FORTY PINE LLC v. COUNTRY BANK FOR SAVINGS (2019)

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

This action arises from a landowner's effort to purchase a small piece of property owned by the plaintiff, Forty Pine, LLC (Forty Pine), and encumbered by a mortgage securing a commercial note, both held by the defendant, Country Bank for Savings (bank). Forty Pine's failure to obtain the consent of the bank prior to selling its property, as required by the mortgage, led to the bank's subsequent acceleration of the note, which included a prepayment premium. The gravamen of the parties' dispute rests on the propriety of the prepayment premium assessed by the bank upon acceleration.

Forty Pine appeals from a summary judgment dismissing its breach of contract claim (count II) and claims under G. L. c. 93A (counts I and III). Forty Pine also challenges the damages awarded.² For the reasons that follow, we affirm the dismissal of Forty Pine's G. L. c. 93A claims, but reverse the judgment as to Forty Pine's breach of contract claim, and remand for a reassessment of the amount of damages.

1. Background. We summarize the undisputed facts in the light most favorable to Forty Pine as the nonmoving party for the purpose of our review of the bank's motion for summary judgment. See Dattoli v. Hale Hosp., 400 Mass. 175, 178 (1987).

In September 2009, the bank extended a commercial note in the amount of $ 250,000 to Henry J. Macuga, which was secured by a mortgage and security agreement on property located at 34 Pine Street in the town of Ware (the property). Section 2.09 of the mortgage provided, in relevant part, that the ownership of the property “will not at any time become vested in a person or entity other than Mortgagor” without the bank's written consent. In January 2011, Macuga, with the consent of the bank, transferred the property to Forty Pine, a limited liability company wholly owned and controlled by Macuga, and Forty Pine assumed the note and mortgage.

James Malandrinos owned land abutting the property, and in May 2012, sought to acquire a small portion of the property from Forty Pine. Later the same month, upon agreement to the terms of the sale, Forty Pine sought the bank's consent, as required under § 2.09 of the mortgage. The bank did not respond until November 2012. At that point, Forty Pine engaged in written and telephone communication with the bank regarding its continuing effort to secure the bank's approval. In response, the bank requested a substantial amount of additional information about the proposed transaction. Malandrinos eventually decided that the most expeditious way for him to acquire the parcel was to purchase Forty Pine in its entirety. Accordingly, on November 20, 2012, without the bank's prior consent, Forty Pine was acquired by a company wholly owned by Malandrinos.

On the same day as the sale, Malandrinos sent a letter to the bank advising that his company had acquired ownership of Forty Pine, and seeking the bank's approval for a “continuing financial relationship.” The letter further stated that Forty Pine would satisfy the note in full upon the bank's request if the bank elected not to continue its financial relationship. On November 26, 2012, Forty Pine conveyed the parcel to Malandrinos, again without the bank's prior written approval. Shortly thereafter and continuing for over a month, the parties engaged in a series of telephone and written communication centered around the bank's repeated demand that Forty Pine pay the note in full, including a $ 4,575.64 prepayment premium and $ 1,300 in legal fees and expenses. While initially the bank stated that it was merely responding to a request by Forty Pine to prepay the note, it eventually acknowledged that it was accelerating the note because Forty Pine had violated § 2.09 of the mortgage by failing to secure the bank's consent prior to the sale of Forty Pine and the subsequent sale of the parcel to Malandrinos. In response, Forty Pine repeatedly stated that it did not want to prepay the note, and was not obligated to pay a prepayment premium upon acceleration. With each correspondence and continuing for months thereafter, Forty Pine included a check for the note's monthly installment. The bank returned each check, and reiterated its demand for payment in full, including the prepayment premium.

On appeal, the parties do not dispute Forty Pine's breach of § 2.09 of the mortgage, or that the bank accelerated the note. What remains in dispute is whether the note allows the bank to include a prepayment premium, including legal fees and expenses, upon acceleration. The relevant provisions of the note are as follows:

The prepayment premium provision states:

“The Borrower shall have the right to prepay this Note at any time, provided, however, the Borrower shall pay to the Lender a Prepayment premium computed as follows ․” 3

The prepayment provision states:

“For purposes hereof, ‘Prepayment’ shall mean any payment of principal in advance of its due date. All Prepayments, whether by acceleration or otherwise, shall be applied against the principal payments due hereunder in the inverse order of their maturity.”

The acceleration provision states:

“Upon the occurrence of a default hereunder, interest upon the total unpaid principal hereunder shall thereafter, at Lender's option, without notice to Undersigned, or to any guarantor or endorser hereof, and until payment in full of all obligations hereunder, accrue at a rate (‘Default Rate’) equal to the lesser of (a) the highest interest rate permitted by applicable law or (b) five percent (5.00%) per annum above the interest rate then in effect hereunder at the time of the default.”

On February 25, 2013, the parties, through their counsel, verbally agreed to settle their dispute. They agreed that the bank would remove the prepayment premium, along with the legal fees and expenses, from the payoff amount, and in return, Forty Pine would pay the outstanding principal and accrued interest. Several weeks later, the bank provided a draft settlement agreement and mutual release to Forty Pine (settlement agreement). However, to the consternation of Malandrinos, the draft settlement agreement included additional terms that the parties had not discussed, including a confidentiality provision, a liquidated damages provision, and a “conditions subsequent” provision that purported to allow the bank to revive the note and mortgage. The bank and Forty Pine never finalized or executed the settlement agreement. Forty Pine filed the instant action in May 2013.

The bank moved for summary judgment on all counts of Forty Pine's complaint and on the bank's breach of contract counterclaim against Forty Pine for default of the mortgage. On October 16, 2016, a Superior Court judge granted summary judgment to the bank on all claims. Thereafter, a second Superior Court judge awarded damages in the amount of $ 393,687.58 to the bank.

2. Discussion. We review the allowance of a motion for summary judgment de novo. Targus Group Int'l, Inc. v. Sherman, 76 Mass. App. Ct. 421, 428 (2010). In doing so, we look to the “same record as the motion judge” and determine “whether the evidence, viewed in the light most favorable to the losing party, establishes all material facts and entitles the successful party to a judgment as a matter of law.” Id.

a. Forty Pine's breach of contract claim (count II). The judge determined that the bank did not breach the note because the bank was entitled to a prepayment premium and legal fees even in the event of acceleration. To reach this conclusion, the judge relied on the undisputed fact that the bank accelerated the note, and on the provision of the note that defined prepayments as “any payment of principal in advance of its due date,” and provided further that “[a]ll Prepayments, whether by acceleration or otherwise, shall be applied against the principal payments due hereunder in the inverse order of their maturity” (emphasis added). Relying on the highlighted phrase, “whether by acceleration or otherwise,” the judge inferred that the prepayment premium was to be applied to payments on demand. We disagree.

The general rule is that “[a] prepayment premium does not attach when a loan is accelerated because the act of acceleration advances the maturity of the debt; the debt becomes immediately due and payable.” Ferreira v. Yared, 32 Mass. App. Ct. 328, 330 (1992). Thus, upon the holder's acceleration, the payment is no longer a “prepayment.” We concluded in Ferreira that “a holder of a note cannot simultaneously accelerate the note and collect a prepayment penalty.” Id. at 331.⁴ We carved out an exception to this general principle, however, holding that prepayment premiums may be collected when the note is accelerated if the terms of the note “expressly provide that the prepayment premium will apply whether early repayment is voluntary or involuntary.” Clean Harbors, Inc. v. John Hancock Life Ins. Co., 64 Mass. App. Ct. 347, 356 (2005). See Ferreira, 32 Mass. App. Ct. at 331 (holder cannot both accelerate and collect prepayment penalty unless the note otherwise provides).

In Clean Harbors, we determined that, pursuant to the terms of a securities purchase agreement, the lender's acceleration of loans due to a technical default by Clean Harbors, required the company to pay a prepayment premium or “make whole amount.” ⁵ We based this determination on two provisions: First, the acceleration provision explicitly stated that in the event of a default, the notes would be due in full immediately “together with ․ the Make Whole Amount.” Clean Harbors, 64 Mass. App. Ct. at 350. Second, the agreement contained a separate provision stating that Clean Harbors “acknowledges that the Make Whole Amount due at any optional or required prepayment of the Notes (including any prepayment required pursuant to ․ [the acceleration clause] ) has been negotiated ․ and is not a penalty.” Id. Based on the agreement's clear and unequivocal language, we held that it was undisputed that the prepayment premiums were enforceable on acceleration of the loans at issue.

Similarly, in Pacific Trust Co. v. Fidelity Fed. Sav. & Loan Ass'n, 184 Cal. App. 3d 817 (1986), a case we discussed in Clean Harbors, it was held that a prepayment premium was enforceable on acceleration of a note given that the note's prepayment provision contained explicit language stating that it applied “whether said prepayment is voluntary or involuntary, including any prepayment effected by the holder's exercise of the Acceleration Clause.” Pacific Trust Co., supra at 824.

The language of these provisions, which was sufficient to justify application of the exception, stands in contrast to the relevant provisions of the bank's note at issue here. First, the provision defining a prepayment premium, stating that a prepayment premium shall be paid when a borrower prepays the note, does not include any reference to acceleration. Second, the provision defining a prepayment, stating that a prepayment refers to “any payment of principal in advance of its due date,” also does not include any reference to acceleration. Rather, acceleration is referenced only in the next sentence, which explains how prepayments shall be applied. That critical second sentence, referencing prepayments “whether by acceleration or otherwise,” does not contain the same kind of express language found in Clean Harbors and Pacific Trust. Indeed, as Forty Pine points out, including a reference to acceleration in a sentence explaining how prepayments are to be applied to the remaining principal of a note is nonsensical, given the definition of acceleration. If the reference to acceleration in this sentence was intended to except it from the general rule prohibiting prepayment penalties upon acceleration, more direct and specific language would be expected. Finally, the provision defining the interest to be applied to the note under default (the closest the note comes to an acceleration provision), unlike the acceleration provisions in Clean Harbors and Pacific Trust, contains no language whatsoever linking a prepayment premium to acceleration. Accordingly, we conclude that the note fails to expressly provide that a prepayment premium is due upon acceleration. For these reasons, we hold that dismissal of Forty Pine's breach of contract claim was error.⁶

b. Forty Pine's G. L. c. 93A claims (counts I and III). Forty Pine asserted in count I of its complaint that the bank violated G. L. c. 93A, § 11, by breaching the note when it assessed a prepayment premium upon acceleration. In count III, Forty Pine asserted that the bank violated c. 93A a second time when it attempted to add provisions to a written settlement agreement that the parties had not previously agreed to in their negotiations, thus breaching an oral settlement agreement. The judge determined that neither of these acts constituted an unfair or deceptive trade practice. We agree.

To establish a violation of G. L. c. 93A, § 11, a plaintiff must show “(1) that the defendant engaged in an unfair method of competition or committed an unfair or deceptive act or practice, as defined by G. L. c. 93A, § 2, ․ ; (2) a loss of money or property suffered as a result; and (3) a causal connection between the loss suffered and the defendant's unfair or deceptive method, act, or practice.” Auto Flat Car Crushers, Inc. v. Hanover Ins. Co., 469 Mass. 813, 820 (2014). “[B]usinesses seeking relief under Section 11 are held to a stricter standard than consumers in terms of what constitutes unfair or deceptive conduct” (citation omitted). Giuffrida v. High Country Investor, Inc., 73 Mass. App. Ct. 225, 238 (2008).

Forty Pine's c. 93A claims are premised upon the bank's breach of two separate contracts -- the note in count I and an alleged oral settlement agreement in count III. However, “a mere breach of a legal obligation under commercial law, without more, does not amount to an unfair or deceptive act under G. L. c. 93A.” Framingham Auto Sales, Inc. v. Workers' Credit Union, 41 Mass. App. Ct. 416, 418 (1996).⁷ “[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 v. Federal Nat'l Mtge. Ass'n, 427 Mass. 809, 814 (1998). In contrast, breaching a contract may rise to the level of a c. 93A violation in circumstances where a party does so knowingly and willfully or otherwise acts in bad faith. See, e.g., Schaumberg v. Friedmann, 72 Mass. App. Ct. 52, 57 (2008) (holding that defendant violated c. 93A when he knowingly and willfully breached agreement “for the purpose of securing unwarranted benefits,” and acted “unreasonably and in bad faith” in refusing to respond to plaintiffs' demand letter).

While Forty Pine asserts that its allegations in support of its c. 93A claims go beyond a mere breach of contract, it points to no evidence in the summary judgment record to support such conclusions: Forty Pine provided no evidence in support of count I that the bank's alleged breach of the note was anything beyond a good faith dispute as to whether money, i.e., the prepayment premium, was owed. In count III, Forty Pine asserted that the bank violated c. 93A because it knowingly and willfully attempted to obtain additional benefits in a written settlement agreement, thereby breaching the parties' oral agreement and violating the implied covenant of good faith and fair dealing. See Massachusetts Employers Ins. Exch. v. Propac-Mass, Inc., 420 Mass. 39, 43 (1995), citing Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 476 (1991). Even if we accept the underlying premise that an oral agreement was, in fact, created, Forty Pine fails to point to any evidence showing that its disagreement with the bank over how their settlement agreement should be memorialized in writing was anything more than a dispute over whether the bank had an obligation to perform. “Conclusory statements, general denials, and factual allegations not based on personal knowledge [are] insufficient to avoid summary judgment.” Davidson v. General Motors Corp., 57 Mass. App. Ct. 637, 639 (2003). Summary judgment in favor of the bank is warranted on the c. 93A claim where there is “no reasonable interpretation ․ that would support an inference that [the bank's conduct] was unfair or deceptive.” Id. at 644.

Accordingly, as Forty Pine has not shown that either c. 93A claim rises beyond a good faith contractual dispute, there was no error in the dismissal of counts I and III.

c. Mitigation of damages. “The measure of damages is a question of law reviewed de novo on appeal ․ but the amount of damages awarded is a factual issue reviewed on appeal under an abuse of discretion standard” (citations omitted). Twin Fires Inv., LLC v. Morgan Stanley Dean Witter & Co., 445 Mass. 411, 424 (2005). Shortly after the motion judge granted summary judgment, the bank filed a motion for assessment of damages. A second judge allowed the motion, rejecting Forty Pine's contention that the bank's nonacceptance of Forty Pine's monthly installment payments on the note constituted a failure to mitigate damages. As a result, the bank was awarded damages in an amount which included the principal owed on the note, accrued default interest, and legal fees and costs. There was no error in the determination concerning mitigation of damages. “[I]n the case of an enforceable liquidated damages provision, mitigation is irrelevant and should not be considered in assessing damages.” NPS, LLC v. Minihane, 451 Mass. 417, 423 (2008). As an acceleration provision in a commercial loan agreement is considered a liquidated damages provision, we discern no error in the judge's determination. See id. at 421 n.6, citing A-Z Servicenter, Inc. v. Segall, 334 Mass. 672, 674-675 (1956).

The amount of damages will need to be recalculated, however, given our determination here that, as asserted in count II of Forty Pine's complaint, the bank breached the note by assessing a prepayment premium including legal fees and costs.

3. Conclusion. For all of the foregoing reasons, we reverse the judgment as to count II. We remand this matter to the Superior Court for a recalculation of the amount of damages in accordance with this memorandum and order. The judgment is otherwise affirmed.

So ordered.

Reversed in part; Affirmed in part.

FOOTNOTES

2.   Forty Pine does not challenge the dismissal of count IV, which sought a declaratory judgment; nor does it challenge the motion judge's allowance of the bank's motion for summary judgment on its counterclaim for breach of the mortgage.

3.   The remaining part of this provision delineates in subsections (a) through (e) how premiums are calculated by providing the interest rate to be applied based on the date of the prepayment.

4.   The terms prepayment premium and prepayment penalty are used interchangeably.

5.   The make whole amount “[i]s a commonly used form of prepayment charge which is meant to compensate the lender for the loss of income on reinvestment of the prepaid amount.” Clean Harbors, 64 Mass. App. Ct. at 349 n.4.

6.   In light of our determination here, we need not address the details of Forty Pine's argument which asserts that the bank's acceleration of the note precludes it from assessing a prepayment premium because the requirement that a prepayment be made “in advance of its due date” and “in the inverse order of [its] maturity” is not applicable to a payment made upon acceleration.

7.   This is not to suggest that a c. 93A claim requires an underlying breach of contract. We acknowledge that a c. 93A claim is “sui generis” and “not dependent on traditional tort or contract law concepts for its definition.” Kattar v. Demoulas, 433 Mass. 1, 12–13 (2000). However, Forty Pine's theories as to how the bank violated c. 93A are coextensive with its contract theories.