FELIZ v. GRAZIANO (2020)

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

After a jury-waived trial in the Superior Court, judgment entered in favor of the plaintiff, Alba Feliz, on her claims of conversion, unjust enrichment, and fraud; the judge awarded her substantial damages, including prejudgment interest. The defendant, Rene Graziano, appeals; he argues that there was insufficient evidence to support the judgment, and that the judge erred in her assessment of damages. We agree that a downward adjustment to the damages award is necessary, and therefore modify the amount of the damages as set out below. We affirm the judgment as so modified.

Background. On March 20, 2007, the parties jointly purchased a mixed-use property located on Essex Street in Lawrence (property); each party contributed an initial $50,000 to the down payment, and jointly secured a mortgage for the remaining purchase price of $386,447. Feliz subsequently and over some time invested an additional $25,000 in the property; despite that, and although she asked Graziano, Feliz was never given a key to the property. The parties agreed that each of them would share equally all of the income and expenses relating to the property, and that Graziano would be responsible for its repair and maintenance, for securing commercial and residential tenants, and for collecting the rent each month. Graziano began living in the residential portion of the property in May 2011 without seeking permission from Feliz.

By letter dated June 11, 2014, the mortgage lender, Enterprise Bank, notified Feliz that the mortgage was in default. On June 27, 2014, she filed her civil complaint against Graziano, based on the parties' unwritten agreement relating to joint ownership of the property; Graziano counterclaimed, alleging abuse of process, intentional infliction of emotional distress, and breach of contract. On July 3, 2014, a preliminary injunction entered against Graziano, ordering him to provide Feliz with all records of accounts receivable and payable relating to the property, and to establish a joint bank account which Feliz used exclusively for the purpose of depositing rental income and for the payment of property expenses.²

At the outset of the trial, the parties agreed on the record to waive findings and rulings pursuant to Mass. R. Civ. P. 52 (a), as amended, 423 Mass. 1402 (1996), and to proceed only with submission of an agreed-upon verdict form containing specific questions on the elements of all claims and counterclaims. Only the parties testified at the trial. Feliz testified that, when her partnership with Graziano first began, they communicated regularly, and he consulted her about the renovations to the residential portion of the property. She agreed that Graziano would be responsible for finding commercial and residential tenants because he was from the area and knew people interested in renting. Between 2007 and 2012, Graziano provided her with a monthly accounting of what he claimed were the income and expenses relating to the property ³ ; Feliz then sent Graziano additional money each month to cover various property expenses, believing, as Graziano told her, that the rental income was insufficient to cover them. In 2012, after suspecting Graziano was underreporting the true rental income, Feliz asked Graziano to sit down and go over the property finances.⁴ He refused, and also refused to provide her with the tenants' identities or the amount of monthly rent each paid. According to Feliz, Graziano told her that she did not need to be involved with the ongoing operation of the property.

In January 2012, Feliz stopped making the additional payments that Graziano requested, because, once she learned the true amount of the rent Graziano was collecting each month, she determined that there was sufficient income to cover the monthly property expenses. On March 23, 2012, Graziano's attorney sent Feliz a letter demanding that she continue to pay Graziano her share of the expenses, or else offer an acceptable amount for Graziano to buy out her interest in the property. Feliz testified that, in response to the letter, she telephoned Graziano's attorney, but was unable to reach him; Feliz then hired her own attorney, who also tried, but was unable to reach Graziano's attorney.

In addition, Feliz testified that, when she requested financial information from Graziano relating to the property in order to report it on her tax returns, he became verbally aggressive and raised his voice; she then began communicating with him only through e-mail. Graziano told Feliz that any financial information she needed she could obtain directly from the bank. Feliz responded that the bank would not release the necessary information because the information she required was contained in Graziano's individual account.

Graziano, on the other hand, testified at trial that he was always honest about the cash payments he received from the tenants, and the cost of the property expenses.⁵ He also claimed that he did all of the repair work on the property himself, with the help of friends, and that all of the materials he purchased for the repairs were recorded on his Home Depot credit card. However, he testified that he never kept any receipts, and he did not produce any credit card statements or receipts at trial. Also, in 2008, Graziano, without Feliz's knowledge or consent, granted to his former wife a $25,000 mortgage encumbering the property.

At trial, Graziano gave different answers than those supplied in some of his interrogatory answers. He testified that the automobile detailing business opened in 2015 (not 2012) and began paying $1,200 each month thereafter, but that the garage space was empty prior to that and he received no rent. He also claimed that he had no documentation to support the accountings sent each month to Feliz because “[e]verything was very informal. Because everything was in cash. [The tenants] pa[id] in cash all the time.”

Graziano further testified that he stopped communicating in 2013 with Feliz, or providing her with any accounting, because she never responded to him and had stopped paying her share of the expenses; he claimed that, in 2012, she had “abandoned” the property due to, in his opinion, the decrease in the real estate market.⁶

Discussion. “We accept the judge's findings of fact in a bench trial unless they are clearly erroneous ․ and the credibility of the witnesses rests within the purview of the trial judge.” Robert & Ardis James Found. v. Meyers, 474 Mass. 181, 186 (2016), quoting Weiler v. PortfolioScope, Inc., 469 Mass. 75, 81 (2014).

1. Sufficiency of the evidence. Graziano first argues that Feliz presented insufficient evidence to prove her claims of conversion, unjust enrichment, and fraud. He contends that there is no record as to what informed the judge's determination, seemingly ignoring the fact that the parties agreed at the outset of the trial that the judge would not issue findings and conclusions, but, rather, indicate her rulings on the elements of each claim and counterclaim on the prepared verdict form. The judge did that.

“[W]hen the parties agree to waive, in whole or part, detailed findings by the judge in a bench trial ․ [t]he parties waive all arguments in the trial court or on appeal that require or depend upon the existence of detailed written findings of fact. Any appellate review of the court's decision and of the judgment entered shall be according to the standard of review that would apply to a verdict by a jury in a case tried to a jury and to the judgment entered thereon.” Rule 20 of the Rules of the Superior Court (2018). Thus, the applicable standard of review here is that of “a ruling on a motion for a directed verdict or for judgment notwithstanding the verdict: whether ‘anywhere in the evidence, from whatever source derived, any combination of circumstances could be found from which a reasonable inference could be drawn in favor of the [plaintiff].’ ” Motsis v. Ming's Supermarket, Inc., 96 Mass. App. Ct. 371, 379-380 (2019), quoting Dobos v. Driscoll, 404 Mass. 634, 656, cert. denied, Kehoe v. Dobos, 493 U.S. 850 (1989).

On that basis, we review Graziano's specific arguments in turn. First, “[t]he elements of conversion require that a defendant be proved to have ‘intentionally or wrongfully exercise[d] acts of ownership, control or dominion over personal property to which he has no right of possession at the time.’ ” Grand Pac. Fin. Corp. v. Brauer, 57 Mass. App. Ct. 407, 412 (2003), quoting Abington Nat'l Bank v. Ashwood Homes, Inc., 19 Mass. App. Ct. 503, 507 (1985). As Graziano testified, starting in at least 2012, he knowingly, without Feliz's consent, took control of all of the rental income collected from the property tenants, including Feliz's one-half share, failed to keep any written record of the amount collected, and used those funds as he saw fit without any input from Feliz. As the evidence showed, Feliz, due to her growing suspicion that Graziano was underreporting the actual rental income generated by the property, began making inquiries to him in 2012; she received no response.

Second, “[u]njust enrichment occurs when a party retains the property of another against the fundamental principles of justice or equity and good conscience. The plaintiff must establish not only that the defendant received a benefit, but also that such a benefit was unjust. Whether the benefit was unjust turns on the reasonable expectations of the parties” (quotations and citations omitted). Bonina v. Sheppard, 91 Mass. App. Ct. 622, 625 (2017). Here, the parties agreed in 2007, when they jointly purchased the property, that they would divide equally the rental income and expenses. When, in direct conflict with their agreement, Graziano admittedly began in 2012 to keep for himself Feliz's one-half share of the rental income, he then personally benefited from retaining Feliz's portion of the income to her detriment.

Third, “[t]o recover in an action for [fraud], the plaintiff must prove that the defendant [or its agent], made a false representation of a material fact with knowledge of its falsity for the purpose of inducing the plaintiff to act thereon, and that the plaintiff relied upon the representation as true and acted upon it to [its] damage” (quotations and citation omitted). Reisman v. KPMG Peat Marwick LLP, 57 Mass. App. Ct. 100, 108-109 (2003).

From the beginning of the partnership, as Graziano testified, he kept no written receipts of purported cash payments made each month by both the commercial and residential tenants. He provided to Feliz no receipts for expenditures, for which she, up until 2012, was contributing additional monies; he admittedly kept no receipts for materials purchased relating to improvements he claimed he personally made to the property, nor any Home Depot credit card statements which he claimed would show his expenditures. In 2013, Graziano stopped sending to Feliz accountings of monthly rental income and expenses; he never informed her of the identity of the tenants or what each tenant paid for monthly rent. Nor did he procure any leases for the commercial tenants, and he was charging the patrons of a nearby late-night club for parking on the property, but never informed Feliz of this additional income. According to Graziano, the property began to earn a profit starting in 2014; Feliz never received any portion of her one-half share of those profits.

Finally, there was ample support in the record to show that Feliz did not breach the parties' agreement in sharing the income and expenses of the property. “To prevail on a claim for breach of contract, a plaintiff must demonstrate that there was an agreement between the parties; the agreement was supported by consideration; the plaintiff was ready, willing, and able to perform his or her part of the contract; the defendant committed a breach of the contract; and the plaintiff suffered harm as a result.” Bulwer v. Mount Auburn Hosp., 473 Mass. 672, 690 (2016). Graziano suffered no harm here, and for that reason it was reasonable for the judge to find in Feliz's favor on Graziano's counterclaims. See Motsis, 96 Mass. App. Ct. at 379-380. See also Fox v. F & J Gattozzi Corp., 41 Mass. App. Ct. 581, 584 (1996) (sufficiency of evidence on breach of contract claim).

2. Damages. Graziano also argues that the damages awarded were not based on any reasonable calculation of actual damages incurred by Feliz, providing her with a windfall. He claims that the award was punitive rather than compensatory.

“[A]n award of damages must stand unless ․ to permit it to stand was an abuse of discretion on the part of the court below, amounting to an error of law.” Reckis v. Johnson & Johnson, 471 Mass. 272, 299 (2015), quoting Labonte v. Hutchins & Wheeler, 424 Mass. 813, 824 (1997). On this evidence, we conclude that, although Feliz is due damages in the amount of rental income that Graziano withheld from her, it was error for the judge to include in the damages award a return of Feliz's initial $50,000 investment in the property.

The judge awarded Feliz damages in the amount of $187,986.87, including prejudgment interest. The verdict form the judge used in assessing damages contained a mechanism for a precise calculation of the actual damages suffered by Feliz; specifically, the three-year loss of her portion of the commercial and residential rental income reported by Graziano. The judge based the damages award on the evidence at trial, and also admissions that Graziano made in his discovery responses.

As noted, according to Graziano's interrogatory answers, dated September 2015, during the four preceding years he collected from the two commercial tenants $1,200 each month, and from the residential tenants $400 each month.⁷ Based on that evidence, the judge could calculate Feliz's one-half share of the rental income, which Graziano withheld from her, and should now pay her -- $43,200 in commercial rental income, and $28,800 in residential rental income. However, there is no evidence that Feliz suffered any injury as a result of her initial $50,000 investment in the property. As a result, she is not entitled to a return of that amount. This modification to the judgment ensures that the injury that Feliz proved is not “greatly disproportionate” to the damages awarded. Reckis, 471 Mass. at 299. See Labonte, 424 Mass. at 824.

Conclusion. Based on the foregoing, we modify the judgment to reflect the appropriate amount of damages incurred by Feliz - - $72,000 ($43,200 + $28,800). Adding prejudgment interest of $38,943.07 (1,644 days multiplied by .000329 daily interest rate multiplied by $72,000), based on the calculation method outlined in the judgment, the total amount of damages Graziano is to pay to Feliz is $110,943.07. The judgment is affirmed as modified.

So ordered.

affirmed as modified

FOOTNOTES

2.   Although a joint bank account was established, Graziano failed to deposit any collected rent payments into the account; instead he transferred money from his individual account to the joint account each month to pay property expenses.

3.   Graziano's accountings were never accompanied by supporting documentation, such as receipts for rent payments, bank statements, repair expenses, or the like.

4.   Sometime in 2011, when Graziano was incarcerated, his partner in a sandwich shop (which operated out of one of the property's commercial spaces) contacted Feliz to inform her that he was closing the business because Graziano was not there to operate it. It was then that Feliz learned of the number of commercial and residential tenants paying rent at the property, and that Graziano was operating the sandwich shop in one of the property's commercial spaces; she suspected that he was also operating the automobile detail/car wash business out of the second commercial space. She later learned that Graziano was charging for nighttime parking on the property, collecting additional income he never reported to her. In November 2011, Feliz met with a new tenant, and the tenant signed a three-year lease; that was the only time that a lease was generated for any tenant on the property.

5.   In his answers to interrogatories, admitted as trial exhibit one, Graziano stated that there were two commercial spaces located on the property -- one was an automobile detailing business (opened in 2012), the other a sandwich shop (opened in 2014). He also responded that each commercial tenant had paid monthly rent of $1,200 since approximately 2011; neither had a written lease. According to Graziano, there was only one residential unit (with five bedrooms) located above the commercial space; he lived there with two roommates, who each paid $400 per month in rent. Graziano testified that all of the tenants paid him in cash and he kept no written record of that income.

6.   Graziano also testified that he began in 2012 claiming on his tax returns all losses from the property (rather than his one-half share); 2014 was the first tax year in which he claimed a small profit.

7.   Graziano testified at trial to these same amounts, although his trial testimony contradicted the time period when he collected $1,200 from one of the commercial tenants. It was the judge's purview as fact finder to determine the credibility of Graziano's testimony. See Robert & Ardis James Found., 474 Mass. at 186.