Summary
allowing the plaintiff summary judgment on the defendant's chapter 93A counterclaim grounded upon breach of contract
Summary of this case from John T. Callahan Sons, Inc. v. Dykeman Elec. Co.Opinion
Civil Action No. 01-30053-MAP
May 10, 2002
MEMORANDUM REGARDING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (Docket Nos. 25 and 32)
I. INTRODUCTION
Plaintiff Sunoco Inc. (R M) ("plaintiff") brought suit against Naif Makol ("Makol") and Makol Family Limited Partnership ("Makol LP") (together, "defendants"), contending that defendants wrongfully refused to honor an option agreement allowing plaintiff to buy 928 Riverdale Street in West Springfield, Massachusetts. The location hosts a gas station, a car wash, a convenience store, and an automated teller machine. Defendants retort that the option agreement was terminated by plaintiff's breach of the lease governing 928 Riverdale Street; they have brought counter-claims for breach of that lease and for violation of Mass. Gen. Laws ch. 93A.
Both plaintiff and defendants have filed motions for summary judgment. For the reasons discussed below, plaintiff's motion for summary judgment will be allowed as to the 93A counterclaim, and as to all of defendant Makol's counterclaims, but otherwise denied. Defendants' motion for partial summary judgment will be allowed.
II. STANDARD OF REVIEW
Summary judgment is proper where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A "genuine" issue is one that reasonably could be resolved in favor of either party, and a "material" fact is one that affects the outcome of the suit under governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). The court must view all the evidence in the light most favorable to the nonmoving party, "drawing all reasonable inferences in that party's favor." Thomas v. Eastman Kodak Co., 183 F.3d 38, 42 (1st Cir. 1999), cert. denied, 528 U.S. 1161 (2000).
The Supreme Judicial Court has made it clear that "[i]f a . . . lease, is unambiguous, its interpretation is a question of law that is appropriate for a judge to decide on summary judgment." Seaco Ins. Co., v. Barbosa, 435 Mass. 772, 779 (2002). Here, nearly all of the "legal issues concern contract interpretation and are therefore appropriately resolved through summary judgment." Peoples Heritage Sav. Bank v. New Heritage Holdings, Inc., No. 93-10169, 1994 WL 175029, at *1 (D.Mass. April 29, 1994). See also Principal Mut. Life Ins. Co. v. Racal-Datacom, Inc., 233 F.3d 1, 3 (1st Cir. 2000) ("Contract interpretation is often said to be 'a question of law' for the trial judge'"); Lumber Mut. Ins. Co. v. Zoltek Corp., 419 Mass. 704, 707 (1995) ("interpretation of a written contract or lease is a question of law, not of fact."); Lexington Ins. Co. v. All Regions Chemical Labs, Inc., 419 Mass. 712, 713 (1995) (same).
III. FACTUAL AND PROCEDURAL BACKGROUND
Prior to May, 1993, Makol and F.L. Roberts Co., Inc. ("Roberts") owned adjoining parcels located at or about 928 Riverdale Street, West Springfield, Massachusetts. (Docket 27 at 1-2). The adjoining parcels contained a gas station, a car wash, a convenience store, and a freestanding ATM machine. Id. at 2. In May, 1993, Roberts conveyed its parcel to Makol, so that Makol could lease both adjoining parcels (the "Riverdale Premises") back to Roberts. Id.
On May 5, 1993, Makol and Roberts executed a Lease Agreement (the "Lease") for a period of twenty-one years. (Docket 27, Exhibit 4). Two provisions are relevant to this dispute.
First, Paragraph 10 governed the Lessee's ability to assign or sublease the Riverdale Premises:
(a) Provided that the Lessee is not in default hereunder, the Lessee shall be entitled to assign this Lease or make a sublease for the whole of the Premises as follows. The right to assign or sublease shall be restricted to an assignment or sublease in favor of Sun Company, Inc. (R M), or another major national oil company (the "Assignee") whereby the Assignee, by written agreement entered into with the Lessor assumes all obligations and liabilities of the Lessee under this Lease. Notwithstanding any such assignment or sublease, the Lessee shall remain additionally liable to perform all of the obligations of the Lessee under this Lease. The Lessee agrees to provide the Lessor with written notice of any such assignment or sublease thirty (30) days in advance of the effective date thereof.
(b) Any attempted assignment or sublease which does not fully comply with Paragraph 10(a) shall be deemed a default hereunder, at the option of the Lessor, and shall be null and void and have no effect with regard to the Lessor.
Id. at 18-19.
Second, Paragraph 9 provided that the Lessee would "comply with all . . . municipal regulations. . . ." Id. at 18. Paragraph 14, entitled "Default", provided that "[t]he failure of the Lessee to observe or perform any other provisions, covenants or obligations of this Lease to be observed or performed by the Lessee, where such failure continues for thirty (30) days after the giving by the Lessor of written notice thereof to the Lessee," "shall constitute an event of default and breach of this Lease by the Lessee." Id. at 20-21.
On May 5, 1993, Makol and Roberts also executed an Option Agreement (the "Option Agreement"). (Docket 27, Exhibit 1). For ten dollars, the Option Agreement gave Roberts, or the "Buyer," an option to buy the Riverdale Premises up and until September 8, 2000, for $1,750,000.00. It provided that the option to buy would terminate if any of the following occurred:
(1) Expiration of the Option Exercise Period . . .
(2) Any default by the Buyer under the Lease after expiration of any grace period and time to cure unless specifically waived by the Seller in writing;
(3) Any termination of the Lease, regardless of the reason or cause therefor.
In any such event, the Buyer shall not be entitled to exercise or assign the option granted hereby and the Seller shall not have any obligation to sell the Premises to the Buyer in accordance with the provisions of this Option Agreement.
Id. at 2-3. The Option Agreement also gave Roberts an entitlement to assign its rights under the Option Agreement to plaintiff or "another major national oil company," provided that Makol received thirty days prior written notice. Id. at 3. Finally, the Option Agreement provided that if Roberts failed to exercise his option, the original Roberts parcel (conveyed to Makol in May, 1993) would revert back to Roberts at the end of the twenty-one-year Lease period unless Roberts was in default under the Lease. Id. at 11-12.
On June 21, 1993, Roberts assigned all its rights and interests under the Lease and the Option Agreement, and all other mortgages and agreements, to plaintiff. (Docket 27; Exhibit 5). Makol consented to the assignment from Roberts to plaintiff. (Docket 27 at 3).
On June 23, 1993, Roberts and plaintiff entered into a sublease for the car wash (the "Car Wash Sublease"). (Docket 27, Exhibit 6). Under the Car Wash Sublease, plaintiff agreed to lease to Roberts the car wash building, operations, and equipment on the Riverdale Premises for a period of three years. Id. The Car Wash Sublease provided that plaintiff had no control over the car wash business, the car wash could impose no duties or obligations upon plaintiff, and Roberts would identify the car wash as a separate business. Id. at 6.
In December, 1994, the individual defendant Naif Makol assigned his interests in the Riverdale Premises to the Makol Family Limited Partnership ("Makol LP"). Makol, as an individual, retained no interest in the Riverdale Premises. (Docket 34 at 1; Docket 37 at 3). In December, plaintiff executed a document consenting to the assignment from Makol to Makol LP. (Docket 37 at 3).
In June, 1996, the Car Wash Sublease was renewed by plaintiff and Roberts for three more years (the "1996 Car Wash Sublease"). (Docket 27, Exhibit 8). About three years later, on May 26, 1999, the Car Wash Sublease was again renewed by plaintiff and Roberts for an additional three years (the "1999 Car Wash Sublease"). (Docket 27, Exhibit 9). The terms of the 1993, 1996, and 1999 Car Wash Subleases did not materially differ except for the amount of rent to be paid. (Docket 27 at 7).
Defendants claim that they first became aware of the sublease arrangement between Roberts and plaintiff in June, 1998, when they received a copy of the 1996 Car Wash Sublease. Plaintiff disputes this, claiming that Makol actually knew of the Car Wash Sublease "from the beginning." As discussed below, this fact is immaterial, and therefore need not be resolved.
In July or August of 1999, plaintiff submitted a plan and application for expansion and improvement on the Riverdale Premises to the town of West Springfield (the "Town"). Id. According to defendants, the Town subsequently advised plaintiff that the Riverdale Premises were being operated in violation of the Town's zoning by-laws because the car wash was being operated as a separate business, in a separate structure, from the convenience store and gas station. Id. Plaintiff disputes this characterization of the Town's objection, docket 31 at 2, but it is undisputed that plaintiff withdrew its application for expansion on November 3, 1999. (Docket 27 at 8).
Defendants claim that they first learned of the purported zoning violations in November, 1999. Id. On November 23, 1999, Makol LP, through counsel, wrote to Roberts and plaintiff, notifying them that (1) the Car Wash Sublease violated paragraph 10 and was deemed to be a default under the Lease, and (2) the zoning violations constituted a default under the Lease. (Docket 27, Exhibit 14). This letter notified plaintiff and Roberts that the option to buy the Riverdale Premises was thereby terminated. Id. In letters dated December 6, 1999, and December 10, 1999, respectively, plaintiff and Roberts denied any defaults. Neither plaintiff nor Roberts made any effort to cure the alleged defaults. (Docket 27, Exhibits 15 and 16).
On June 26, 2000, plaintiff wrote to Makol in an attempt to exercise its option to buy under the Option Agreement. (Docket 27, Exhibit 17).
On July 13, 2000, the Town notified Makol in writing of the zoning law violations. The Town's Building Commissioner, Patrick J. Moore ("Moore") ordered Makol (1) to "cease and desist from operating two separate and distinct businesses under separate management in two separate principle structures;" (2) to remove the freestanding Car Wash sign; and (3) to reduce the size of plaintiff's sign. (Docket 27, Exhibit 18).
In early October, 2000, plaintiff met with the Town Counsel and Moore about the alleged zoning problems. At that meeting, the Town reportedly took "the position that an accessory use must be owned by or under the control of the owner or operator of the principal use." (Docket 40, Exhibit 22).
On October 25, 2000, plaintiff wrote to Roberts and proposed amending the Car Wash Sublease to comply with Town requirements. Id. Plaintiff's counsel wrote to Roberts that the Car Wash Sublease did "not appear, at least to [plaintiff's counsel], to meet the requirements laid out by Town Counsel." Therefore, the options, according to plaintiff's counsel, essentially were to amend the Car Wash Sublease or to contest the matter with the town. Id.
Between November, 2000, and May, 2001, plaintiff and Roberts drafted a "Management Agreement" that could be presented to the Town. Counsel for Roberts reported that the Management Agreement was ultimately received, fully executed, from plaintiff in May, 2001. (Docket 40, Exhibit 25 at 53). Nevertheless, the Management Agreement carried a date of May 26, 1999. (Docket 40, Exhibit 27 at 1).
The Management Agreement falsely implied that plaintiff was the "owner" of 928 Riverdale Road. Id. It provided that "[t]he control and direction of the Car Wash Premises shall be and remain in [plaintiff]. . . ." Id. at 27. To that effect, it named Roberts plaintiff's "agent," and purported to give Roberts the authority to run the car wash business. Id.
However, at the same time, plaintiff and Roberts executed a "Side-Letter Agreement" which undermined the Management Agreement. (Docket 40, Exhibit 26). The Side-Letter Agreement verified that it was the intention of the parties that the material terms of the 1999 Car Wash Sublease would "remain unchanged by the existence of the Management Agreement. If and to the extent that the Management Agreement in any way alters the benefits and/or liabilities of either party, the terms of the Sublease Agreement shall control." Id. The Side-Letter Agreement, back-dated May 26, 1999, also referred to "a certain Management Agreement to be executed on or about the date hereof. . . ." (Docket 40, Exhibit 26). Like the Management Agreement, the Side-Letter Agreement was not executed until 2001. (Docket 40, Exhibit 25 at 53).
On June 20, 2001, plaintiff sent a letter to Building Commissioner Moore and enclosed a copy of the Management Agreement, but not the Side-Letter Agreement. Sunco wrote, "[e]nclosed please find a Management Agreement indicating that the car wash is integrated with the gas station, but under the management of F.L. Roberts Co., Inc." (Docket 40, Exhibit 28). The upshot of these machinations was that plaintiff and F.L. Roberts presented one face to the Town to avoid a possible zoning violation, and another inconsistent face to each other to maintain their existing business arrangement.
After receiving the Management Agreement, Moore changed his position regarding the zoning violation, and the Town has taken no enforcement action against the Riverdale Premises. (Docket 40, Exhibit 29 at 32). In a deposition taken February 27, 2002, Moore remarked that he had never seen the Side-Letter Agreement, and was surprised to learn that the Management Agreement was not in effect when he issued his cease and desist order. Id. at 43-47. In light of that revelation, Moore said he would have to reexamine the possibility of a zoning violation with Town Counsel. Id. at 48-49.
While these events were progressing, on March 26, 2001, plaintiff filed its complaint, asking this court for declaratory and injunctive relief requiring defendants to convey the Riverdale Premises to plaintiff under the Option Agreement (Count I), prevent defendants from dispossessing plaintiff or otherwise affecting plaintiff's rights to the Riverdale Premises (Count II), and for attorney's fees and costs (Count III). (Docket 1). Although many exhibits were attached to the Complaint, they included neither the Management Agreement nor the Side Letter Agreement. Id. The Car Wash Sublease was attached, but its dates had been inked out. Id.
Defendants filed their counterclaim on April 27, 2001, seeking damages for breach of contract (Count I); requesting declaratory relief to the effect that the option to buy 928 Riverdale Street terminated prior to plaintiff's attempt to exercise it on June 25, 2000 (Count II); and claiming that plaintiff's failure to inform them of the Car Wash Sublease constituted an unfair or deceptive trade practice in violation of Mass. Gen. Laws ch. 93A (Count III).
IV. DISCUSSION
The question at the heart of this case is whether plaintiff breached the Lease. Neither plaintiff nor defendants dispute that the Lease was a valid and binding contract. Plaintiff does not dispute that if plaintiff breached the Lease, the Option Agreement was terminated. Defendants do not assert any other basis for escaping their obligations under the Option Agreement. Thus, nearly all the claims asserted in this dispute hang on one question of law. Put simply, if plaintiff breached the Lease, defendants are entitled to most of the relief they seek; if plaintiff did not, plaintiff is entitled to most of the relief it seeks.
A. Breach of Lease
Defendants submit that plaintiff breached the Lease in at least two ways. First, plaintiff subleased the car wash to an entity that was not a "major oil company" and failed to give defendants thirty days written notice. Second, the Car Wash Sublease was operating in violation of municipal law. Each of these bases, defendants contend, is an independent and sufficient ground supporting a finding that the Lease was breached.
Defendants are correct, at least on the first point. The undisputed evidence shows that the Lease was, in fact, breached by the Car Wash Sublease. As noted, Paragraph 10 governs subleases. That paragraph is reprinted in full below for ease of reference:
(a) Provided that the Lessee is not in default hereunder, the Lessee shall be entitled to assign this Lease or make a sublease for the whole of the Premises as follows. The right to assign or sublease shall be restricted to an assignment or sublease in favor of Sun Company, Inc. (R M), or another major national oil company (the "Assignee") whereby the Assignee, by written agreement entered into with the Lessor assumes all obligations and liabilities of the Lessee under this Lease. Notwithstanding any such assignment or sublease, the Lessee shall remain additionally liable to perform all of the obligations of the Lessee under this Lease. The Lessee agrees to provide the Lessor with written notice of any such assignment or sublease thirty (30) days in advance of the effective date thereof. (b) Any attempted assignment or sublease which does not fully comply with Paragraph 10(a) shall be deemed a default hereunder, at the option of the Lessor, and shall be null and void and have no effect with regard to the Lessor.
Id. at 18-19.
A threshold question is whether Paragraph 10 is ambiguous. If it is ambiguous, the court "court may consider extrinsic evidence insofar as it sheds light on what the parties intended." Lohnes v. Level 3 Communications, Inc., 272 F.3d 49, 54 (1st Cir. 2001). However, if Paragraph 10 is not ambiguous, the court "will construe the document based upon the plain and natural meaning of the language contained therein." Id. at 53.
The court finds that Paragraph 10 is not ambiguous as applied to the Car Wash Sublease. The language of subparagraph (a) is clear; it permits subleases, but only "for the whole of the Premises." Even a sublease "for the whole of the Premises" is not permitted under the plain language of the Lease unless it is a "sublease in favor of Sun Company, Inc. (R M), or another major national oil company." In addition, subparagraph (a) clearly provides that the Lessee must provide the Lessor with thirty days advance written notice of "any such sublease."
Thus, the Car Wash Sublease violated subparagraph (a) in three ways. First, it was undisputably a sublease for less than "the whole of the Premises." Second, Roberts was neither "Sun Company, Inc. (R M)" nor "another major national oil company." Third, it is undisputed that plaintiff did not give defendants thirty days advance written notice. Therefore, plaintiff's creation of the Car Wash Sublease was flatly in violation of the Lease.
As defendants' counsel pointed out at oral argument, the Lease's requirement that defendants be given advance written notice of a sublease was not merely a technicality. Giving defendants notice of, and an opportunity to reject, a proposed sublease allowed defendants to adjust the lease payments — i.e., to increase the rent in recognition of the sublease. By concealing the sublease plaintiff concealed the true value of the lease.
Plaintiff attempts to resist this finding by arguing that the Lease did not address partial subleases. Extrinsic evidence, plaintiff claims, would show that a partial sublease like the Car Wash Sublease was contemplated by the Lease drafters. This response, however, is belied by the plain language of the Lease.
Paragraph 29 provides that "[t]his Lease contains the entire agreement of the parties hereto with respect to the subject matter hereof. . . ." This provision expressly gainsays plaintiff's suggestion that there was a separate understanding allowing plaintiff partially to sublease the car wash. See Stop Shop, Inc. v. Ganem, 347 Mass. 697, 701 (1964) ("An omission to specify an agreement in a written lease is evidence that there is no such understanding.").
Indeed, plaintiff's interpretation, that plaintiff had carte blanche power to effect partial subleases allows an absurd result: so long as plaintiff retained some fractional interest (even one percent) in the premises, the Lease would not be violated by a sublease. Under plaintiff's reasoning, the Lease would not have been violated, for example, if the gas station, convenience store, car wash, ATM machine, and all but one parking space had been subleased to a party or parties unaffiliated with a "major national oil company." The interpretation that leads to this result must be rejected. Plaintiff's interpretation that the Lease required thirty days written notice for a whole premises sublease, but no written notice for a partial premises sublease, is equally untenable.
The court need not decide precisely when the breach occurred. It is sufficient to note that, at a minimum, the breach occurred by December 23, 1999, or thirty days after Makol LP sent the November 23, 1999, notice of breach letter. If Makol LP was required to notify plaintiff of a defaulting sublease under Paragraphs 10(b) or 14(c), this letter was clearly sufficient. It is undisputed that plaintiff took no action to cure the default after receiving the November 23, 1999, letter.
Thus, plaintiff's attempt to exercise the option to buy the Riverdale Premises on June 26, 2000, was ineffective. As noted, Paragraph 2(c) of the Option Agreement provided that the option would terminate upon the occurrence of "[a]ny default by the Buyer under the Lease after expiration of any grace period and time to cure unless specifically waived by the seller in writing." For the sake of clarity, Paragraph 10(c) continued, "[i]n any such event, the Buyer shall not be entitled to exercise or assign the option granted hereby and the Seller shall not have any obligation to sell the Premises to the Buyer in accordance with the provisions of this Option Agreement." Makol LP sent plaintiff written notice of default on November 23, 1999, and plaintiff made no attempt to cure. It is undisputed that defendants did not waive plaintiff's default in writing. Therefore, the option terminated on December 23, 1999, and no longer existed when plaintiff attempted to exercise it on June 26, 2000.
Given this finding, the court need not address defendants' alternate contention that plaintiff breached the Lease by violating municipal law. It is sufficient to note here that this issue presents problems for both sides.
For these reasons, defendants' motion for partial summary judgment will be allowed. Defendants are entitled to judgment as a matter of law (as to liability only) on their breach of contract claim, and to a declaration that plaintiff's attempt to exercise the option was ineffective. Plaintiff's motion for summary judgment on these issues will be denied.
B. 93A Counterclaim
Plaintiff's motion for summary judgment as to defendants' counterclaims is better grounded. It has been noted that "the line that separates 'mere breaches of contract' from breaches that constitute unfair acts or practices in violation of Chapter 93A is an elusive one." Citicorp North America, Inc. v. Ogden Martin Sys. of Haverhill, Inc., 8 F. Supp.2d 72, 76 (D.Mass. 1998). Nevertheless, it is clear that a successful breach of contract claim will not automatically give birth to a 93A claim. The First Circuit has held that "[a] mere breach of contract does not constitute an unfair or deceptive trade practice under 93A unless it rises to the level of 'commercial extortion' or a similar degree of culpable conduct." Commercial Union Ins. Co. v. Seven Provinces Ins. Co., 217 F.3d 33, 40 (1st Cir. 2000), quoting Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451 (1991) (internal citation omitted).
Thus, to survive summary judgment, defendants must put forward some competent evidence of improbity. A mere "failure to perform obligations under a written lease, even though deliberate and for reasons of self-interest, does not present an occasion for invocation of ch. 93A remedies." Atkinson v. Rosenthal, 33 Mass. App. Ct. 219, 226 (1992).
Defendants offer no such evidence. Instead, they simply assert that "it may be reasonably inferred that Sunoco's concealment of the Car Wash Leases between 1993 and 1998, was not only a violation of Section 10 of the Lease, but was a deliberate attempt to deprive Makol of reasonably anticipated income that would have been negotiated." (Docket 41 at 3). Although this assertion is forceful, it "merely repeats the conclusory allegations in the complaint." Lopez-Carrasquillo v. Rubianes, 230 F.3d 409, 414 (1st Cir. 2000). Defendants do not point to the kind of "definite, competent evidence" that could "defeat a properly supported motion for summary judgment." Burns v. State Police Ass'n of Massachusetts, 230 F.3d 8, 9 (1st Cir. 2000), citing Torres v. E.I. Dupont De Nemours Co., 219 F.3d 13, 18 (1st Cir. 2000). Therefore, plaintiff's motion for summary judgment as to Count 3 of defendants' counterclaims will be allowed.
C. Defendant Makol
As a final matter, plaintiff points out that Makol admitted that he "assigned his right, title and interest in the Premises, Option, Lease and Mortgage to the Makol LP" in 1994. (Docket 27, at 3). Therefore, plaintiff contends, summary judgment should be allowed as to Makol's counterclaims because Makol, as an individual, has no legally cognizable interest in the Riverdale Premises. When this point was brought to defendants' attention at oral argument, they offered no resistance. Therefore, summary judgment will be allowed as to all of Makol's counterclaims.
V. CONCLUSION
For the reasons set forth above, plaintiff's motion for summary judgment is hereby ALLOWED as to defendants' counterclaim for a violation of Mass. Gen. Laws. ch. 93A (Count 3), and as to all of defendant Naif Makol's counterclaims, but otherwise DENIED. Defendants' motion for partial summary judgment is hereby ALLOWED. The court finds that plaintiff defaulted under the Lease Agreement and that its option to buy 928 Riverdale Street in West Springfield terminated on December 23, 1999.
A separate order will issue.
ORDER
For the reasons stated in the accompanying Memorandum, plaintiff's Motion for Summary Judgment (Docket No. 32) is hereby ALLOWED as to the counterclaim under Mass. Gen. Laws. ch. 93A (Count III), and as to co-defendant Naif Makol's other counter-claims. Plaintiff's motion is otherwise DENIED. Defendants' Motion for Partial Summary Judgment (Docket No. 25) is hereby ALLOWED. The court finds that plaintiff defaulted under the Lease Agreement, and that its option to buy 928 Riverdale Street in West Springfield terminated on December 23, 1999.
The clerk will set a date for a status conference to establish a schedule for future proceedings.
It is So Ordered.