Opinion
1882CV00766
01-28-2019
SAI RESTAURANTS, INC. et al.[1] v. NEEDHAM BANK et al.[2]
MEMORANDUM OF DECISION AND ORDER ON NEEDHAM BANK’S MOTION TO DISMISS COUNTS 3, 5 AND 6 OF PLAINTIFFS’ SECOND AMENDED COMPLAINT
Diane C. Freniere, Justice of the Superior Court
In their second amended complaint, plaintiffs Sai Restaurants, Inc. and Sorabh Kapoor as Trustee of the Great Realty Trust ("the plaintiffs") bring claims against defendant Needham Bank alleging breach of contract (Count III), fraud or intentional misrepresentation (Count V) and unfair and deceptive trade practices under G.L.c. 93A (Count VI). Plaintiffs allege injury as a result of Needham Bank’s actions relating to four business loans made by the bank in November 2009. Needham Bank seeks dismissal of Counts III, V and VI of the second amended complaint arguing, in part, that: (i) Count III is barred under the doctrines of res judicata and judicial estoppel; (ii) Count V is time-barred under the three-year statute of limitations and not pled with the required specificity; and (iii) Count VI is time-barred and wholly derivative of the common-law claims. For the reasons that follow, the defendant’s motion to dismiss is ALLOWED in part and DENIED in part .
BACKGROUND/FACTS
The relevant facts, set forth in the plaintiffs’ second amended complaint, are as follows:
For more than nineteen years, the Kapoor family has operated restaurants in Massachusetts, including the Bombay Club and Masala Art. In 2009, Vinod Kapoor, the proprietor of the Bombay Club, decided to move the restaurant from Harvard Square, Cambridge to the South End of Boston. In order to relocate the Bombay Club, the Kapoor family needed $ 1.7 million in financing to purchase an existing restaurant. In that regard, in July 2009, Vinod and Sorabh Kapoor submitted a business plan to Needham Bank and met with the bank’s president and a loan officer. Needham Bank proposed financing the new restaurant venture through four separate loans. Those loans would be secured by the real estate located at 1407-1417 Washington Street, Boston ("the Washington Street Property"), the proposed South End address of the new Bombay Club, and by the real estate located at 990-992 Great Plain Avenue, Needham ("the Great Plain Avenue Property"), the location of the Kapoor family’s other restaurant, Masala Art. The Great Realty Trust owned the Great Plain Avenue Property and Sai Restaurants, Inc. ("Sai") operated Masala Art at that location.
On November 24, 2009, Endsouth Realty, LLC and Great Realty Trust executed four notes with Needham Bank: (1) loan number 590279165 in the amount of $ 880, 000, to purchase the real estate at the Washington Street Property; (2) loan number 590278050 in the amount of $ 1, 900, 000, to refinance the Great Plain Avenue Property; (3) loan number 590279355 in the amount of $ 472, 000, to purchase the restaurant/licenses at the Washington Street Property; and (4) loan number 590277953, a $ 250, 000 revolving line of credit to finance the operations of the new Bombay Club. Sai executed guarantees for each of the four notes. Pursuant to the terms of each guarantee, Sai’s financial obligation was not to exceed the principal amount of each respective note.
Sometime in 2010, the Kapoors’ new South End restaurant began to fail. On February 7, 2011, Needham Bank commenced foreclosure proceedings on the Great Plain Avenue Property. Sai declared bankruptcy on March 14, 2011 and Vinod Kapoor filed for personal bankruptcy on April 7, 2011. Also in 2011, Needham Bank foreclosed on the Washington Street Property, executing a foreclosure deed and granting the Washington Street Property to SBS Investments, LLC ("SBS") on December 27, 2011 for $ 900, 000.
As part of Sai’s bankruptcy proceeding, on December 13, 2012, Needham Bank filed a proof of claim in the amount of $ 3, 721, 624.70, based on Sai’s guarantees for the four underlying promissory notes. This claim exceeded the maximum financial obligation called for under the four guarantees and did not account for the proceeds Needham Bank received from the foreclosure sale of the Washington Street Property to SBS.
On February 20, 2013, Sai filed a Second Amended Chapter 11 Plan, which was confirmed by order of the bankruptcy court on June 27, 2013. Under the terms of the Second Amended Chapter 11 Plan, Needham Bank was allowed a secured claim in the amount of $ 3, 721, 624.70, the amount initially requested in its claim. The Plan provided for scheduled monthly payments to be applied towards Needham Bank’s secured claim and prohibited the accrual or payment of post-petition interest on the claim. The Plan also provided that Sai would make a balloon payment on or before the sixtieth month of the plan sufficient to pay off Needham Bank’s secured claim as may be modified by the agreement of Sai and Needham Bank.
See Second Amended Complaint, ¶ 52. Paragraph 122 of the Second Amended Complaint, however, states that pursuant to the terms of Sai’s bankruptcy plan, Needham Bank was granted a claim in the amount of $ 2, 898, 537.43.
In July 2013, Sai made an additional modification to the Second Amended Chapter 11 Plan, inserting a clarification regarding how Needham Bank would apply the monthly payments. In addition, Sai also filed a non-material modification to the Plan which allowed Needham Bank to transfer its claim.
The Second Amended Complaint asserts that this modification was done by Sai’s counsel, at the request of Needham Bank, without Sai’s knowledge.
The plaintiffs allege that on September 17, 2013, Needham Bank employee John Shea approached Vinod Kapoor at his restaurant and threatened the immediate closing of Masala Art if Kapoor did not execute a certificate confirming the facts set forth in the non-material modification of the bankruptcy plan. Shea also represented to Kapoor that Needham Bank would work with Masala Art after the five-year bankruptcy plan was completed. Further, Needhan Bank provided a false amortization schedule detailing what the note balances would be after the repayment plan.
Three days later, on September 20, 2013, Needham Bank executed an Assignment of Claim Transfer Agreement to Great Plain Acquisitions, LLC ("GPA"). Needham Bank (and GPA and Harbor Light Advisors, LLC) failed to account for the monthly payments that were made by Great Realty Trust on the four notes prior to Sai’s bankruptcy, or for the monthly payments that were made by the guarantor Sai during the pendency of its bankruptcy.
On June 11, 2018, the plaintiffs filed the instant complaint against the defendants.
DISCUSSION
To survive a motion to dismiss under Mass.R.Civ.P. 12(b)(6), a complaint must allege facts "plausibly suggesting ... entitlement to relief[.]" Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 557 (2007). Detailed factual allegations are not required, but the plaintiff must present more than mere "labels and conclusions," such that the alleged facts "raise a right to relief above a speculative level." Id., quoting Twombly, 550 U.S. at 555. In determining whether a complaint meets this standard, the court accepts the factual allegations in the complaint as true and draws reasonable inferences in favor of the plaintiff. Harrington v. Costello, 467 Mass. 720, 724 (2014).
As a general rule, the court’s consideration of a motion to dismiss pursuant to Mass.R.Civ.P. 12(b)(6) is confined to the four corners of the complaint. Exceptions to this rule include "matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint." Reliance Ins. Co. v. Boston, 71 Mass.App.Ct. 550, 555 (2008), quoting Schaer v. Brandeis Univ., 432 Mass. 474, 477 (2000) ("[p]roperly considered public records include the records of other courts in related proceedings, of which the judge may take judicial notice ..."). The court may also consider documents not attached to the complaint, but upon which the plaintiff relied in framing the complaint, in reviewing a motion to dismiss. Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 45 n.4 (2004). Here, in addition to the second amended complaint, the court also considers the Bankruptcy Court Claims Register.
Applying this standard, the Court concludes that Needham Bank is entitled to dismissal of Counts V and VI in their entirety, as well as a portion of Count III for the reasons stated below.
I. Count III— Breach of Contract
"The application of res judicata to a bankruptcy court order confirming a Chapter 11 reorganization plan generally bars later proceedings on all claims and issues concerning the debtor-creditor relationship that were actually raised during the confirmation process as well as those that could have been raised ..." See Citizens Bank of Massachusetts v. Bishay, 56 Mass.App.Ct. 1104 (2002) (unpublished Rule 1:28 decision) quoting Monarch Life Ins. Co. v. Ropes & Gray, 65 F.3d 973, 978 & n.8 (1st Cir. 1995) (res judicata principles applicable to confirmation orders of bankruptcy court); see also Katchen v. Landy, 382 U.S. 323, 334 (1966) ("The normal rules of res judicata and collateral estoppel apply to the decisions of the bankruptcy courts"). Sai’s breach of contract claims against Needham Bank challenges credits for payments made by Sai on guarantees and payments made during the pendency of the bankruptcy and under the bankruptcy plan. Sai also challenges Needham Bank’s charge of attorneys fees in violation of the bankruptcy plan.
"Orders, judgments and decrees of the bankruptcy court from which an appeal is not timely taken are final, 1 Collier on Bankruptcy ¶ 3.03[4], at 3-179 (Lawrence P. King ed., 15th ed. 1993), even if erroneous." F.D.I.C. v. Shearson-American Exp., Inc., 996 F.2d 493, 498 (1993), citing Union Joint Stock Land Bank v. Byerly, 310 U.S. 1, 7-8 (1940).
As to Sai’s challenge to credits for payments made by it on guarantees and payments made during the pendency of the bankruptcy, all of the elements of collateral estoppel are met. The claims with respect to the amount due under the guarantees and plan payments could have been brought during the bankruptcy proceeding. Essentially, as in Bishay, Sai seeks to re-litigate the validity of the four notes and accompanying guarantees and its defenses to the obligations under those notes and guarantees. The bankruptcy court ordered the payment of Needham Bank’s claim. Inherent in that order is the court’s determination of the validity and enforceability of the notes and guarantees. Therefore, the final order of the bankruptcy court is res judicata "as to all matters that were or could have been litigated before the bankruptcy court." Federal Deposit Ins. Corp. v. Shearson-American Exp., Inc., 996 F.2d 493, 497 (1st Cir. 1993), cert. denied, 510 U.S. 1111, 114 S.Ct. 1054, 127 L.Ed.2d 375 (1994). The June 27, 2013 order confirming the Second Amended Chapter 11 Plan has res judicata effect as to Sai’s breach of contract claim predicated on challenges to credits for payments made by it on guarantees and payments made during the pendency of the bankruptcy.
For Needham Bank to prevail on its theory of collateral estoppel, it must show: (1) that the issues sought to be precluded are the same as the issues involved in the bankruptcy court’s decision, (2) the issues were actually litigated, (3) the issues were determined by a valid and binding final judgment, and (4) the determination of the issues were essential to the judgment. Kobrin v. Board of Registration in Medicine, 444 Mass. 837, 843-44 (2005). Grella v. Salem Five Cent Savings Bank, 42 F.3d 26-30 (1st Cir. 1994). "An issue may be ‘actually’ decided even if it is not explicitly decided, for it may have constituted, logically or practically, a necessary component of the decision reached in the prior litigation." Dennis v. Rhode Island Hosp. Trust, 744 F.2d 893, 899 (1st Cir. 1984).
The court notes that in the second amended complaint Count III is brought only in the name of plaintiff Sai. Thus, the court need not decide if there was "sufficient identicality between the parties" or whether Sai and the Great Realty Trust were "in privity," as suggested by Needham Bank, at this time.
In addition to dismissal on res judicata grounds, these same claims of breach of contract are additionally barred by the doctrine of judicial estoppel. Sai takes a position in this proceeding (i.e., now disputing the amounts owed to Needham Bank after it confirmed and acknowledged the same in its bankruptcy court submissions) that is contrary to the position that it previously took in the bankruptcy court proceeding. See Otis v. Arbella Ins. Co., 443 Mass. 634, 640-41 (2008). Thus, all of the requirements for the application of judicial estoppel are met. See Perry-Flynn v. Maki, 2011 WL 5841233, at *2 (Mass.Super. Sept. 15, 2011) (Carey J.) . Accordingly, the portion of Sai’s breach of contract claim against Needham Bank predicated on challenges to credits for payments made by it on guarantees and payments made during the pendency of the bankruptcy is dismissed.
However, as to Sai’s breach of contract allegations stemming from Needham Bank’s failure to comply with the bankruptcy plan’s prohibition on charging attorneys fees and its failure to properly account for payments made by Sai under the bankruptcy plan, the confirmation order is essentially a contract between Sai and its creditors. Therefore, Sai may enforce this contract in any applicable non-bankruptcy court, just as it would any other contract. Accordingly, the portion of Sai’s breach of contract claim relating to these allegations states a viable claim and will not be dismissed at this relatively early juncture in the litigation.
II. Count V— Fraud
Allegations of fraud and deceit must be pleaded with particularity to comply with Mass.R.Civ.P. 9(b). See Schinkel v. Maxi-Holding, Inc., 30 Mass.App.Ct. 41, 48 (1991) (complaint stated circumstances of fraud with requisite particularity). A claim for damages from fraud/deceit requires proof that: (1) the defendant made a misrepresentation of fact; (2) it was made with the intention to induce another to act upon it; (3) it was made with the knowledge of its untruth; (4) it was intended that it be acted upon, and that it was in fact acted upon; and (5) damage directly resulted therefrom. Graphic Arts Finishers, Inc. v. Boston Redev. Authy., 357 Mass. 40, 44 (1970). At a minimum, a plaintiff alleging fraud must particularize the identity of the person(s) making the representation, the contents of the misrepresentation, and where and when it took place. In addition, the plaintiff should specify the materiality of the misrepresentation, its reliance thereon, and resulting harm. See Friedman v. Jablonski, 371 Mass. 482, 488-89 (1976). When considering a Mass.R.Civ.P. 12(b)(6) motion to dismiss a complaint alleging fraud and deceit, the requirement that there be an "exceedingly liberal reading" of a complaint, Brum v. Dartmouth, 44 Mass.App.Ct. 318, 321 (1998), rev’d on other grounds, 428 Mass. 684 (1999), must include consideration of the requirements of Mass.R.Civ.P. 9(b), thereby heightening the pleading requirement for plaintiffs who allege fraud. Contrast Schinkel, 30 Mass.App.Ct. at 48 (complaint stated circumstances of fraud with the requisite particularity) with Equipment & Sys. for Indus., Inc. v. Northmeadows Constr. Co., Inc., 59 Mass.App.Ct. 931, 931-32 (2003) (complaint allegations lacked sufficient particularity for fraud claim).
Mass.R.Civ.P. 9(b) provides in relevant part: "In all averments of fraud, mistake, duress or undue influence, the circumstances constituting fraud, mistake, duress or undue influence shall be stated with particularity."
Here, the plaintiffs’ fraud claim minimally complies with the pleading requirement of Mass.R.Civ.P. 9(b). The plaintiffs’ second amended complaint particularizes the identity of the person(s) making the representation (John Shea, ¶¶ 64-69, 141-43), the contents of the misrepresentation (that Needham Bank would work with Sai after the five-year bankruptcy plan was completed, ¶¶ 69, 141-43), and where, and when it took place (on September 17, 2013 at the restaurant, three days before Needham Bank assigned the loans to GPA, ¶¶ 64, 74). In addition, the plaintiffs specify the materiality of the misrepresentation, its reliance thereon and the resulting harm. See Equipment & Sys. for Indus., Inc., 59 Mass.App.Ct. at 932; Second Amended Complaint ¶¶ 144-45.
The court must next consider if this fraud claim is time-barred under the three-year statute of limitations. GL.c. 260, § 2A. The plaintiffs argue that their fraud complaint was timely filed in June 2018 as they did not learn of the complained of fraud until January 2018. It is not in dispute that on September 20, 2013, a Transfer of Claim was filed in the United States Bankruptcy Court proceeding alerting the parties to that proceeding that Needham Bank’s claim, court claim # 12 in the amount of $ 3, 721, 624.70, had been transferred to GPA. Second Amended Complaint ¶ 74. The transfer of claim pleading indicated that notices and payments to the transferee should be sent to GPA’s address in Needham, Massachusetts.
The plaintiffs challenge whether the guarantees were, in fact, assigned and argue that their notice of the transfer of the guaranty obligations was deficient. The guaranty obligations were in fact transferred to GPA and the plaintiffs were on notice of the same. The transfer of claim dated September 20, 2013 specifically identified the claim that was being transferred as Needham Bank’s Claim # 12. The Bankruptcy Court Claims Register, in turn, describes claim 12 to include "(12-1) Guaranties on Commercial Promissory Notes." Thus, as of September 2013, the plaintiffs were on notice that Needham Bank had transferred to GPA its entire interest in the loans and the guarantees on those loans. Accordingly, at that time, the plaintiffs were aware of the alleged fraudulent misrepresentations (regarding its intention to continue to own and service the plaintiffs’ loans and work with the plaintiffs following the end of the bankruptcy plan) made by Needham Bank and took no action. Although it may be true that at that time the plaintiffs did not know the extent of the harm incurred as a result of the transfer of claim under the bankruptcy plan to GPA, they had discovered their injury. The so-called "discovery-rule tolling" does not save the plaintiffs’ fraud claim where the connection between Needham Bank’s action/transfer of claim and their alleged injury was known or knowable as of September 2013. See McEneaney v. Chestnut Hill Realty Corp., 38 Mass.App.Ct. 573, 577 (1995) (cause of action for misrepresentation accrues for limitations purposes when the plaintiff learns or reasonably should have learned of the misrepresentation); Ross v. Garabedian, 433 Mass. 360, 363, 364 (2001). Accordingly, the fraud claim is dismissed.
In addition, following the transfer of the claim to GPA, the plaintiffs received notice and monthly statements from GPA and made payments to GPA. See Second Amended Complaint ¶¶ 80-81.
III. Count VI— Chapter 93A
Count VI of the second amended complaint asserts a claim against Needham Bank for unfair and deceptive business practices pursuant to G.L.c. 93A, § 11. Chapter 93A prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce ..." See G.L.C. 93A, § 2. The alleged unfair and deceptive acts of Needham Bank are rooted in the plaintiffs’ breach of contract and fraud allegations; namely, that Needham Bank (1) filed false proofs of claim during the bankruptcy, (2) represented that it would continue to own and service the plaintiffs’ debt, (3) provided erroneous amortization schedules for the guarantees and payments under the plan, (4) represented that it would work with the plaintiffs at the end of the bankruptcy plan as to the amount of the balloon payment, and (5) failed to properly account for payments made by Sai and the sale proceeds from the foreclosure of the Washington Street Property prior to and during the bankruptcy. Because that portion of Sai’s breach of contract claim stemming from Needham Bank’s failure to comply with the bankruptcy plan’s prohibition on charging attorneys fees and its failure to properly account for payments made by Sai under the bankruptcy plan remain, Sai’s c. 93A claim against Needham Bank could possibly survive a motion to dismiss. However, and consistent with the court’s reasoning, above, the plaintiffs’ c. 93A claim against Needham Bank is time-barred under the applicable four-year statute of limitations. For these reasons, Needham Bank’s motion to dismiss is allowed with respect to the c. 93A claim.
Were the fraud and breach of contract claims dismissed entirely; the c. 93A allegations in the second amended complaint, which do not separately stand as a violations of c. 93A, would be dismissed.
ORDER
For the reasons stated above, it is ORDERED that Needham Bank’s motion to dismiss is:
1. ALLOWED as to Counts V and VI;
2. ALLOWED as to Count III, to the extent Count III is predicated on challenges to credits for payments made by Sai on guarantees and payments made during the pendency of the bankruptcy; and
3. DENIED as to Count III, to the extent Count III is predicated on Needham Bank’s failure to comply with the bankruptcy plan’s prohibition on charging attorneys fees and its failure to properly account for payments made by Sai under the bankruptcy plan.