Opinion
19-P-1040
07-30-2020
BETH SAGER, personal representative, v. NEW ENGLAND PRIME PROPERTIES, INC., & another.
NOTICE: 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
The plaintiff, Beth Sager, as representative of her father, Howard N. Sager, and the defendant, real estate brokerage firm New England Prime Properties, Inc. (Prime), both appeal from a judgment of the Superior Court that entered following a jury-waived trial. We affirm.
To avoid confusion, we shall refer to the Sager family members, Beth, her father Howard, and his wife Carol, by their first names.
Background. In 2010, Howard, an experienced real estate agent, signed an affiliate location management agreement with Prime whereby Howard agreed to manage a real estate brokerage office owned by Prime. The office was located in Belmont. Nancy Quinn, Prime's president, signed the agreement on behalf of Prime. In pertinent part, the agreement allowed for a voluntary termination in the event of Howard's disability, and entitled him, in that event, to a payout equal to the "fair market value" of the Belmont office. The agreement further provided that, to receive a payout, Howard had to have "successfully completed at least three continuous years of service under this Agreement, [and been] in good standing and in compliance with all the provisions of this Agreement and with the provisions of [a] Franchise Agreement" between Prime and Berkshire Hathaway Home Services. The agreement specified that the "fair market value" of the Belmont office "shall equal the weighted average N[et] O[perating] I[ncome] for the last three calendar years times two." "Net Operating Income," in turn,
The franchise agreement was not in evidence.
"shall be determined by taking the net income of the Location Business managed by Manager for a calendar year, plus depreciation and amortization, plus excess Manager's compensation, plus true non-reoccurring expenses, plus interest on operating debt for that period, less Manager's commission income, less any additional reoccurring expenses deemed reasonably necessary for the continuation of the Location Business of the Location."The phrase "additional reoccurring expenses deemed reasonably necessary for the continuation of the Location Business" is not defined in the agreement. Prime could terminate the agreement immediately in the event that Howard failed to perform any of the terms, duties, or obligations set forth therein, but Prime never did so, and it never suggested that Howard was not in good standing.
On December 30, 2016, Howard notified Prime that he was terminating the agreement effective immediately due to his diagnosis of Parkinson's disease and dementia. Howard provided Prime with three years' worth of personal tax returns prepared by a certified public accountant, and a "fair market value" calculation for the Belmont office that the accountant had reached using the tax returns and the net operating income formula set forth in the agreement. That value was $380,862. Howard requested a payout pursuant to the agreement and continued to manage the Belmont office with the assistance of his wife, Carol.
In January 2017, Quinn met with Carol and Beth to discuss the transition from Howard's management over to Prime. In March, Prime sent the Belmont office invoices for fees incurred by Prime in 2014, 2015, and 2016, in connection with its franchise with Berkshire Hathaway. Howard was responsible for paying the Belmont office's share of those fees, but he had not done so the previous three years because Prime neglected to invoice him. On April 5, 2017, Prime notified Howard that it disagreed with the fair market value as calculated by his accountant, and stated that it had calculated the value to be $28,438. In addition, for the first time, Prime informed Howard that he was not in compliance with the agreement. Specifically, Prime claimed that Howard owed costs and fees exceeding $28,000, that Beth had used her personal e-mail address in violation of company policy, and that the Belmont office was not in compliance with Prime's online document management requirements.
On May 1, 2017, Prime assumed management of the Belmont office. The next day, Howard sued Prime for (1) breach of contract based on Prime's failure to tender a fair market value payment, and (2) violation of G. L. c. 93A, on the ground that Prime allegedly engaged in unfair or deceptive business practices when it proposed a $28,438 fair market value with the expectation of negotiation and sent Howard invoices for expenses incurred in previous years. Prime asserted counterclaims for breach of contract, breach of the covenant of good faith and fair dealing, civil conspiracy, and violation of G. L. c. 93A. Those counterclaims were dismissed before trial with the exception of the counterclaim for breach of contract, which was based on Howard's failure to pay the invoices. Howard died before the trial commenced and Beth was substituted as the plaintiff.
The other counterclaims were based on allegations that Howard fabricated his disability in order to receive the payout provided for in the agreement. Prime also filed a third-party complaint against Carol and Beth alleging that they too were liable for civil conspiracy, violation of G. L. c. 93A, and the loss of future earnings because they assisted Howard in fabricating his disability. The third-party complaint, which is not in the record, apparently was dismissed before trial.
At trial, all parties agreed that the agreement was unambiguous. The judge was asked to decide (1) whether Howard was entitled to a payout under the agreement, (2) the "fair market value" of the Belmont office, and (3) whether Prime violated c. 93A. Three witnesses testified: Howard's accountant, James Shannon; Quinn; and Prime's controller, Pauline Nguyen. Shannon testified to his training and experience as a certified public accountant and that he had prepared Howard's tax returns for the years 2014 through 2016. He prepared schedule C, "which shows all the income that came in [to the Belmont office for the applicable tax year], less all the expenses paid to generate that income," comprising what Shannon "determine[d] to be the net operating income" for that year. Shannon gave "general accounting" definitions of the terms "reoccurring expenses" and "recurring expenses" and explained that "[r]ecurring would be something that would show every year on a tax return and reoccurring would not." In 2014 through 2016, Howard did not incur recurring expenses such as a manager's salary, recruiting bonuses, or employee salaries or benefits. Accordingly, Shannon did not include them in his fair market value calculation.
The judge denied Prime's pretrial motion in limine seeking to exclude Shannon's testimony on the ground that Shannon had not been designated as an expert before trial.
Reoccurring expenses are unusual ones "that do not happen annually, monthly," such as "live repairs or maintenance item[s]." By contrast, recurring expenses are "things that do happen annually," such as paying rent, utilities, employee salaries, and employee benefits.
Quinn testified that she is a licensed real estate broker and certified real estate appraiser, and not an accountant. Even though her controller, Nguyen, had a degree in economics and handled Prime's "day-to-day accounting functions," Quinn arrived at the fair market value without Nguyen's assistance. Quinn did not utilize the Belmont office's financial information in calculating its fair market value. Instead, she deducted for expenses that had never been and were not then being incurred at the Belmont office; and she did not know until she heard Shannon testify that there was a difference between "reoccurring" and "recurring" expenses. Quinn's $28,438 calculation was based on "what we felt it was going to cost moving forward for the operations of that entity once we took it over."
In a written decision, the judge found that Howard was in breach of contract for his failure to pay invoices totaling $19,232. However, the judge observed, this failure by Howard, Beth's use of a personal e-mail address, and the Belmont office's inconsistent use of document management systems were not "material breaches of the [a]greement" that would preclude Howard from being entitled to a payout. Moreover, Prime had waived its right to claim that Howard's breach precluded him from receiving a payout by not exercising its right to terminate the agreement. As Howard "was in substantial compliance with the operational requirements of Prime," the judge found that he was entitled to a payout and Prime's failure to tender one was a breach of contract.
Turning to the question of fair market value, the judge accepted Shannon's definitions of "recurring" and "reoccurring" expenses and noted that Quinn had done so as well. He discounted several of the expenses included in Quinn's fair market value calculation after finding that they were not "reoccurring expenses" as contemplated by the agreement. The judge credited Shannon's net operating income numbers for the three years at issue, deducted from the total of those three years combined the $19,232 that Howard owed to Prime, and arrived at a fair market value of $361,630.
In regard to the c. 93A claim, the judge characterized the parties' disagreement over the fair market value calculation as a good faith one because Prime's contention that certain expenses should be deducted even though Howard never incurred them, "was a good faith assertion that followed from [Quinn's] mistaken belief about the meaning and nature of reoccurring expenses and good faith disagreement over what, if any, reoccurring expenses were 'reasonably necessary' for the continuation of the location business by Prime." Judgment entered in favor of Prime on the c. 93A claim, and also on its counterclaim for breach of contract. Judgment entered in favor of Beth on her claim for breach of contract, in the amount of $361,630, plus interest and costs. Both parties timely appealed.
Although Beth noticed an appeal from the dismissal of her claims against Quinn individually, she makes no argument regarding those claims in her brief, and we do not address them.
Standards of review. "When reviewing the judge's decision, we accept his findings of fact unless they are clearly erroneous, and we consider his conclusions of law de novo." Beverly v. Bass River Golf Mgt., Inc., 92 Mass. App. Ct. 595, 604 (2018). We also consider the interpretation of a contract de novo. See NTV Mgt., Inc. v. Lightship Global Ventures, LLC, 484 Mass. 235, 241 (2020). The decision to admit expert testimony is reviewed for an abuse of discretion, see Reckis v. Johnson & Johnson, 471 Mass. 272, 292 (2015), which we will find only where we conclude that the judge made a clear error of judgment in weighing the factors relevant to the decision, such that the decision falls outside the range of reasonable alternatives. L.L. v. Commonwealth, 470 Mass. 169, 185 n.27 (2014). Unfairness under c. 93A "is a legal, not a factual, determination," R.W. Granger & Sons v. J & S Insulation, Inc., 435 Mass. 66, 73 (2001), that is "determined from all the circumstances" as the judge finds them to be. Duclersaint v. Federal Nat'l Mtge. Ass'n, 427 Mass. 809, 814 (1998).
Discussion. 1. Prime's appeal. Prime claims that the judge erred in strictly enforcing the buyout provision against Prime and not strictly enforcing it against Howard. It argues that Howard's "substantial compliance" with the agreement did not entitle him to a payout because the agreement is unambiguous and must be enforced according to its terms. Prime also claims that the buyout provision is unenforceable against Prime because the formula for calculating "Net Operating Income" is ambiguous (except for the phrase "additional reoccurring expenses deemed reasonably necessary," which Prime claims is unambiguous). Prime further claims that the judge should not have (1) allowed Shannon to offer an opinion on the definition of "reoccurring expenses," (2) accepted that definition, or (3) used Shannon's definition to determine for himself which expenses were "reoccurring expenses deemed reasonably necessary" within the meaning of the agreement. We see no error.
The decision to admit the testimony of the professional accountant who had prepared Howard's tax returns for 2014 through 2016 and could explain the deductions for expenses reflected thereon was sound. "Expert testimony on matters within the witness's field of expertise is admissible when it will aid the [factfinder] in reaching a decision." Commonwealth v. Colin C., 419 Mass. 54, 59 (1994). See Mass. G. Evid. § 702 (2019). Prime could not reasonably have been surprised at trial when Shannon gave general accounting definitions of recurring and reoccurring expenses, where (1) recurring expenses "show every year on a tax return," and (2) Shannon's expert disclosure states that he will "educate the fact-finder as to the role of a Certified Public Accountant in preparing a tax return, [] the contents of [Howard]'s 2014, 2015, and 2016 tax returns," and "any other relevant accounting principles generally, and as they apply to this case." Moreover, "reoccurring expenses" appears twice in the formula for calculating "Net Operating Income." The expert disclosure also states that Shannon "may be asked to define and describe the various accounting terms and principles set forth in the [agreement], to be used in determining the Fair Market Value of the Business and the Net Operating Income formula described [t]herein."
It was within the province of the judge, as finder of fact, to credit and rely on Shannon's testimony in arriving at a fair market value for the Belmont office. See Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 509-510 (1997). Shannon is a certified public accountant who had prepared Howard's tax returns and calculated a fair market value using the information in those returns. By contrast, Quinn is a real estate broker whose calculations were not based on the Belmont office's actual finances. The judge was not required to accept Quinn's calculations where she admittedly "misunderstood recurring and reoccurring." He could also reject them, without relying on Shannon's definitions, because Quinn testified that the expenses she deducted were not, and never had been, incurred at the Belmont office. Thus, "[e]ven if it were error" to allow Shannon to testify, "we discern no prejudice on this record." Anthony's Pier Four, Inc. v. HBS Assocs., 411 Mass. 451, 481 (1991). The judge could infer that Quinn's deductions were not "reasonably necessary for continuation of" the Belmont office's business even if he ascribed to the phrase "reoccurring expenses" the "common sense" and "ordinary meaning" that Prime urges.
Whether Howard's nonpayment of fees for 2014 through 2016, or Beth's use of a personal e-mail address, or the Belmont office's inconsistent use of online document management systems were material breaches of the agreement was a question of fact for the judge. Prozinski v. Northeast Real Estate Servs., 59 Mass. App. Ct. 599, 609 (2003). We see no error in his determination. Prime's failure to invoice Howard for the fees until 2017, or to terminate the agreement after discovering what it claimed at trial were several areas of noncompliance by Howard and the Belmont office, demonstrates that Prime did not insist on strict adherence to the agreement before April 5, 2017. See id. at 608 (setting forth elements of waiver). Prime's conduct also supports an inference that those terms were not "essential and inducing feature[s] of the contract." Lease-It, Inc. v. Massachusetts Port Auth., 33 Mass. App. Ct. 391, 396 (1992), quoting Bucholz v. Green Bros., 272 Mass. 49, 52 (1930) (defining "material breach"). Where the evidence showed that even Prime did not think that Howard's breaches went "to the root of the contract" (citation omitted), Lease-It, Inc., supra, the judge did not err in concluding that Prime's performance had not been excused. See Prozinski, supra at 610, quoting Ward v. American Mut. Liab. Ins. Co., 15 Mass. App. Ct. 90, 100 (1983) ("[i]t is well established that a material breach by one party excuses the other party from further performance under the contract").
2. Beth's appeal. Beth claims error in the judge's finding that Prime did not violate c. 93A when it proposed a $28,438 fair market value and sent Howard belated invoices. The judge's conclusion was based on his finding that Quinn had made her admittedly erroneous calculations in good faith. That finding is entitled to "special deference," and precludes recovery. Renovator's Supply, Inc. v. Sovereign Bank, 72 Mass. App. Ct. 419, 431 (2008). "[A] good faith dispute as to whether money is owed, or performance of some kind is due, is not the stuff of which a c. 93A claim is made." Duclersaint, 427 Mass. at 814.
Moreover, the judge found, and Beth does not dispute, that Prime's conduct did not cause Howard "to act differently than he otherwise would have acted." Duclersaint, 427 Mass. at 814.
Judgment affirmed.
By the Court (Vuono, Lemire & McDonough, JJ.),
The panelists are listed in order of seniority.
/s/
Clerk Entered: July 30, 2020.