Opinion
SUCV2011-00725-BLS1
12-03-2015
Via Restaurants, LLC, et al. [1] v. Occupancy Corporation, et al. [2] Opinion No. 132502
Edward P. Leibensperger, Justice
MEMORANDUM OF DECISION AND ORDER ON (1) DEFENDANTS' MOTION FOR ENTRY OF SATISFACTION OF FINAL JUDGMENT, (2) PLAINTIFFS' CROSS MOTION FOR DETERMINATION AND ENFORCEMENT OF ATTORNEY'S LIEN, AND (3) MOTION BY COMMONWEALTH OF MASSACHUSETTS FOR ACKNOWLEDGMENT AND ENFORCEMENT OF TAX LIENS
Edward P. Leibensperger, Justice
Following a jury trial in May 2012, the entry of judgment in July 2012, and remand by the Appeals Court on plaintiffs' Chapter 93A claims, defendants Anthony Gordon and Occupancy Corporation filed a " Motion for Entry of Satisfaction of Final Judgment." (Paper Number 104.) In response, plaintiffs Gregory Den Herder, Via Restaurants, LLC, and Helvetica Group Investments, LLC filed an opposition and Cross Motion for Determination and Enforcement of Attorney's Lien. (Paper Number 106.) The Commonwealth of Massachusetts Department of Revenue, as intervening defendant, filed a Motion for Acknowledgment and Enforcement of Tax Liens. (Paper Number 118.) The parties filed various memoranda, with attached exhibits, in support of and in opposition to the three motions. At issue is whether Gordon and Occupancy are entitled to a set-off regarding the judgment in this case or whether various liens should take priority. On October 6, 2015, the court held a hearing on the motions. For the following reasons, the motions are ALLOWED in part and DENIED in part, as more fully set forth in the Order below.
The Commonwealth failed to appear on the first day of trial on May 3, 2012, and the court dismissed the Commonwealth as an intervenor defendant. On September 4, 2015, the Commonwealth filed a motion to intervene, and the court allowed the motion in October 2015.
BACKGROUND
The facts as revealed by the materials submitted by the parties are as follows.
For various tax periods between January 1, 2008 and June 30, 2010, the Massachusetts Department of Revenue (department) assessed plaintiff Helvetica for withholding tax and sales tax on meals. Pursuant to G.L.c. 62C, § 31A, the department assessed Den Herder for the taxes as a responsible person of Helvetica. According to the department, the balance of the taxes that Helvetica/Den Herder owed, including interest and penalties as of October 8, 2015, is $149,645.29. On November 27, 2009, April 23, 2010, January 7, 2011, August 26, 2011, and December 16, 2011, the department recorded notices of tax liens against Den Herder with the Office of the Massachusetts Secretary of State. See G.L.c. 62C, § 50 (addressing liens upon property for nonpayment of taxes).
On February 23, 2011, the plaintiffs filed this action against the defendants. As a result of a jury trial in May 2012, the jury awarded damages to the plaintiffs for various common in claims. The trial judge allowed defendants' motion for a directed verdict on plaintiffs' Chapter 93A claims in Counts XI and XII of the plaintiffs' complaint.
On June 1, 2012, Carolyn Pease, a tax examiner for the department, served Attorney Michael S. Marino, counsel for defendants, with a Notice of Levy for the taxes via first class mail. Den Herder is listed as the taxpayer on the Notice of Levy.
On July 12, 2012, judgment entered in this case. The judgment provided in relevant part that:
It is Ordered and Adjudged,
A. That the Plaintiff, Via Restaurants, LLC on Count IV and Count V recover of the Defendants Occupancy Corporation and Anthony Gordon, jointly and severally, the sum of $80,000.00 less the sum of $19,180.00 already paid to Plaintiff's creditor, Internal Revenue Service, in mitigation, with interest thereon at the rate of 12% per annum from the date of filing this action and costs of this action;
B. That the Plaintiff, Helvetica Group Investments on Count X recover of the Defendant Anthony Gordon the sum of $10,000.00 with interest thereon at the rate of 12% per annum from the date of filing this action and costs of this action;
C. That the Plaintiff, Gregory Den Herder on Count VI recover of the Defendant Occupancy Corporation the sum of $135,000.00 with interest thereon at the rate of 12% per annum from the date of filing this action and costs of this action;
D That the Plaintiff, Gregory Den Herder on Count IX recover of the Defendant Ricardo Ramos the sum of $135,000.00 with interest thereon at the rate of 12% per annum from the date of filing this action and costs of this action;
* * *
G. That the Plaintiff, Helvetica Group Investments, LLC[ ] on Count XI, take nothing of the Defendants, Anthony Gordon and Occupancy Corporation, and that the action be dismissed pursuant to the Court's allowance of the Defendants' Motion for Directed Verdict on Count XI;
H. That the Plaintiff, Via Restaurants, LLC on Count XII, take nothing of the Defendants, Anthony Gordon and Occupancy Corporation, and that the action be dismissed pursuant to the Court's allowance of the Defendants' Motion for Directed Verdict on Count XII;
I. That the Defendant Intervener, Museum Properties, Inc., recover of the Plaintiff Helvetica Group Investments, LLC the sum of $10,000.00, together with costs and interest thereon, in partial satisfaction of the parties' Agreement for Judgment in the amount of $111,154.00 including interest thereon, in the Boston Municipal Court, Docket No. 0901CE24 on November 20, 2009; and,
J. That the Defendants Intervenor, Steven J. Carreiro, recover of the Plaintiffs any amount due to the Plaintiffs in this matter, except only for the recovery due to Defendant Intervenor, Museum Properties, Inc., up to and including $301,647.96, together with costs and interests thereon in partial satisfaction of Defendant Intervener Carreiro's Judgment in Suffolk Superior Court, Docket Number SUCV-08-04822.
In SUCV2008-04822, Carreiro obtained a judgment against Den Herder, Igor Blatnik, Via, Helvetica, Helvetica Group Holdings, LLC, Helvetica Group Corp., and Helvetica Group LP.
Defendants appealed from the trial court's order denying their motion for judgment notwithstanding the verdict, and the plaintiffs cross appealed from that portion of the judgment dismissing their Chapter 93A claims. On May 20, 2015, the Appeals Court affirmed the order denying the motion for judgment notwithstanding the verdict and vacated the portion of the judgment dismissing their Chapter 93A claims. The Appeals Court remanded the case for further proceedings, and a trial on the Chapter 93A claims is scheduled for February 2016.
On July 17, 2015, Gordon and Carreiro entered into a document entitled " Assignment of Judgments" whereby Gordon agreed to purchase all of Carreiro's rights, title, and interest that Carreiro has, or will gain in the future, in SUCV2008-04822 and SUCV2011-00725 and the recorded judgments in those cases.
On July 17, 2015, Gordon and Carreiro also entered into a separate document entitled " Judgment Purchase Agreement." The Judgment Purchase Agreement contains provisions which suggest that the " Assignment of Judgments" is a contingent collection agreement. According to the Judgment Purchase Agreement, Gordon paid $200,000 to Carreiro that is held in escrow by an attorney at an undisclosed account at an undisclosed bank to purchase the judgment in the amount of $301,647.96 plus interest that Carreiro was awarded in SUCV2011-00725 in partial satisfaction of Carreiro's judgment in S0CV2008-04822. Judgment Purchase Agreement at 1. Under paragraph two of the Judgment Purchase Agreement, no money has been transferred to Carreiro yet as a result of the transaction, and the funds are being held in the undisclosed escrow account until Gordon " makes actual use of the Judgments by applying the Judgments to 'off-set, ' or through other means, BUYER's and/or Occupancy Corporation's, liability in Civil Action No. 11-0725." Gordon also has the option of expressly waiving the escrow in writing. Under paragraph seven of the Judgment Purchase Agreement, Gordon represented and warranted that he would, " file all necessary and appropriate motions in the Superior Court for the purpose of causing the application of said Judgment as a[n] 'off-set' to the liability of the BUYER [Gordon] and the Occupancy Corporation in satisfaction of their respective judgments in Civil Action No. 11-0725." Under paragraph eight of the Judgment Purchase Agreement, if after the instant case is disposed of, and any amount of the judgment owed to Carreiro in SUCV2008-04822 remains uncollected, " Then Buyer [Gordon] agrees to assign said Judgments and all of his rights, title, and interest that he presently has at the time of said final disposition, in Suffolk Superior Court, Civil Action No. 08-4822 and Civil Action No. 11-0725, and the recorded Judgments associated with said cases back to Seller (Carreiro] for no consideration."
On August 12, 2015, defendants Occupancy and Gordon filed a " Motion for Entry of Satisfaction of Final Judgment" against plaintiffs Den Herder, Via, and Helvetica. (Paper Number 104.) In their motion, Occupancy and Gordon seek the following relief from the court: (1) direct the clerk to calculate interest accrued on Counts IV, V, and VI of the judgment; (2) allow the Motion for Entry of Satisfaction of Final Judgment as to liability on Counts IV (conversion--Occupancy), V (conversion--Gordon), and VI (tortious interference--Occupancy); (3) dissolve any writs of attachment on Gordon and Occupancy's real or personal property; (4) any other relief the court deems necessary and appropriate under the circumstances. In their motion, Occupancy and Gordon report that since February 4, 2011 through July 17, 2015, neither Via nor Den Herder has made any payments to Carreiro in satisfaction of the judgments in SUCV2008-04822. Similarly in this case, SUCV2011-00725, from February 22, 2011 through July 17, 2015, neither Gordon nor Occupancy has made any payments to Via or Den Herder in satisfaction of the judgment entered on July 12, 2012. Defendants Occupancy and Gordon contend that pursuant to the Judgment Purchase Agreement, Gordon has the right to use the judgment in SUCV2008-04822 (by their calculations approximately $462,703.18) to set-off amounts that Gordon and Occupancy owe to Via and Den Herder in SUCV2011-00725 (by their calculations approximately $299,534.86). Occupancy and Gordon argue that, " [s]ince the amount owed to Gordon as assignee of the Carreiro Judgments exceeds the combined amounts owed by Gordon and Occupancy, the instant Judgment is properly deemed satisfied, the balance owing in [SUCV2008-04822] is properly debited in full and with all writs of attachment on real or personal property dissolved." Defendants' Memorandum in Support of Motion for Entry of Satisfaction of Judgment at 4-5. Occupancy and Gordon contend that Gordon was an assignee and bona fide purchaser for value of the SUCV2008-04822 judgment and is entitled to the set-off. Carreiro filed a motion and memorandum in support of Occupancy and Gordon's " Motion for Entry of Satisfaction of Final Judgment." The department filed an opposition to defendants' motion claiming that it had superior tax lien interests in the July 12, 2012 judgment.
Plaintiffs Den Herder, Via, and Helvetica filed an opposition to the " Motion for Entry of Satisfaction of Final Judgment" and also filed a Cross Motion for Determination and Enforcement of Attorney's Lien. (Paper Number 106.) Plaintiffs note that the SUCV2011-00725 action was filed on February 23, 2011 and a formal notice of the attorney's lien was filed with the court on or about January 8, 2015. Plaintiffs argue that setting off the judgments as requested by Occupancy and Gordon would be inappropriate because the judgment in SUCV2011-00725 is encumbered by two priority liens, one for attorneys fees pursuant to G.L.c. 221, § 50 and the other for taxes owed to the department. Plaintiffs contend, that any assignment of the SUCV2008-04822 judgment is subject to those two liens and that Gordon is not a bona fide purchaser under G.L.c. 106, § 8-302. Plaintiffs request that this court deny the " Motion for Entry of Satisfaction of Final Judgment" and make a determination that the attorney's lien and the department's lien attaches to the SUCV2011-00725 judgment and is not set off by any other judgment creditors. Plaintiffs argue that " assigning the judgment does not vitiate the liens." Plaintiffs' Memorandum at 5. See PGR Mgt. Co., Heath Props. v. Credle, 427 Mass. 636, 640, 694 N.E.2d 1273 (1998) (concluding that " because the attorney's lien arose prior to the judgment for the landlord, it has priority under the principle of first in time, first in right").
According to Attorney Liam C. Floyd, plaintiffs' attorneys, Stanzler Levine, LLC, have a lien of approximately $117,000 for unpaid legal fees and costs. Affidavit of Liam C. Floyd dated July 21, 2015. He estimates that legal fees relating to the pending Chapter 93A proceedings would be approximately $45,000.
Den Herder admits that on November 27, 2009, he was served with a Notice of Tax Lien from the department for meal taxes and other taxes in the amount of $51,585.16 as a result of restaurants that Via and Helvetica operated. Affidavit of Gregory Den Herder dated July 20, 2015. As of June 25, 2015, the amount of the tax lien increased to approximately $147,729.68. Den Herder further concedes that he is personally liable for the taxes that Via and Helvetica owe to the department. Id.
On October 6, 2015, the court held a hearing on the motions.
Following the hearing, on November 3, 2015, the department filed a Motion for Acknowledgment and Enforcement of Tax Liens. (Paper Number 118.) The department submitted documents and outlined the facts and dates related to the tax liens it filed against Den Herder, discussed above. Defendants Occupancy and Gordon filed an opposition to the Commonwealth's motion. (Paper Number 120.) Defendants argue, among other things, that the court should find that the assignment is valid and that the set-off is necessary to prevent inequity. In addition, plaintiffs filed a response to the Commonwealth's motion for Acknowledgment and Enforcement of Tax Liens and requested that the court allow the Commonwealth's motion.
DISCUSSION
" The power of the court to order a set-off of judgments does not rest upon statutes; it rests upon the common law and is to be exercised in accordance with general principles of justice and equity." Murphy v. Brilliant Co., 323 Mass. 526, 531, 83 N.E.2d 166 (1948), quoting Goldman v. Noxon Chemical Products Co., 274 Mass. 526, 529, 175 N.E. 67 (1931). See Bishop, Prima Facie Case § 8.17 (5th ed. 2005) (discussing set-offs). " Ordinarily the exercise of this power is at the discretion of the court." Murphy v. Brilliant Co., 323 Mass. at 531. " It is a general principle governing the rights of an assignee of a chose in action that the assignee ought to be in as good but in no better position than his assignor would have been in without the assignment, and that the debtor ought to be in no worse position than if his original creditor were seeking to enforce his claim in his own right." Goldman v. Noxon Chemical Products Co., 274 Mass. at 529. " Commonly the assignee of a claim must take it subject to any existing right of set-off." Id.
Upon review of the materials submitted by the parties and in the exercise of discretion, the court concludes that Defendants' Motion for Entry of Satisfaction of Final Judgment (Paper Number 104) shall be denied, Plaintiffs' Cross Motion for Determination and Enforcement of Attorney's Lien (Paper Number 106) shall be allowed, and the Commonwealth's Motion for Acknowledgment and Enforcement of Tax Liens (Paper Number 118) shall be allowed. As discussed above, on November 27, 2009, April 23, 2010, January 7, 2011, August 26, 2011, and December 16, 2011, the department recorded notices of tax liens against Den Herder with the Office of the Massachusetts Secretary of State. On February 23, 2011, plaintiffs filed this action, SUCV2011-00725, against the defendants. Plaintiffs' attorneys have a lien for attorneys fees on the proceeds of this action as of February 23, 2011. See G.L.c. 221, § 50 (" From the authorized commencement of an action, counterclaim or other proceeding in any court, or appearance in any proceeding before any state or federal department, board or commission, the attorney who appears for a client in such proceeding shall have a lien for his reasonable fees and expenses upon his client's cause of action, counterclaim or claim, upon the judgment, decree or other order in his client's favor entered or made in such proceeding, and upon the proceeds derived therefrom. Upon request of the client or of the attorney, the court in which the proceeding is pending or, if the proceeding is not pending in a court, the superior court, may determine and enforce the lien; provided, that the provisions of this sentence shall not apply to any case where the method of the determination of attorneys fees is otherwise expressly provided by statute").
In addition, on June 1, 2012, Carolyn Pease, a tax examiner for the department, served Attorney Michael S. Marino, counsel for the defendants, with a Notice of Levy for the taxes via first class mail.
The tax liens and the attorney's lien at issue here predate the " Assignment of Judgments" and the " Judgment Purchase Agreement" that Gordon and Carreiro entered into on July 17, 2015. Moreover, the tax liens and the attorney's lien predate Defendants' Motion for Entry of Satisfaction of Final Judgment that defendants filed on August 12, 2015. In these circumstances, where Gordon and Occupancy had notice of the tax liens and attorney's lien applicable to the judgment that was entered on July 12, 2012, this court cannot conclude that under the " general principles of justice and equity" that Gordon and Occupancy should be entitled to a set-off pursuant to Gordon's private arrangement with Carreiro in their " Judgment Purchase Agreement." See Murphy v. Brilliant Co., 323 Mass. at 531. See also In re Nerland Oil, Inc., 303 F.3d 911, 917-20 (8th Cir. 2002) (determining that previously assessed federal tax liens were superior to attempted set-off transaction). Allowing the defendants' motion would likely shield the monetary proceeds from the instant judgment from the department that it is entitled to recover under the preexisting tax liens and would potentially deny plaintiffs' attorneys the legal fees they earned by representing the plaintiffs in this action. Accordingly, defendant's motion is denied.
It is likely that the department's tax liens have priority over the attorney's lien because the tax liens were " first in time." See Hayes v. Department of Revenue, 44 Mass.App.Ct. 905, 905-06, 687 N.E.2d 648 & n.2 (1997) (assuming that " lien first in time has priority" and concluding that attorney's lien had priority over department's tax liens). See also Plaintiffs' Response to Motion by Commonwealth of Massachusetts for. Acknowledgment and Enforcement of Tax Liens at 3 (requesting that this court allow the Commonwealth's motion). However, final resolution of priority and the exact amounts of each lien should be left for determination after the pending Chapter 93A claims are resolved.
ORDER
Defendants' Motion for Entry of Satisfaction of Final Judgment (Paper Number 104) is DENIED, Plaintiffs' Cross Motion for Determination and Enforcement of Attorney's Lien (Paper Number 106) is ALLOWED, and the Commonwealth's Motion for Acknowledgment and Enforcement of Tax Liens (Paper Number 118) is ALLOWED. The court recognizes the Commonwealth's tax liens and the plaintiffs' attorney's lien and concludes that these liens must be satisfied prior to the defendants' requested entry of satisfaction of judgment based on a set-off.