Opinion
18-P-1010
09-23-2019
SPINEFRONTIER, INC. v. CUMMINGS PROPERTIES, LLC.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
After a jury-waived trial, the judge found that the plaintiff, SpineFrontier, Inc., had validly terminated a commercial lease, and that the defendant landlord, Cummings Properties, LLC (Cummings), had waived strict compliance with the notice provisions in the lease. The judge also determined, in accordance with the terms of the lease, that Cummings was not entitled to liquidated damages. Cummings appeals. SpineFrontier cross-appeals, arguing that the judge erred in determining that an automatic extension provision remained in the lease as a matter of law and, also, that the interest awards, or lack thereof, were not correct. We affirm the judgment, essentially for the reasons well explained by the trial judge.
Background. In May 2006, SpineFrontier and Cummings entered into a one-year commercial lease (lease); SpineFrontier agreed to rent office space in one of Cummings's properties in Beverly. According to paragraph thirty-one, the lease automatically renewed for additional successive periods of five years, unless and until either party served written notice on the other that it was exercising the option not to extend (automatic extension provision). The time for service of the written termination notice was "not more than [twelve] months or less than six months prior to the expiration of the then current lease term" on April 30, 2007. Under the terms of the lease, SpineFrontier was to serve notice on Cummings by "constable, or delivered to [Cummings] by certified or registered mail, return receipt requested, postage prepaid, or by recognized courier service with receipt therefor, addressed to" Cummings at its Woburn office.
Soon after signing the lease, SpineFrontier realized it needed more office space. Accordingly, in June 2006, SpineFrontier provided Cummings written notice that it would not extend the lease for the current occupied space; Cummings acknowledged the notice as "a formality." At Cummings's urging, and prior to the expiration of the lease, SpineFrontier agreed to lease a larger space from Cummings. Rather than terminate one lease and issue another for the new office space, Cummings instead issued "Lease Extension #1." That document, executed in November 2006 for the larger space, extended the lease until April 30, 2010.
The written response from Cummings's vice president and general manager for the Beverly property stated, "We appreciate your business and understand that canceling the extension was a formality."
Thereafter, the lease was extended three more times between July 2007, and May 2010, resulting in a final lease expiration date of July 30, 2015. "Amendment to Lease #1," executed in August 2013, provided for an increase in the monthly rent to reimburse Cummings for the cost of remodeling SpineFrontier's office space. The judge noted that, while the automatic extension provision was excised explicitly from the second lease extension, "it was reinstated in Lease Extension No. 3 and, by clear implication, continued in effect in Lease Extension No. 4 and Amendment to Lease No. 1." As a result, "SpineFrontier was required to notify Cummings not sooner than July 30, 2014 and not later than January 30, 2015 if it was terminating the parties' lease on July 30, 2015."
The amendment did not contain language regarding an automatic extension of the lease, but did include a final, unnumbered paragraph that read: "All other terms of the lease shall continue to apply, and to the extent any inconsistency exists between this amendment and the lease, including any prior amendments, the terms herein shall control and supersede any earlier provisions." Extensions three and four to the lease included identical language.
On October 22, 2014, well within the allowable lease termination period, Aditya Humad (SpineFrontier's president and chief financial officer) e-mailed Justin D'Aveta (the Cummings account manager) to discuss SpineFrontier's plan in 2015 to move its offices closer to Boston. The e-mail included two "links" that profiled two of Cummings's non-Beverly properties in which SpineFrontier had potential interest. Humad and D'Aveta then met in person two days later (on October 24, 2014) and continued discussions while looking at other Cummings properties, particularly in Woburn. The discussions included the possibility of SpineFrontier extending its lease and changing its office location to another of Cummings's properties. Humad told D'Aveta that "the one thing he [was] positive about [was] that SpineFrontier [could not] continue operating in Beverly, [and that] [h]e ha[d] told his employees that the company [would] not be in Beverly any later than July 2015." At no time after the October e-mail and subsequent meeting did Cummings notify SpineFrontier that its form of notification to terminate was insufficient or inconsistent with the requirements of the lease.
In July 2015, SpineFrontier began moving its belongings from the Beverly office space; it did not fully vacate the offices and return the keys to Cummings until sometime in early August 2015. On August 5, 2015, Cummings served on SpineFrontier a "NOTICE OF RENT DUE," informing it that, if payment of the rent on the lease was not received within ten days, the lease would be terminated; the rent would be accelerated to the end of the five-year lease period (fifty-nine months); and Cummings would take legal action to recover possession of the property and liquidated damages of approximately $1.7 million.
Earlier, in June 2015, SpineFrontier had filed a complaint seeking a judgment declaring that the fourth extension of the original lease did not contain an automatic extension provision and, therefore, Cummings could not enforce it. Cummings counterclaimed, seeking a declaration that SpineFrontier had failed to provide proper notice during the termination period to opt out of the five-year automatic lease extension and that the term of the lease expired on July 30, 2020.
Cummings amended its counterclaim adding four separate breach of contract claims, and sought liquidated and other damages for violations of the lease. Following SpineFrontier's agreement that Cummings could retain a portion of its security deposit, counts three and four of Cummings's amended counterclaim were dismissed with prejudice.
After trial, as we noted above, the judge determined that "by clear implication" the automatic extension provision ("reinstated" by the third lease extension) continued in effect in the fourth lease extension and Amendment to Lease #1. The judge also found that SpineFrontier's October 22, 2014 e-mail provided Cummings with sufficient notice of termination; subsequent discussions remedied any purported confusion; and that Cummings was on actual notice by October 24, 2014 that SpineFrontier did not intend to extend its lease for another term. However, he concluded that SpineFrontier breached the terms of the lease when it continued to occupy its office space, without permission, beyond the lease termination date of July 30, 2015, and he awarded Cummings holdover damages in an amount equivalent to "twice the lease payment due for the month of July, 2015." The judge also ordered the return of the portion of SpineFrontier's security deposit that Cummings still retained. Finally, he found that even assuming the lease was automatically extended for another term, the "grossly disproportionate" liquidated damages provision of the lease was unenforceable.
The judge found that it was immaterial that SpineFrontier's written notice was not served by a constable or delivered by registered or certified mail, because clear notice of intention not to extend was given and acknowledged within the time allowed by the lease. He also found that even if the written notice was not adequate, "Cummings waived its right to insist on strict compliance with the [l]ease's notice requirements."
On April, 18, 2018, judgment entered, declaring that the lease as amended (specifically, by lease extension no. four and Amendment to Lease #1) contained an automatic extension provision, but that SpineFrontier had provided contractually adequate notice to Cummings of its intention not to extend the lease. The holdover damages awarded to Cummings totaled $92,995.86, which sum included eighteen percent interest (the contractually agreed upon "published prime rate") accumulated since August 1, 2015, the date of breach.
Discussion. 1. Cummings's appeal. Cummings argues first that the judge erred when he declared that SpineFrontier provided contractually adequate notice that it would not extend the lease, because SpineFrontier failed to meet its burden of proving that its written notice complied with the lease terms. Specifically, Cummings contends, SpineFrontier's October 2014 e-mail and subsequent discussions with D'Aveta, were "inconclusive expression[s]" of SpineFrontier's ongoing search for a potential new location rather than specific notice to Cummings that it wanted to opt out of the automatic lease extension. Cummings denies waiving any right to strict compliance with the lease notice requirements. Second, Cummings insists that, because of SpineFrontier's default in August 2015, it is entitled to liquidated damages and prejudgment interest on past due payments as provided by the lease.
Cummings argues that, during their longstanding relationship, SpineFrontier had on a previous occasion provided written termination notice in compliance with the lease terms, which demonstrates SpineFrontier's knowledge as to the proper substance of notice required. The judge viewed the same document in issue as evidence that Cummings had failed to strictly enforce the lease's notice requirements.
Neither party claims an ambiguity in the notice provision of the lease. When there are no ambiguous terms, a court will construe the contract terms "in their usual and ordinary sense." DeWolfe v. Hingham Ctr., Ltd., 464 Mass. 795, 803 (2013), quoting Citation Ins. Co. v. Gomez, 426 Mass. 379, 381 (1998). In addition, a court must "construe the [contract's] language to give it reasonable meaning wherever possible." Shea v. Bay State Gas Co., 383 Mass. 218, 225 (1981). With these parameters in mind, we look to SpineFrontier's claimed notice. "What constitutes timely notice under [a contract] is a matter of contract interpretation and is therefore ‘a matter of law for the court.’ " Pilgrim Ins. Co. v. Molard, 73 Mass. App. Ct. 326, 331 n.8 (2008), quoting Royal-Globe Ins. Co. v. Craven, 411 Mass. 629, 632 (1992). As a result, we review the issue de novo. See Baby Furniture Warehouse Store, Inc. v. Meubles D&F Ltée, 75 Mass. App. Ct. 27, 29 (2009).
To opt out of the automatic lease extension SpineFrontier was required to send written notice to Cummings within the period of six months to one year before the lease was due to expire on July 30, 2015. SpineFrontier's October 22, 2014 e-mail was within the required timeframe. Although the terms of the lease required SpineFrontier's notice to be served by constable, or registered or certified mail, we agree with the trial judge that the timely delivery of the e-mail to D'Aveta, receipt of which Cummings clearly acknowledged, did not result in a material violation of the terms of the lease. See Computune, Inc. v. Tocio, 44 Mass. App. Ct. 489, 493 (1998) ("The function of a requirement that notice be transmitted by registered mail is to provide a means of resolving disputes as to the fact of delivery of the notice" [citation omitted] ). In this case, SpineFrontier's delivery by e-mail "serve[d] the same function and provide[d] the same proof of delivery as certified or registered mail." Id.
In addition, the trial judge's factual findings are to be accepted as true "unless they are clearly erroneous." EventMonitor, Inc. v. Leness, 473 Mass 540, 543 (2016), quoting Boyle v. Zurich Am. Ins. Co., 472 Mass. 649, 651 (2015). Here, the trial judge found that, by its actions after delivery of the October 22 e-mail, and subsequent meeting between Humad and D'Aveta a few days later, Cummings acknowledged that SpineFrontier provided adequate notice and waived its right of strict compliance to the specific lease terms for notice delivery. See Dynamic Mach. Works, Inc. v. Machine & Elec. Consultants, Inc., 444 Mass. 768, 773 (2005), quoting MacDonald & Payne Mach. Co. v. Metallic Arts of New England, Inc. 324 Mass. 353, 356 (1949) ("Ordinarily the question of waiver is one of fact"). We see no error.
Because we agree that SpineFrontier validly ended the lease, the liquidated damages provision of the lease was not triggered and, thus, Cummings was not entitled to such an award.
2. SpineFrontier's cross appeal. In its cross appeal, SpineFrontier argues, as it did below, that the judge erred in finding that the automatic extension provision remained as a term of the lease as a matter of law. SpineFrontier also claims that Cummings was not entitled to interest on its holdover damages award, but that interest should have been awarded on the amount of SpineFrontier's improperly retained security deposit. We are not persuaded by either argument.
First, we agree with the judge's determination that the lease, and subsequent extensions and amendment, apart from extension two, "each contained or continued in effect a provision that required SpineFrontier to notify Cummings ... that SpineFrontier was terminating its lease."
We note that the trial judge was not bound by the summary judgment ruling that the lease was ambiguous as to automatic extension. See Winchester Gables, Inc. v. Host Marriott Corp., 70 Mass. App. Ct. 585, 593 (2007).
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Next, the clerk properly added prejudgment interest to the damage award. "[T]he award of prejudgment interest is a ministerial act. It does not require judicial intervention but may be added to a monetary award by the clerk of court" (citation omitted). National Starch & Chem. Co. v. Greenberg, 61 Mass. App. Ct. 906, 908 (2004). Section 6C of G. L. c. 231 states, in part, that "[i]n all actions based on contractual obligations, upon a verdict, finding or order for judgment for pecuniary damages, interest shall be added by the clerk of the court to the amount of damages, at the contract rate, if established, or at the rate of twelve per cent per annum from the date of the breach or demand" (emphasis added). "The purpose of G. L. c. 231, § 6C, is to compensate a party for the loss of use, or unlawful detention, of money after the date that payment is due." J.C. Higgins Co. v. Bond Bros., 58 Mass. App. Ct. 537, 539 (2003).
Cummings's right to apply SpineFrontier's security deposit funds to the holdover damages was delayed pending the resolution of the case. As a result, Cummings was entitled to the contractually agreed-upon eighteen percent interest (the "published prime rate") on its award of holdover damages ($62,473.58).
Conversely, SpineFrontier is not entitled to interest on the return of the balance of its security deposit retained by Cummings during the pendency of this action. The lease expressly stated that the funds were to be "refunded to [SpineFrontier] without interest at the end of this lease, subject to [SpineFrontier]'s satisfactory compliance with the conditions hereof"; once SpineFrontier completely moved out of the office space, it was entitled only to the return of the security deposit balance still held by Cummings. This provision, agreed to by two commercially sophisticated parties, is controlling. See Superior Mechanical Plumbing & Heating, Inc. v. Insurance Co. of the West, 81 Mass. App. Ct. 584, 593 (2012) (plain language of contract controls). See also Davidson v. General Motors Corp., 57 Mass. App. Ct. 637, 643 (2003) ("In a business context when sophisticated parties have reduced their understandings to writing, they cannot be heard to allege that they didn't really mean what they said or that they didn't understand what they were doing"). For that reason, the judge did not err when he ordered the return of SpineFrontier's security deposit without interest.
Judgment affirmed.