that the parties never considered. See President &Fellows of Harvard College, 57 Mass.App.Ct. at 896. "Where the parties to a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances will be supplied by the court." Browning-Ferris Indus., 79 Mass.App.Ct. at 312, quoting Fay, Spofford &Thorndike, Inc. v. Massachusetts Port Auth., 7 Mass.App.Ct. 336, 342 (1979). In these circumstances, "the court should supply a [reasonable] term which comports with community standards of fairness and policy rather than analyze a hypothetical model of the bargaining process." President &Fellows of Harvard College, supra, quoting Restatement (Second) of Contracts § 204 comment d (1979). That is what the judge did here.
The uncontroverted evidence was that Russell performed a substantial amount of work for WRR consistent with the terms of the advisory agreement. The judge ultimately determined that it was unreasonable for Russell to receive no compensation beyond the initial one-half retainer if she were unsuccessful in raising additional capital. Although WRR maintains that the advisory agreement was unambiguous, in the alternative, WRR suggests that the payment term supplied by the judge was not supported by the parol evidence admitted at trial. WRR points to an e-mail wherein it "agree[d] to have those costs [associated with Russell's work] being covered out of the first raise" because cash out prior to the next infusion of cash was not feasible for WRR.
However, as noted by the judge, this demonstrated only that the parties agreed to the timing and source of the payment; it did not establish a condition precedent to payment. Although there was some evidence of the prior negotiations to support WRR's position, this alone does not render the judge's findings clearly erroneous. See Pointer v. Castellani, 455 Mass. 537, 539 (2009), quoting Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 510 (1997) ("Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous"). And, in any event, we do "not base a decision upon evidence of prior negotiations or agreements, although such evidence may be admitted as bearing on what may be reasonable." President &Fellows of Harvard College, 57 Mass.App.Ct. at 896, citing Restatement (Second) of Contracts § 204 comment e.
Lastly, WRR argues that any ambiguity in the advisory agreement should be construed against Russell as its drafter. As a general rule, when a contract term is ambiguous, the ambiguity is interpreted against the drafter. See Browning-Ferris Indus., 79 Mass.App.Ct. at 309. However, when a clause arises out of negotiations between "capable opposing drafters," that rule operates with less force. Id. at 309-310. Moreover, the rule that a contractual ambiguity must be resolved against the drafter is qualified by the rule that the alternative interpretation must be reasonable and practical given the circumstances. See Shea v. Bay State Gas Co., 383 Mass. 218, 225 (1981). See also Hubert v. Melrose-Wakefield Hosp. Ass'n, 40 Mass.App.Ct. 172, 177 (1996) ("The rule of construction that contract ambiguities must be resolved against the drafter must give way to the primary and inflexible rule that . . . contracts, are to be construed so as to ascertain . . . the true intention of the parties" [quotation and citation omitted]). Here, the language was inserted after negotiations between and input from two "capable opposing" parties. Browning-Ferris Indus., supra at 310. Accordingly, the qualifier to the general rule applies. The judge's findings are amply supported by the record and are not clearly erroneous.
Judgment affirmed.
The panelists are listed in order of seniority.