SULMONTE v. JULIANO ENTERPRISES INC (2020)

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

This case arises out of the discovery of trash buried in the soil of a building site that the plaintiffs, Christopher J. Sulmonte and Carol A. Frenier, as trustees of C&C Realty Trust (collectively, CCRT), purchased from the defendant, Juliano Enterprises, Inc. (JEI).⁴ Prior to the sale, Michael Juliano of JEI made various statements to Sulmonte and Frenier regarding the building site being “shovel ready,” when Juliano in fact knew that (1) buried trash was previously found in the area and (2) the entire footprint of the building site had not been evaluated or cleared. Following a jury-waived trial, the judge found in CCRT's favor on its claims against JEI for fraud and violation of G. L. c. 93A.⁵ JEI appeals from the amended judgment, arguing error in the finding of liability and in the amount of damages awarded. We affirm the amended judgment as to liability, but we vacate so much of the amended judgment as awarded damages and remand for recalculation of damages consistent with this memorandum and order.

Background. We briefly summarize the judge's findings of fact, supplemented by undisputed facts from the record, and reserve some facts for our discussion. See, e.g., Allison v. Eriksson, 479 Mass. 626, 627 (2018). In 2012, CCRT was looking for land on which to construct a building. Sulmonte saw JEI's listing for the building site at issue (site C) and reached out to Juliano to discuss a possible purchase. During ensuing conversation, Juliano offered to sell site C to CCRT and to serve as the general contractor in the construction of CCRT's building.

Juliano told Sulmonte that site C was shovel ready. Juliano told both Sulmonte and Frenier that they did not have to worry about what was in the soil because JEI had already done the site work when constructing JEI's own building on an adjacent building site (site A). Juliano added, “You never know what you'll bump into [elsewhere].” Juliano also provided a G. L. c. 21E report, which reflected no contamination in the soil.⁶ While the purchase and sale agreement provided that CCRT was not relying on any warranties or representations made by JEI except for those explicitly set forth and that CCRT had the opportunity to obtain and review “a site assessment report prepared by an [e]nvironmental [e]ngineer,” CCRT chose not to obtain such a site assessment.

As found by the judge, Juliano's statements were “reckless in that they disregarded the actual fact[ ] that there had been contamination on [site C] that had not been fully remediated.” During the prior construction of JEI's building on site A, JEI's general contractor found trash buried in the soil. Several discrete sites, including at site C, were then drilled and tested for contamination. Trash and contaminated soil found around the test pits were removed and remediated. Juliano made no further effort, however, to ascertain whether additional areas were also contaminated. Juliano conceded during his testimony at trial that the entire footprint of site C had not been evaluated, much less cleared.

CCRT, not knowing the above history regarding the buried trash, proceeded to purchase site C and to commence construction of a building using JEI as the general contractor. Shortly into the project, the parties discovered trash buried in the soil where CCRT's foundation was being dug. During the parties' subsequent disagreement regarding who bore the financial burden of the necessary remediation work, Juliano stated that the discovery of buried trash was “unforeseen”; he did not disclose that buried trash was previously found in the area.⁷ After heated conversations, the parties agreed to a change order, which provided that the parties would split the costs associated with the remediation work. The parties estimated that the costs would total $50,000. The remediation work caused a four-month delay and actually cost $73,000.

Following the completion of the remediation work, the relationship between the parties remained contentious. Juliano ultimately sent an e-mail to Sulmonte listing numerous reasons for the parties' contentious relationship, including the discovery of the buried trash, disagreements over subcontractors, and Sulmonte's “demanding way” of “track[ing] the day to day progress.” Juliano concluded, “If you wish to have another [general contractor] complete the building we will have no objections.”⁸ CCRT accepted the offer to replace JEI as the general contractor.

Discussion. 1. Liability. The judge found that JEI was liable for fraud and, consequently, also for violation of G. L. c. 93A. Where JEI does not raise any separate arguments with respect to G. L. c. 93A, we focus on the judge's finding that JEI was liable for fraud.

To prevail on a claim for fraud, CCRT had to establish a misrepresentation of a material fact or the failure to disclose a material fact where there was a duty to disclose. See Buffalo-Water 1, LLC v. Fidelity Real Estate Co., 481 Mass. 13, 25 (2018). Proof of a misrepresentation requires proof that a statement was made with knowledge of its falsity or with reckless disregard of the actual facts. See Shawmut-Canton LLC v. Great Spring Waters of Am., Inc., 62 Mass. App. Ct. 330, 335 (2004). Statements of opinion are not actionable, but statements in the form of opinions are actionable if the subject matter is one “susceptible of actual knowledge” (citation omitted). Powell v. Rasmussen, 355 Mass. 117, 118 (1969). Lastly, CCRT had to establish that it was induced by and was reasonable in relying on JEI's misrepresentations or omissions. See Shawmut-Canton LLC, supra at 335-336.

JEI argues that whether site C was shovel ready and the foreseeability of discovering buried trash were nonactionable opinions. We disagree. As explicitly found by the judge, Juliano's statements were made with reckless disregard of the actual facts. In particular, Juliano knew that buried trash was previously found in the area. He also knew that trash and contaminated soil were removed and remediated from test pits but that the entire footprint of site C had not been evaluated or cleared. Whether site C was shovel ready and the foreseeability of finding buried trash were thus “susceptible of actual knowledge” (citation omitted). Powell, 355 Mass. at 118. These statements were actionable. See, e.g., id. at 118-119.

Moreover, we note that the judge's finding of fraud did not rest solely on Juliano's statements. Rather, the judge found that Juliano's “silence about the prior issues, coupled with his statements[,] ․ were fraudulent.” This ultimate finding properly flowed from the judge's subsidiary findings. As found by the judge, whether the soil was contaminated “was a fact basic to the transaction.” One of JEI's “main pitches” to CCRT was that since JEI had constructed its own building on adjacent site A, “there [would be] no preparatory problems with which to contend.” JEI's pitch was misleading. In these circumstances, the judge properly found that JEI had a duty to clarify Juliano's misleading statements regarding a fact basic to the transaction. See Restatement (Second) of Torts § 551(2) (1977).⁹ See also, e.g., Nota Constr. Corp. v. Keyes Assocs., Inc., 45 Mass. App. Ct. 15, 19 (1998).

Lastly, there was no legal error in the judge's findings that CCRT was induced by and was reasonable in relying on JEI's misrepresentations and omissions. JEI's sole argument on this point is that CCRT signed a purchase and sale agreement in which CCRT stated that it was not relying on any warranties or representations made by JEI except for those explicitly set forth. An integration clause such as this, however, does not bar relief in cases of fraudulent inducement, “even where the parties are sophisticated and their bargaining powers are equal.” Shawmut-Canton LLC, 62 Mass. App. Ct. at 335. There was no error in the finding of liability.

2. Damages. In determining CCRT's damages on its fraud claim, the judge awarded all extra costs CCRT incurred to construct the building, including the costs CCRT incurred in connection with the remediation work and the extra costs CCRT incurred after hiring a new general contractor.¹⁰ JEI argues that CCRT's damages should have been limited to the former, while CCRT argues that its damages properly included both. We remand for recalculation of damages consistent with the following principles.

“The recipient of a fraudulent misrepresentation is entitled to recover ․ the pecuniary loss ․ of which the misrepresentation is a legal cause.” Restatement (Second) of Torts § 549(1) (1977). These are usually benefit of the bargain damages. See Twin Fires Inv., LLC v. Morgan Stanley Dean Witter & Co., 445 Mass. 411, 425 (2005). See also Restatement (Second) of Torts § 549(1)(a) (1977). Benefit of the bargain damages equal the difference between the value of the item that would have been received had the misrepresentations been true and the value of the item actually received. See Twin Fires Inv., LLC, supra. See also Passatempo v. McMenimen, 461 Mass. 279, 298 n.26 (2012). This rule affords a recovery “closely resembling that for breach of warranty.” Rice v. Price, 340 Mass. 502, 507 (1960).

As noted by the judge, CCRT “expected” to receive a building that cost $722,997 to construct. That does not necessarily mean, however, that had JEI's misrepresentations been true, CCRT would have received a building that cost $722,997 to construct.¹¹ Only those extra costs “of which [JEI's] misrepresentation[s] [were] a legal cause” should have been included in CCRT's damages. Restatement (Second) of Torts § 549(1) (1977).

Had Juliano's statements been true, CCRT would have received a shovel ready building site on which CCRT would have been able to construct a building without having to perform remediation work. CCRT instead received a building site that contained buried trash and contaminated soil that had to be removed and remediated. The costs CCRT incurred in connection with the remediation work were properly included in CCRT's damages, and neither party argues otherwise. See, e.g., Goldman v. Mahoney, 354 Mass. 705, 710 (1968) (measure of damages where plaintiffs purchased house misrepresented to have no water problems was to have house worth what plaintiffs paid for it).

The extra costs CCRT incurred after hiring a new general contractor stand on different footing, however. By way of example, one of the major categories of damages claimed by CCRT, and awarded by the judge, concerned the building's EIFS system.¹² After CCRT hired a new general contractor, CCRT obtained an opinion that the building's EIFS system had to be replaced due to water damage. Had JEI remained the general contractor, CCRT would not have borne this cost, as JEI would have ensured that the damage was repaired. In these circumstances, the legal cause of the cost of replacing the EIFS system was the parties' mutual decision to part ways, not JEI's misrepresentations.¹³ The cost of replacing the EIFS system was improperly included in CCRT's damages.

We do not, however, go so far as concluding that CCRT's damages should have been limited to those that CCRT incurred in connection with the remediation work. We do not foreclose the possibility that some of the extra costs CCRT incurred after hiring a new general contractor were caused by JEI's misrepresentations, or that there was other evidence of damages caused by JEI's misrepresentations.¹⁴ This is a matter best left in the first instance to the trial court.

We affirm so much of the amended judgment as imposed liability, but we vacate so much of the amended judgment as awarded damages and remand for recalculation of damages consistent with this memorandum and order.

So ordered.

Affirmed in part; vacated in part and remanded.

FOOTNOTES

4.   As a technical matter, CCRT purchased the building site from another entity, 1324 Belmont, LLC, which was controlled by the same person who controlled JEI, Michael Juliano. Where there are no arguments regarding the distinction between JEI and 1324 Belmont, LLC, we refer to both interchangeably as JEI to avoid confusion.

5.   CCRT also brought claims against JEI for negligent misrepresentation, breach of contract, and unjust enrichment. The judge found in JEI's favor on those claims, and they are not at issue in this appeal. In addition, JEI brought claims against CCRT and another related entity, on which JEI did not prevail, and those claims are not at issue in this appeal.

6.   The judge found that the 21E report was misleading. JEI argues that the 21E report was not misleading because 21E reports do not address buried trash. Even assuming that JEI is correct that 21E reports do not address buried trash -- a question we do not resolve -- the judge did not err in finding that the 21E report was misleading where Juliano provided it in the context of telling Sulmonte and Frenier that site C was shovel ready.

7.   CCRT's contract with JEI for the construction work provided, “If concealed or unknown physical conditions are encountered ․ the [c]ontract [s]um and [c]ontract [t]ime shall be equitably adjusted as mutually agreed.”

8.   The parties' contract for the construction of CCRT's building otherwise would have prohibited CCRT from terminating the contract for convenience.

9.   Section 551(2) provides that a party to a business transaction has a duty to disclose, among other information, the following: (1) “matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading” and (2) “facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.” JEI asserts, without providing any authority for the proposition, that § 551(2) is inapplicable in cases involving real estate transactions. To the contrary, Nei v. Burley, 388 Mass. 307, 310 (1983), indicates otherwise. The Nei court addressed § 551(2) in the context of a real estate transaction and concluded that § 551(2) was inapposite to the facts of that case for reasons unrelated to the real estate transaction context. See Nei, supra.

10.   The judge made deductions for certain amounts JEI paid to subcontractors. As to CCRT's G. L. c. 93A damages, the judge awarded the costs CCRT incurred in connection with the remediation work, essentially doubling that amount. JEI does not raise any arguments with respect to CCRT's G. L. c. 93A damages.

11.   As found by the judge, “the parties did not agree on a guaranteed maximum price, as they struck that provision from the [c]ontract.”

12.   The EIFS system was the exterior structure of the building.

13.   CCRT argues that the parties would not have agreed to part ways but for JEI's misrepresentations. This argument is speculative. By the time Juliano sent his e-mail offering CCRT the option of hiring a new general contractor, many other problems permeated the parties' relationship. Regardless, even if CCRT subjectively decided to accept JEI's offer due to JEI's misrepresentations, the mutual decision to part ways was the cause of the cost of replacing the EIFS system.

14.   CCRT suggested at oral argument that it is entitled to damages for the delays associated with JEI's fraud but then seemed to admit that there was no evidence on the costs associated with those delays. Where we are remanding for recalculation of damages, we do not address this argument further in this appeal.