Opinion
20-P-522
06-21-2021
COLD SPRING GREEN, LLC, & another v. EAST BOSTON SAVINGS BANK.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The plaintiffs, Cold Spring Green, LLC (Cold Spring Green), and Hisham Ashkouri, brought this action alleging that the defendants, East Boston Savings Bank (EBSB) and Mount Washington Bank (MWB), engaged in wrongdoing in connection with a construction loan provided to Cold Spring Green. The plaintiffs' claims for breach of contract, unjust enrichment, fraud or intentional misrepresentation, and violation of G. L. c. 93A were submitted to a jury, although the c. 93A claim was submitted to the jury on an advisory basis only. The jury found in the defendants' favor on all claims but the c. 93A claim, on which the jury found that the defendants willfully or knowingly engaged in unfair or deceptive acts or practices. The judge adopted the jury's verdict on the c. 93A claim, doubled the damages that they awarded, and also awarded attorney's fees.
Although MWB was not listed as a separate defendant in the complaint, the parties have treated it as such and so do we.
The parties, but not the jury, were informed of the advisory nature of the jury's verdict on the c. 93A claim.
The defendants appeal, arguing that the common-law claims failed as a matter of law and that the c. 93A claim, which the defendants describe as "wholly derivative" of the common-law claims, thus also failed. The defendants further argue error in (1) the conclusion that the c. 93A violation was willful or knowing, (2) the sufficiency of the judge's findings, and (3) the amount of attorney's fees awarded. We affirm.
Background. Ashkouri is an accomplished architect and the manager of Cold Spring Green, a development firm. In 2007, Ashkouri started working on a project to develop two properties -- 1188 and 1192 Beacon Street -- into four high-end condominium units. To obtain financing, he reached out to MWB and met with two MWB employees, Krista Birardi and Richard Costa. Ashkouri proposed two phases of lending and construction. The idea was that during phase one, MWB would lend Cold Spring Green $3.933 million to (1) pay off some existing debt, (2) fund the construction of two exterior shells, one on each property, and (3) finish the interiors of two condominium units at 1188 Beacon Street. During phase two, MWB would lend Cold Spring Green an additional sum of approximately $910,000 to finish the interiors of two condominium units at 1192 Beacon Street; Birardi and Costa described this as "roll[ing] into" phase two. As reflected in an internal credit approval memorandum, MWB knew that Ashkouri needed the phase two funding to complete the project.
The internal memorandum stated that at the end of phase one, Ashkouri would have to "come back" to MWB for additional funding if he wanted to complete the project, as Ashkouri did not "show the financial capacity to fund the ‘cost to cure’ for the two shells."
On November 29, 2007, MWB sent a commitment letter to Ashkouri agreeing to lend Cold Spring Green $3.933 million. In part, the commitment letter stated that $530,000 would be advanced to pay off existing mortgages on the Beacon Street properties, an additional $200,000 would be advanced to pay off an existing line of credit, and MWB would require "a satisfactory updated appraisal" before providing any additional phase two funding. The construction loan closed on December 7, 2007, on which date Ashkouri, as manager of Cold Spring Green, executed (1) a promissory note agreeing to repay the loan by June 7, 2009, (2) a mortgage and security agreement, which pledged as collateral the Beacon Street properties and four offices located at 1185 Washington Street, and (3) a construction loan agreement, which among other things provided that the principal balance would not be more than $3.933 million at any one time.
The November 29, 2007 commitment letter revised a November 27, 2007 commitment letter, which listed the wrong borrower.
The offices were owned by various trusts of which Ashkouri was the beneficiary.
In or around March 2009, as phase one of the project was nearing completion, Ashkouri reached out to Birardi and Costa to request the phase two funding. Then, in April 2009, MWB obtained the updated appraisal on which the phase two funding had been conditioned, although MWB did not share the appraisal with Ashkouri. The appraisal showed that the fair market values of the two units at 1188 Beacon Street were each $1.35 million, the fair market values of the two units at 1192 Beacon Street were each $1.475 million, and the combined fair market value of the four 1185 Washington Street offices was $940,000.
In other words, MWB had nearly $6.6 million in collateral on a $3.933 million loan.
Despite the appraisal, MWB did not provide the phase two funding that was needed to finish the interiors of the units at 1192 Beacon Street. Instead, Ashkouri was told that Birardi and Costa were no longer in charge of the account and was given the option of entering into a series of agreements extending the maturity date, during which time the construction loan continued to accrue interest. On July 1, 2009, MWB agreed to extend the maturity date to August 7, 2009, in exchange for a $6,000 loan modification fee. Effective September 22, 2009, MWB agreed to extend the maturity date to December 31, 2009, in exchange for a $500,000 principal reduction payment.
The September 22, 2009, agreement gave Cold Spring Green the option of making a $500,000 principal reduction payment or of entering into a purchase and sale agreement with a qualified third party for the sale of one of the finished units at 1188 Beacon Street. Cold Spring Green made the $500,000 principal reduction payment.
After the second extension, MWB merged with EBSB in January 2010. EBSB then agreed to extend the maturity date two more times. Effective July 18, 2010, EBSB agreed to extend the maturity date to December 31, 2010, in exchange for a $6,000 extension fee. Finally, effective February 20, 2011, EBSB agreed to extend the maturity date to June 30, 2011, on the condition that Cold Spring Green do the following: (1) pay a $6,000 extension fee, (2) make a $50,000 principal reduction payment, and (3) make an additional $100,000 principal payment reduction or enter into a purchase and sale agreement with a qualified third party for the sale of one of the finished units at 1188 Beacon Street. Ashkouri proposed that another entity he owned purchase one of the units, but EBSB rejected Ashkouri's proposal and called for the additional $100,000 principal reduction payment.
While the parties were agreeing to the extensions, and unbeknownst to Ashkouri, the Federal Deposit Insurance Corporation (FDIC) issued a cease and desist order to MWB, which was experiencing financial trouble. Due to MWB's financial trouble, Birardi and Costa were terminated in April and June 2009, respectively, which is why Ashkouri was told that they were no longer in charge of the account. And, MWB's financial trouble was the reason for the eventual merger with EBSB in January 2010.
The parties disputed at trial whether the order prohibited MWB from providing the phase two funding, an issue we need not decide.
The two finished units at 1188 Beacon Street eventually sold in 2011 and 2013, and the proceeds of the sales went to EBSB. But, a balance remained on the construction loan. Thus, in 2013, EBSB filed an action in Superior Court seeking authority to foreclose. While the Superior Court granted EBSB authority to proceed, EBSB did not do so and instead, in 2015, sold its interest in the construction loan to a third party note purchaser. The third party note purchaser then foreclosed on the remaining collateral; as a result, the plaintiffs lost their interest in 1192 Beacon Street and the four 1185 Washington Street offices. This lawsuit followed.
It was Ashkouri's position that the unfinished units at 1192 Beacon Street had a "negative impact" on the sale of the finished units at 1188 Beacon Street.
Discussion. 1. G. L. c. 93A. The defendants' primary argument is that the common-law claims failed as a matter of law and that the G. L. c. 93A claim, which the defendants describe as "wholly derivative" of the common-law claims, thus also failed. In particular, the defendants argue that their maximum commitment under the construction loan was $3.933 million, that the plaintiffs were in breach of their obligations, and that the foregoing had a "domino effect" on all of the plaintiffs' claims. The plaintiffs, however, argue that they based their c. 93A claim on conduct that was separate and distinct from the conduct on which they based their common-law claims. The plaintiffs further argue that this separate and distinct conduct was unfair or deceptive within the meaning of c. 93A. We agree with the plaintiffs.
A judge may find facts on a c. 93A claim that are inconsistent with a jury's verdict on common-law claims. See, e.g., Velleca v. Uniroyal Tire Co., 36 Mass. App. Ct. 247, 251 (1994). But, where common-law claims fail as a matter of law, a derivative c. 93A claim also fails. See, e.g., Fernandes v. Rodrigue, 38 Mass. App. Ct. 926, 928 (1995).
A c. 93A claim has no merit if it is wholly derivative of a meritless common-law claim, such as a claim for breach of contract, fraud, or misrepresentation. See, e.g., Private Lending & Purchasing, Inc. v. First Am. Title Ins. Co., 54 Mass. App. Ct. 532, 539-540 (2002) ; Macoviak v. Chase Home Mtge. Corp. 40 Mass. App. Ct. 755, 760 (1996). Cf. Pembroke Country Club, Inc. v. Regency Sav. Bank, F.S.B., 62 Mass. App. Ct. 34, 40 (2004) (chapter 93A claim was "wholly derivative" of tortious interference counterclaim). This is so because a wholly derivative c. 93A claim "is absorbed in and vanishes with" the meritless common-law claims. Fernandes v. Rodrigue, 38 Mass. App. Ct. 926, 928 (1995). For example, a c. 93A claim alleging unfair or deceptive acts or practices "surrounding" an underlying breach of a contract is wholly derivative of the breach of contract claim and must fail if the breach of contract claim fails. See, e.g., Park Drive Towing, Inc. v. Revere, 442 Mass. 80, 85-86 (2004).
In contrast, the plaintiffs alleged that after the project commenced, the defendants "continued to promote the notion that additional funding was forthcoming ... which enticed [the plaintiffs] to agree on numerous ... extensions of the [m]aturity [d]ate. Each extension carried with it thousands of dollars in extension fees and interests." The plaintiffs alleged that the practice of extending the maturity date "simply to collect extension fees and interests," and without the intention of providing the phase two funding, was an unfair or deceptive act or practice. These allegations described conduct that had an extortionate quality and articulated a basis for the plaintiffs' c. 93A claim that was separate and distinct from their breach of contract, unjust enrichment, and fraud or intentional misrepresentation claims.
Moreover, there was ample evidence to support the allegations that the defendants engaged in conduct that had an extortionate quality, and that the defendants did so willfully or knowingly. In particular, as reflected in the internal credit approval memorandum, MWB knew that Ashkouri needed the phase two funding to complete the project. Thus, the original idea was to roll into phase two, assuming a satisfactory appraisal. After Ashkouri requested the phase two funding, MWB proceeded with obtaining the required appraisal, which was objectively satisfactory. But, instead of disclosing the appraisal and providing the essential phase two funding, MWB chose a course of conduct that allowed it to collect additional sums of money in the form of extension fees and interest. The judge reasonably could have inferred that MWB did so knowing that Ashkouri would acquiesce due to his misunderstanding that the phase two funding was forthcoming. The judge also reasonably could have inferred that MWB, followed by EBSB, chose this course of conduct due at least in part to MWB's financial trouble, which was serious enough that the FDIC issued a cease and desist order, Birardi and Costa were terminated, and MWB eventually merged with EBSB. This sort of willful or knowing conduct had "an extortionate quality [with a] rancid flavor of unfairness" and warranted the judge's conclusion on the c. 93A claim. Ross v. Continental Resources, Inc., 73 Mass. App. Ct. 497, 515 (2009), quoting Atkinson v. Rosenthal, 33 Mass. App. Ct. 219, 226 (1992).
The parties did not describe how this would happen, but there was evidence of something similar having occurred in the past insofar as existing mortgages and a line of credit were rolled into the construction loan.
2. Sufficiency of findings. The judge's order on the c. 93A claim stated that, after hearing the evidence and considering the parties' posttrial submissions, he found "factual support" for the c. 93A claim and the conclusion that the violation was willful or knowing. The defendants argue that the judge's findings were insufficient and did not comply with Mass. R. Civ. P. 52 (a), as amended, 423 Mass. 1402 (1996). The defendants urge us to vacate the judgment on this basis. We conclude that we need not do so.
Mass. R. Civ. P. 52 (a) requires a judge in a bench trial to "find the facts specially." We note that, here, the c. 93A claim was submitted to the jury, albeit on an advisory basis only. We need not decide whether Mass. R. Civ. P. 52 (a) applies in these circumstances.
First, we note that if findings are insufficient, the usual remedy is to remand for additional findings, not to vacate the judgment. See, e.g., Lewis v. Walcott, 47 Mass. App. Ct. 394, 398-399 (1999). Second, we discern no reason to remand where we are able, on the record, to ascertain the basis for the judge's conclusion. See Commonwealth v. One 1969 Mercedes-Benz Auto., 375 Mass. 663, 666 n.3 (1978) (due to "particular circumstances" of case, court could import findings of fact necessary to support judge's conclusion). Contrast Leader v. Hycor, Inc., 395 Mass. 215, 224 (1985) (remand required where court was unable to ascertain basis for judge's conclusion). From the allegations in their complaint to the arguments in their posttrial submission, the plaintiffs made clear the basis for their c. 93A claim, which was the extortionate conduct described above. We thus have no trouble ascertaining the basis for the judge's conclusion that the defendants willfully or knowingly engaged in unfair or deceptive acts or practices.
3. Attorney's fees. The judge awarded the plaintiffs $180,540 in attorney's fees under G. L. c. 93A, § 11. This amount reflected a deduction of twenty-five percent to account for the "overlap between the effort undertaken" on the unsuccessful common-law claims and the successful c. 93A claim. The defendants argue that this deduction was insufficient and that the plaintiffs should not have been awarded attorney's fees for time spent on the unsuccessful common-law claims. This argument fails for two reasons. First, even though the c. 93A claim was independent of the common-law claims, the claims did arise from the same "chain of events," and if "apportionment of the legal work is not feasible," a judge "may treat the entire work as an indivisible contribution to the c. 93A accomplishment." Castricone v. Mical, 74 Mass. App. Ct. 591, 604 (2009). Second, the judge did make a sizeable deduction in light of the unsuccessful common-law claims. We thus discern no reason to disturb the award of attorney's fees.
We allow the plaintiffs' request for appellate attorney's fees, pursuant to G. L. c. 93A, § 11. The plaintiffs may file an application for appellate attorney's fees and costs within fourteen days of the date of the rescript, in accordance with the procedure set forth in Fabre v. Walton, 441 Mass. 9, 10-11 (2004). The defendants shall then have fourteen days within which to respond.
Judgment affirmed.