Opinion
21-P-554
05-27-2022
EASTCO REALTY, LLC v. 1350 MAIN, LLC, & another.[1]
Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass.App.Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass.App.Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass.App.Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
This case was brought by Eastco Realty, LLC (Eastco), a minority interest holder in an office building known as "One Financial Plaza" (OFP) in Springfield, against 1350 Main, LLC (1350 Main), the majority interest holder in OFP, and Samuel D. Plotkin Co., Inc. (Plotkin), the property manager, concerning the assessment of common area charges. After a jury-waived trial, judgments for 1350 Main and Plotkin entered dismissing all of Eastco's claims, and a separate judgment entered in 1350 Main's favor on its counterclaim for damages and attorney's fees. On appeal, Eastco argues: (1) its claims for equitable relief were erroneously dismissed because the trial judge did not properly apply the provisions of the Massachusetts Uniform Trust Code and misinterpreted the provisions of the controlling trust instrument; and (2) 1350 Main was not entitled to judgment on its counterclaim because the property management contract was void due to 1350 Main's self-dealing or, alternatively, the contract required that electricity charges be allocated by percentage ownership, not percentage occupancy. We affirm the judgments on the substantive claims, but vacate the award of attorney's fees and costs and remand for further proceedings.
Although Eastco's verified complaint asserted additional claims which were also dismissed below, in this appeal Eastco focuses exclusively on the dismissal of its claim for declaratory judgment and equitable relief and the judgment for 1350 Main on its counterclaim. None of Eastco's other claims is before us. See Mass. R. A. P. 16 (a) (9) (A), as appearing in 481 Mass. 1628 (2019); Mendoza v. Licensing Bd. of Fall River, 444 Mass. 188, 194 n.10 (2005) ("[The appellant] did not brief this aspect of his appeal, and it is therefore waived").
Background.
We recite here only a subset of the evidence, reserving other facts for our later discussion.
OFP is held by the Financial Plaza Trust (trust). The trust was established by a declaration of trust dated November 1, 1982. The trust's original trustees were Olympia & York Liberty Square Company (Olympia), and FNBC Realty Corporation (FNBC). Olympia and FNBC were also the original beneficiaries, in proportion to the shares each held in the equitable interest in the trust property. The trust instrument provided for the future appointment of successor trustees, who were likewise permitted to be both trustees and beneficiaries.
As contemplated by the trust, Olympia and FNBC also entered into an ownership agreement, the purpose of which was "to establish the terms and conditions upon which [OFP] is to be owned, managed, operated and used." Under the ownership agreement, the equitable interest in OFP was divided into eighteen shares, representing the basement and each of the other seventeen stories of the building.
In May 2007, 1350 Main acquired a majority 69.74 percent equitable interest in the trust property, and also became a successor trustee of the trust. At that time, 1350 Main appointed itself property manager of OFP, but contracted the management services to Plotkin. Plotkin's principal holds a 12.5 percent ownership stake in 1350 Main.
Eastco acquired its minority 30.26 percent interest in the trust property on July 16, 2007. At that time, Eastco also became a successor trustee of the trust.
On August 1, 2011, 1350 Main, acting for the trust, appointed Plotkin as property manager.
Discussion.
1. Eastco's claims.
Eastco contends that 1350 Main breached its duty of loyalty by appointing Plotkin as property manager given that Plotkin's principal held a 12.5 percent stake in 1350 Main. Eastco sees this arrangement as one in which 1350 Main impermissibly stood on both sides of the transaction. On this basis, Eastco argues that the property management agreement between the trust and Plotkin should have been voided or reformed by the trial judge.
The trial judge found no evidence that 1350 Main acted in bad faith or in willful disregard of the purposes of the trust, and therefore concluded that 1350 Main was entitled to the protection of the trust's exculpatory clause. The exculpatory clause shields a trustee from personal liability for "any loss arising out of any act or omission in good faith." This language clearly extends to monetary damages, but it is silent with respect to equitable remedies that might be provided by statute. See Berish v. Bornstein, 437 Mass. 252, 271-272 (2002) (discussing application of trust's exculpatory clause in connection with damages arising out of trustee's willful breach of fiduciary duty); Matter of the Colecchia Family Irrevocable Trust, 100 Mass.App.Ct. 504, 519-520 (2021) (discussing exculpatory clauses in trust instruments in context of shielding trustee from personal liability for damages). In any event, we need not decide whether the exculpatory clause protected 1350 Main from the equitable relief Eastco seeks in this suit because we conclude that 1350 Main's appointment of Plotkin as property manager was permitted under the terms of the trust and the ownership agreement.
It is true, as Eastco points out, that the Massachusetts Uniform Trust Code (MUTC), which is applicable to "all trusts created before, on or after the effective date of this act," St. 2012, c. 140, § 66 (a) (1), provides that
"[a] . . . transaction involving the investment or management of trust property shall be presumed to be affected by a conflict between personal and fiduciary interests if it is entered into by a trustee with . . . a corporation or other person or enterprise in which the trustee, or a person that owns a significant interest in the trustee, has an interest that might affect the trustee's best judgment."G. L. c. 203E, § 802 (c) (4). It is equally true that the judge found that the 12.5 percent stake held by Plotkin's principal in 1350 Main was an "interest that might affect [1350 Main's] best judgment." However, even where such an interest is present, the transaction is not voidable by an affected beneficiary if "the transaction was authorized by the terms of the trust." G. L. c. 203E, § 802 (b) (1) .
Eastco argues that the transaction is void ab initio, without any showing of financial harm to the beneficiary or bad faith by the trustee. There is some doubt on this point. "A trustee does not necessarily incur liability merely because he has an individual interest in the transaction." 2A A.W. Scott & W.F. Fratcher, Trusts § 170.24, at 432 (4th ed. 1987). See Boston Safe Deposit & Trust Co. v. Lewis, 317 Mass. 137, 140 (1944) (trustee may act in "dual capacity" where "authorized by the trust instrument"); Bullivant v. First Nat'1 Bank of Boston, 246 Mass. 324, 333-334 (1923) (bank acting as trustee of voting trust holding majority of corporation's shares did not breach fiduciary duty to corporation's shareholders in voting for reorganization plan where bank was also creditor of corporation, bank acted in good faith, and reorganization plan was fair to all shareholders). However, we need not decide the issue because, in any event, the appointment of Plotkin as property manager was authorized by the terms of the trust.
That is the case here. The trust instrument provides that a trustee shall have power to "[t]ake any action with respect to the trust property as may from time to time be specifically directed by the beneficiaries which shall include any authorization pursuant to the Ownership Agreement." The ownership agreement in turn provides that "the Trustees shall employ a . . . [property] Manager who shall have been nominated by the then Beneficiaries owning Shares representing a majority of the Equitable Interest, so long as such nominee or representatives thereof are experienced in the management of first-class office buildings in the Hartford-Springfield area." Reading the trust instrument and the ownership agreement together, as they were meant to be, see, e.g., Gilmore v. Century Bank & Trust Co., 20 Mass.App.Ct. 49, 56 (1985), 1350 Main (as majority holder of the equitable interest) was entitled to choose a property manager on the condition that the manager have the requisite experience. The evidence permitted the judge to find that Plotkin had experience managing first-class office buildings in the Hartford-Springfield area. Accordingly, the appointment of Plotkin as property manager was authorized by the terms of the trust, and the transaction was not voidable by Eastco. See G. L. c. 203E, § 802 (b) (1). We note further that Eastco failed to show that the retention of Plotkin as property manager was unreasonable. Indeed, as the judge found, Plotkin made improvements in the way OFP was managed, maintained, and positioned in the community, resulting in new revenue streams for both beneficiaries, increased occupancy rates and income, and decreased operating costs. In addition, Plotkin referred prospective tenants to Eastco (although it was not obligated to do so) . Finally, we note that Eastco acquired its interest in the trust after Plotkin began managing the building; thus the arrangement about which Eastco now complains was one it voluntarily stepped into. Eastco's claims for a declaratory judgment and other equitable relief were therefore properly dismissed.
2. 1350 Main's counterclaim.
In its counterclaim, 1350 Main alleged that Eastco failed to pay monies due and owing to the trust for Eastco's share of the management fees and the portion of janitorial and electrical expenses allocated to Eastco's exclusive areas. The ownership agreement provides that the beneficiaries shall pay certain expenses of operating the office building, designated "Common Expenses," in proportion to their equitable ownership of the shares of the trust property. Other operating expenses, attributable to areas of the office building exclusively occupied by a beneficiary or the beneficiary's tenant, and not attributable to the common areas of the building, are designated "Exclusive Expenses," and "shall be paid by the Beneficiary owning the Exclusive Area to which such Exclusive Expenses are properly allocable and attributable." Certain costs are defined in the ownership agreement as either "Common Expenses" or "Exclusive Expenses," but the agreement provides that "[d]etermination of whether an expense of operation is a Common Expense or an Exclusive Expense shall be made by the [property] Manager."
Janitorial expenses are no longer in issue.
If a beneficiary fails to pay the property manager "(i) such Beneficiary's share of the estimated Common Expenses for such month, (ii) the estimated Exclusive Expenses for such month allocable to such Beneficiary that are paid or payable by the [property] Manager, and (iii) an amount reasonably estimated by the Manager as necessary to maintain an acceptable working capital fund[, ] . . . the Delinquent Beneficiary shall be liable for any loss, cost, or damage resulting from such failure." Any other beneficiary may advance all or part of the sum owed by the delinquent beneficiary, "and the Delinquent Beneficiary shall be obligated to pay to the Advancing Beneficiary interest on account of advances so made at a rate [i.e., five percent above the base rate of Bank of America]," along with "all expenses incurred by the Advancing Beneficiary on account of such failure, including, without limitation, attorneys' fees incurred in the collection of such sums."
The trial judge found that Eastco had failed to make all required payments, and that 1350 Main had advanced $227,406.80 of its own funds to make payment of those unpaid amounts. On appeal, Eastco argues that the judge's ruling is incorrect for three reasons. First, Eastco argues that the property management agreement was void. Second, Eastco argues that Plotkin did not have the authority to allocate electricity costs on the basis of occupied space rather than in proportion to beneficial interest. Third, Eastco argues that the judge's finding that 1350 Main advanced funds in the amount awarded was clearly erroneous.
Eastco's first argument fails for the reasons we explained above. Second, Eastco argues that Plotkin breached the property management agreement and the ownership agreement by electing to treat electrical expenses as an exclusive expense, allocable to each beneficiary based on occupied square footage, rather than as a common expense, to be split according to the beneficiaries' beneficial interests in the building. The judge correctly concluded that the ownership agreement does not specifically classify electrical expenses as either a common expense or an exclusive expense, and that the property manager has the authority to determine "whether an expense of operation is a Common Expense or an Exclusive Expense." Accordingly, there was no breach by Plotkin, and Eastco is obligated under the ownership agreement to pay the sums advanced by 1350 Main to cover electrical expenses.
As to Eastco's third argument, there was evidence to support the judge's finding that 1350 Main had advanced a total of $227,406.80 between 2011 and 2018 to cover costs and expenses owed but not paid by Eastco. This finding is not clearly erroneous. See Building Inspector of Lancaster v. Sanderson, 372 Mass. 157, 160 (1977) (finding of fact clearly erroneous only when reviewing court left with firm conviction mistake has been made). Accordingly, under the terms of the ownership agreement, 1350 Main is entitled to payment of the principal amount of $227,406.80, plus interest as provided in the agreement, and its attorney's fees expended in collecting this sum.
Finally, we turn to the award of attorney's fees, which Eastco challenges on the ground that the fees associated with prosecuting 1350 Main's counterclaim (which are recoverable under the ownership agreement) cannot be separated from the fees associated with defending against Eastco's claims.1350 Main initially requested an award of $112,615.40 in attorney's fees plus costs. The Superior Court judge found that counsel's initial fee affidavit lacked the "breakdown of the specific fees and costs incurred, necessary for the court to analyze reasonableness," and asked counsel to submit a revised affidavit. The revised affidavit requested $120,366.15 in fees and averred that "[b]ecause the Plaintiff's claims were focused on relief stating that it did not owe the amounts sought by 1350 Main, there is no practical way to distinguish any of this work as solely related to the counterclaim." The judge accepted this argument, and concluded that 1350 Main's costs of defense were properly considered costs of collection, and awarded $100,000 in attorney's fees, as well as costs of $3,979.44, the full amount requested.
Eastco also argues that fees should not have been awarded for all the same reasons it argues 1350 Main was not entitled to judgment on the counterclaim. Those arguments fail for the reasons we have explained.
We disagree with this approach. Under the ownership agreement, 1350 Main was entitled to recover fees and costs only as a successful advancing beneficiary; it was not entitled to recover fees and costs for defending against claims that it breached its responsibilities as trustee. In other words, in defending against Eastco's claims, 1350 Main was acting as a trustee responding to a beneficiary's claims; in prosecuting its counterclaim, 1350 Main was acting as a beneficiary collecting a sum owed to it by another beneficiary. Thus, although we do not quarrel with the judge's view that $100,000 was a reasonable amount of attorney's fees for a vigorously litigated commercial case that was tried over six days, that was not the question because 1350 Main was not entitled to recover for its defense of its activities as trustee. Accordingly, the questions of fees and costs must be remanded for the judge to ensure that 1350 Main is not awarded fees and costs for its defense as trustee. On remand, the judge may seek additional submissions from 1350 Main, or -- given that counsel has represented that time was not segregated in the way required -- the judge may decide to allocate a percentage of fees based on the judge's firsthand observation of how the litigation as a whole and the issues at trial played out, including how much time was spent on trying the counterclaim versus the claims.
Conclusion.
The judgment in favor of 1350 Main and Plotkin dismissing counts 9 and 10 of the complaint, and the judgment for 1350 Main and Plotkin after trial without a jury dismissing the remaining claims on the merits are affirmed. So much of the judgment on the counterclaim in favor of 1350 Main as awarded attorney's fees and costs is vacated, and the questions of fees and costs are remanded for further proceedings consistent with this decision. As so amended, the judgment on the counterclaim is affirmed.
1350 Main's request for an award of appellate attorney's fees and costs is allowed insofar as those fees and costs were incurred in defending the appeal from the judgment on its counterclaim. If, as happened below, 1350 Main's counsel did not contemporaneously keep track of time in the manner required, then the entire amount billed for the appeal should be submitted, in accordance with the procedure set out in Fabre v. Walton, 441 Mass. 9, 10-11 (2004), and the panel will allocate fees based on the presentation of the issues on appeal, as well as the other factors outlined in Linthicum v. Archambault, 379 Mass. 381, 388-389 (1979). 1350 Main should file its application for fees and costs on appeal, with appropriate supporting materials, within fourteen days of this decision. Eastco shall file any opposition or response within fourteen days thereafter.
So ordered.
Green, C.J., Wolohojian & Henry, JJ.
The panelists are listed in order of seniority.