Opinion
No. 15–P–1640.
10-03-2016
MARSHALL FARMINGTON LLC v. MARKHAM METALS, INC.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The plaintiff, Marshall Farmington LLC (Farmington), sued the defendant, Markham Metals, Inc. (Markham), asserting breach of contract (count I), breach of the implied covenant of good faith and fair dealing (count II), violation of G.L. c. 93A (count III), and seeking an attachment on trustee process (count IV), all arising from the breach of a commercial lease. Farmington moved for partial summary judgment on counts I and II, and Markham cross-moved for summary judgment. The motion judge (1) entered summary judgment in Farmington's favor on its claims for breach of contract and breach of the covenant of good faith and fair dealing, (2) denied Markham's cross motion, and (3) allowed Farmington's motion for a hearing on Counts III and IV. Markham raises no issue on appeal concerning the judge's ruling on the summary judgment motions. Instead, the sole issue on appeal is the judge's calculation of damages, and the portion of the subsequent judgment incorporating that calculation, entered after she conducted a nonevidentiary hearing. For the reasons set out below, we agree with Farmington that the methodology for assessing damages that the judge employed was incorrect as a matter of law and therefore vacate that portion of the judgment assessing no monetary damages and remand for further proceedings.
Markham's cross motion appears to be limited to Counts I and II, although the record is not explicit on this point.
Neither party raises any issue concerning the procedure employed by the judge below. However, we note that it appears to have been neither a motion for summary judgment (because the factual record was not undisputed) nor a bench trial (which requires evidence). We need not resolve how best to view or categorize the procedure employed, however, because the error raised on appeal is one of law and our standard of review accordingly is the same regardless of the procedural posture.
The liquidated damages provision of the lease between the parties provides that, in the case of Markham's default and the subsequent expiration or termination of the lease or Farmington's repossession of the leased premises, Markham will
“be liable to [Farmington] for ... (i) the Basic Rent, additional rent and other sums which would be payable under this Lease by [Markham] in the absence of such expiration, termination, or repossession, less (i) the net proceeds, if any, of any reletting effected for the account of [Markham] ... after deducting from such proceeds all [Farmington]'s reasonable expenses in connection with such reletting (including, without limitation, all repossession costs, brokerage commissions, legal expenses, reasonable attorneys' fees, employees, expenses.[) ]”
Basic rent is defined in Section 6(a) as $177,616 for the first two years of the lease (i.e., $8.50 per rentable square foot), plus $182,840 for the third year of the lease (i.e., $8.75 per rentable square foot).
On appeal, Markham argues neither (1) that the liquidated damages provision is an unenforceable penalty (a matter it had the burden to establish), see NPS, LLC v. Minihane, 451 Mass. 417, 420 (2008), nor (2) that the judge erred in concluding that the liquidated damages provision should be enforced. As a result, the only issue on appeal is whether the judge properly applied the terms of the liquidated damages provision to the facts, a matter subject to de novo review. NPS, LLC v. Minihane, 451 Mass. at 419 (application of terms of liquidated damages provision to facts of case is reviewed without deference).
Here, the liquidated damages provision required the following calculation: the net proceeds “of any reletting effected for the account of [Markham] ... after deducting from such proceeds all [Farmington]'s reasonable expenses in connection with such reletting” are to be subtracted from the basic rent and any “additional rent and other sums which would be payable” by Markham under the lease.
As to the second part of the formula, Markham agrees that it owed $519,569.33, an amount derived from adding $508,469.33 (the total basic rent) plus $11,100 (the landscaping costs for which Markham was responsible). The parties disagree, however, about how to calculate the amount to be offset against Markham's obligation. Markham argues (and the judge below accepted) that the entire amount Farmington was to receive under its subsequent lease with Kintetsu World Express (USA), Inc. (Kintetsu) is to be offset, regardless of any differences in the terms of the two leases. We disagree. As required by the plain language of the liquidated damages provision, only those proceeds from the Kintetsu lease that are “for the account of Markham” (minus reasonable expenses associated with the reletting) are to be offset. In other words, only proceeds from the Kintetsu lease that correspond to the terms of the Markham lease are to be deducted. As a result, although the judge was correct that the two major differences between the leases (the Kintetsu lease was for six years while the Markham lease was for three; the Kintetsu lease was for 30,180 square feet, while the Markham lease was for 20,896 square feet) needed to be accounted for, the equalization of the two should have used the Markham lease as its foundation.
Accordingly, we reverse the portion of the first paragraph of the judgment which states that the plaintiff takes nothing. On remand, in order to determine the liquidated damages amount the judge should: (1) determine the “Commencement Date” under the Markham lease; (2) calculate the rent due and other payments under the Kintetsu lease for the three-year period beginning on the commencement date of the Markham lease (“Kintetsu gross rent”); (3) reduce the Kintetsu gross rent by a factor to account for only the area of the premises covered by the Markham lease (“Kintetsu equalized rent”); (4) subtract the Kintetsu equalized rent from $519,569.33 (“rent differential”); (5) determine the “reasonable expenses in connection with reletting” the 20,896 square feet covered in the Markham lease (“including, without limitation, all repossession costs, brokerage commissions, legal expenses, reasonable attorneys' fees, employees, expenses”) (“reletting expenses”); and (6) add the reletting expenses to the rent differential.
This will not be three full years of rent if the commencement date is before the beginning of the Kintetsu lease term.
It is for the trial judge on remand to determine whether any particular expense is a “reasonable expense of reletting.” However, we note that only those expenses related to the space covered by the Markham lease are to be included. Thus, for example, the costs incurred to build the mezzanine office space for Kintetsu, and any costs to finish or fit out the additional areas of the building not encompassed within the Markham leased premises, should not be included among reasonable costs of reletting the Markham space.
Farmington is not entitled, under section 13 of the Markham lease, to $42,432 in unusable Markham-specific construction costs because these costs are already accounted for in the Base Rent calculation.
No cross appeal having been taken from the judge's rulings on summary judgment concerning Markham's breach, we affirm that portion of the judgment allowing Farmington to retain the security deposit. Section 29 of the Markham lease clearly provides that, in addition to other remedies, Farmington is entitled to retain the security deposit in the event of default.
Finally, although the judge's summary judgment order stated that a hearing would be had on Counts III and IV (c. 93A and attachment on trustee process), we note that judgment ultimately entered on count III without further proceedings, apparently based on the judge's erroneous calculation of damages. Since we are vacating the portion of the judgment finding no damages, it follows that the portion of the judgment dismissing Count III is also reversed, and that cause of action is open to consideration on remand.
The final judgment does not refer to Count IV, and Markham does not make any argument concerning that count. We do not consider that count to be before us.
We affirm the entry of summary judgment in Farmington's favor on Counts I and II of the verified complaint, reverse the determination of no damages, reverse the judgment dismissing Count III, and remand for further proceedings consistent with this memorandum and order.