Opinion
No. 15–P–1333.
07-01-2016
K.G.M. CUSTOM HOMES, INC. v. Stephen J. PROSKY & others.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
This is an appeal by the plaintiff, K.G.M. Custom Homes, Inc. (KGM), from a second amended judgment entered by a judge of the Superior Court, which ordered the total amount of damages against the defendants, Karen Monteiro, Stephen J. Prosky, and Joan Stormo (collectively, the Proskys), to be reduced by the amount of a settlement in a different case filed by KGM against a different defendant, the Proskys' attorney, Peter T. Clark (Mr. Clark). The issue in this appeal is whether the amount paid by Mr. Clark in his settlement of KGM's G.L. c. 93A claims against him should be credited against the amount the Proskys owe to KGM in this case.
Background. KGM's contractual damage action against the Proskys was previously reviewed by the Supreme Judicial Court (SJC) in K.G.M. Custom Homes, Inc. v. Prosky, 468 Mass. 247 (2014). On October 12, 1999, the Proskys executed a purchase and sale agreement with KGM to sell approximately 45.7 acres of land in Norton to KGM for the purpose of developing residential homes. Id . at 247–248. In or about August, 2004, Mr. Clark told KGM “that the Proskys had received a higher offer for the property” and that KGM “should calculate its damages based on the liquidated damages provision of the purchase and sales agreement.” Id. at 248. KGM filed suit against the Proskys, and following a jury-waived trial, the judge found for KGM because Mr. Clarks's “attempt to scuttle the deal” at the closing and the days leading up to it constituted a breach of the implied covenant of good faith and fair dealing in the purchase and sale agreement. Ibid. The judge instructed KGM to choose liquidated damages or specific performance and KGM elected to collect liquidated damages, for which the judge awarded $375,483.66. Id. at 253. The SJC affirmed the judge's decision to allow the Proskys to elect either specific damages or liquidated damages as a remedy but reversed the judge's decision to award the Proskys $120,000 in attorney's fees incurred in connection with the litigation.
There was no formal offer from another party when Mr. Clark made this representation.
Mr. Clark prepared several legal documents necessary for the transaction that the Proskys signed. K.G.M. Custom Homes, Inc., 468 Mass. at 252. However, Mr. Clark did not forward any drafts of said documents to KGM's attorney or contact KGM's attorney in the days leading up to the closing. Ibid. KGM's attorney was therefore unable to prepare any drafts of the closing documents but was prepared to do so on the scheduled closing date. Ibid. On the day of closing, Mr. Clark showed up with a videographer to record the closing. Ibid. This caused “a heated argument” between the parties. Ibid. When the parties attempted to complete the closing, KGM's attorney asked Mr. Clark to show him the note and mortgage that Mr. Clark had prepared. Ibid. Mr. Clark held the documents about two feet away and refused to give them to KGM's attorney, and the parties did not close the sale. Ibid.
While this contract case filed by KGM against the Proskys was pending, KGM commenced a lawsuit against Mr. Clark, in his individual capacity, for unfair and deceptive conduct in violation of G.L. c. 93A. Mr. Clark settled KGM's claim against him for $595,000. KGM gave Mr. Clark a general release of liability that acknowledged payment of the settlement amount.
The release stated, in pertinent part: “Provided however that nothing in this agreement shall be construed to release any of the claims asserted in, or in any other way affect or impact, the matter of K.G.M. Custom Homes, Inc. v. Stephen Prosky, ... and all proceedings relating thereto including appellate proceedings and further proceedings on remand.”
After the SJC issued its opinion in this case, the Proskys filed a motion seeking to apply the settlement proceeds obtained in KGM's suit against Mr. Clark to the judgment obtained in this contract case. The judge allowed the motion, and ordered that “[t]he total amount of the judgment against the [Proskys], including interest and costs, shall be reduced by $595,000.00.” A second amended judgment entered accordingly, from which KGM appeals.
Discussion. KGM argues that the judge erroneously concluded that the amount Mr. Clark paid in settlement of KGM's c. 93A claim against him must be credited against the amount the Proskys owe KGM in this separate contract action. In order to evaluate this claim, we first analyze whether the c. 93A claim against Mr. Clark is precluded by the liquidated damages clause in the purchase and sale agreement, and if not, whether Mr. Clark's settlement of his individual claim can be allocated to the judgment against the Proskys.
The judge applied the one satisfaction rule to allocate the judgment. See discussion, infra.
1. Liquidated damages. We first turn to the language of the liquidated damages provision in the purchase and sale agreement to determine if it precludes a G.L. c. 93A action. Although “[a]n action pursuant to G.L. c. 93A is neither wholly tortious nor wholly contractual in nature ..., claims of unfair or deceptive acts or practices may be founded on activities that more closely resemble either a traditional breach of contract action or an action in tort.” Standard Register Co. v. Bolton–Emerson, Inc., 38 Mass.App.Ct. 545, 548 (1995) (quotation and citations omitted). Whether a contractual limitation of damages provision precludes recovery under G.L. c. 93A, § 11, depends on the classification of the c. 93A claim as one in contract or in tort. Ibid. In KGM's c. 93A claim against Mr. Clark, where “the misrepresentations of [Mr. Clark] are at the core of [KGM]'s claim for a violation of G.L. c. 93A, § 11,” the claim is “a chapter 93A claim which sounds in tort rather than contract.” Id. at 550. Compare Canal Elec. Co. v. Westinghouse Elec. Corp., 406 Mass. 369, 378–379 (1990) (G.L. c. 93A, § 11, claim barred by limitation of liability provision in contract because claim arose from breach of warranty which is “duplicative of a traditional contract claim”).
The judge found that the limitation of damages provision between the Proskys and KGM “provided that if the Proskys breached the agreement, they would pay KGM as liquidated damages, a sum of money equal to all charges and fees paid by [KGM] in connection with this transaction, including but not limited to, attorney's fees.” The plain language of the purchase and sale agreement limits damages only in the event of a breach of contract.
Moreover, “[a] term exempting a party from tort liability for harm caused intentionally ... is unenforceable on grounds of public policy.” Restatement (Second) of Contracts § 195 (1981).
Above all, even if we assume, arguendo, that the liquidated damages clause of the purchase and sale agreement shielded the Proskys from liability under G.L. c. 93A, § 11, the provision has no effect on the independent liability of Mr. Clark, who was not a party to the agreement. See Standard Register Co. v. Bolton–Emerson, Inc., 38 Mass.App.Ct. at 550–551. Although Mr. Clark was acting as a fiduciary of the Proskys, he is still personally liable for his own misrepresentation in violation of G.L. c. 93A, § 11. See id. at 551. See also Restatement (Third) of Agency § 7.01 (2006) (“An agent is subject to liability to a third party harmed by the agent's tortious conduct”).
2. Allocation. The judge applied the one satisfaction rule to determine that KGM can only recover once for a single, indivisible harm and allocated Mr. Clark's $595,000 settlement to the amount the Proskys owed to KGM. “It is settled law that the satisfaction of a judgment against one of several coobligors discharges the others.... The reason for this rule is plain. Although there are several obligors there is but one debt; therefore the satisfaction of the debt, or of a judgment against one for it, necessarily discharges all.” Perry v. Oliver, 317 Mass. 538, 540 (1945). Where there are multiple claims for “[c]ommon damages stemming from an indivisible harm [,] ... a party can ‘have but one satisfaction for the same injury.’ “ Short v. Marinas USA Ltd. Partnership, 78 Mass.App.Ct. 848, 858 (2011), quoting from Murray v. Lovejoy, 17 F. Cas. 1052, 1055 (D.Mass.1863). This rule applies, for example, when both a principal and agent are liable based on a breach of contract. New England Structural Co. v. James Russell Boiler Works Co., 231 Mass. 274, 277–278 (1918) (unpaid seller “could pursue its remedy concurrently against the agents and the principal, but could have but one satisfaction of its demands”).
We do not find the judge's use of the one satisfaction rule persuasive in this instance. First, the Proskys and Mr. Clark are not coobligors; and second, the claims against the Proskys and Mr. Clark are analytically independent and therefore are not a single indivisible harm even though they arose under the same nucleus of operative facts. The Proskys, through Mr. Clark's actions, breached a contract, i.e., the purchase and sale agreement. Mr. Clark knowingly and wilfully misrepresented that there was another purchaser of the land, which was the basis of the c. 93A claim.
We acknowledge that, in this instance, the same transaction or occurrence can give rise to two separate civil wrongs against separate defendants who are neither codefendants nor coobligors. Contrast Perry v. Oliver, 317 Mass. at 540.
We address the general release in the c. 93A action against Mr. Clark because the judge found that “[t]he reservation of rights language in KGM's release of Clark does not alter the Proskys' rights because they were not parties to that agreement.” The general release states, “nothing in this agreement shall be construed to release any of the claims asserted in, or in any other way affect or impact, the matter of K.G.M. Custom Homes, Inc. v. Stephen Prosky. ” The judge also stated that “KGM and the Proskys explicitly agreed [in the purchase and sale agreement] that in case of a breach of contract by the Proskys, KGM's loss would be calculated under the liquidated damages provision in their contract.” The provisions of the purchase and sale agreement, however, could not be applied to limit KGM's rights against Mr. Clark. The amount of damages should not have been reduced by Mr. Clark's settlement amount because KGM's c. 93A claim against Mr. Clark is “analytically independent of the wrong that supported [KGM]'s claim against [the Proskys].” Boyle v. Zurich Am. Ins. Co., 472 Mass. 649, 663 (2015).
We reiterate that even if we were to assume, without deciding, that Mr. Clark's liability could be subject to the limitation of damages provision in the purchase and sale agreement, it only covered breaches of contract, not c. 93A claims primarily based in tort. See Standard Register Co., 38 Mass.App.Ct. at 548–549.
Conclusion. We reverse the second amended judgment and remand for the entry of a new judgment consistent with this memorandum and order.
So ordered.