CASHMAN EQUIPMENT CORP v. PENNY (2021)

Appeals Court of Massachusetts.

CASHMAN EQUIPMENT CORP. v. George W. PENNY, Third, & Others.1

19-P-1814

Decided: April 26, 2021

By the Court (Green, C.J., Neyman & Grant, JJ.2)

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

This appeal arises from the aftermath of a dispute over a sublease. During the summer of 2014, plaintiff Cashman Equipment Corp. (CEC) subleased a vacation property on Nantucket from defendant Motta Global Advisors, LLC (MGA), which leased the property from defendant George W. Penny, Third.³ During the term of the lease and sublease, Penny sold the property to defendant Seascene, LLC (Seascene). After closing on the sale on June 27, 2014, Seascene refused to allow CEC to enter the property. CEC then brought this action asserting a claim for violation of G. L. c. 186, § 14, on which a judge of the Superior Court granted summary judgment in favor of MGA and Seascene.⁴ While MGA and Seascene were awaiting decisions on their motions for summary judgment, they also filed a joint motion to dismiss and for attorney's fees, arguing that CEC committed a fraud on the court to support an excessive $300,000 demand for damages. The Superior Court judge agreed and awarded Seascene approximately $190,000 in attorney's fees.⁵ CEC now appeals, and we affirm.

Background. We set forth the events that caused CEC to allege a violation of G. L. c. 186, § 14, reserving for our discussion the events that caused Seascene to assert that CEC committed a fraud on the court. Because summary judgment entered in favor of MGA and Seascene on the claim for violation of G. L. c. 186, § 14, we construe the evidence related to this claim in the light most favorable to CEC. See Drakopoulos v. U.S. Bank Nat'l Ass'n, 465 Mass. 775, 777 (2013).

Penny owned property located at 10 Old North Wharf on Nantucket and, over the years, he seasonally leased the property to MGA; MGA then subleased the property to CEC. During the various subleases, CEC's president, James Cashman, often stayed at the property and entertained CEC's guests there. In 2014, the lease and sublease had a term of April 25 to October 15, but also included three periods -- June 1 to June 16, June 20 to June 30, and September 4 to September 18 -- during which Penny had use of the property (interruption periods). Also in 2014, Penny was planning to sell the property, so the lease and sublease included a provision stating that the “[l]essee agrees that he will vacate the premises with thirty (30) day[s] notice to quit if a sale occurs.”⁶

In May 2014, Seascene negotiated a purchase and sale agreement with Penny. On May 29, in anticipation of that sale, Penny served MGA with a notice to quit stating that MGA had to vacate the property by June 20. MGA then served CEC with a similar notice to quit, which prompted CEC to file its first action in the Superior Court against Penny and MGA. CEC's first action was resolved when Penny and MGA agreed to withdraw their notices to quit.

The sale to Seascene closed on June 27 during one of the interruption periods when CEC was not in possession of the property. Seascene took immediate possession of the property, changed the locks, and served MGA with a notice to quit on or around June 30. The notice to quit stated that MGA had thirty days or until July 31 to vacate the premises. MGA agreed to surrender the lease, effective immediately, and also served CEC with a notice to quit stating that CEC had thirty days or until July 31 to vacate the premises. On July 1, at the end of the interruption period, Seascene refused to allow CEC to reenter the property.⁷

CEC then brought a second action, this time in the District Court, seeking, among other things, damages and a preliminary injunction restraining the defendants from denying CEC possession of the property. A preliminary injunction entered, and CEC reentered the property on or about July 22.⁸ The second action was resolved when the parties agreed (1) that CEC could remain in the property until September 4 and (2) to dismiss the District Court action, without prejudice to this third action brought by CEC in the Superior Court for damages.

Discussion. 1. Violation of G. L. c. 186, § 14. CEC argues that summary judgment improperly entered in favor of MGA and Seascene on CEC's claim for violation of G. L. c. 186, § 14. In relevant part, that statute prohibits a “lessor or landlord” from “directly or indirectly interfer[ing] with the quiet enjoyment of any residential premises by the occupant, or ․ attempt[ing] to regain possession of such premises by force without benefit of judicial process.” G. L. c. 186, § 14. While we have liberally construed the word “occupant” in some cases, we have done so where “there was no question that possession was in the occupant and the original occupancy was with the permission of the landlord,” such as in cases of tenants at sufferance. United Co. v. Meehan, 47 Mass. App. Ct. 315, 319 (1999). Even under this liberal construction, we conclude that CEC was not an occupant on July 1, at which point it did not have a valid sublease, was not in possession of the property, and thus was not even a tenant at sufferance.

We begin with an explanation as to why CEC did not have a valid sublease on July 1. “When a prime lease is terminated (or otherwise fails) a sublease subordinate to the prime ordinarily terminates (or fails).” Applebee's Northeast, Inc. v. Methuen Investors, Inc., 46 Mass. App. Ct. 777, 781 (1999). This general rule does not apply when the prime lessee voluntarily surrenders the prime lease, in which case the sublease remains in effect and the sublessee's rights are not affected. See id. at 781-782. While this exception may appear to be fairly broad, it is actually fairly narrow; a voluntary surrender occurs only when the prime lessee effectuates a surrender “in a manner contrary to the provision of termination in the lease” (citation omitted). Id. at 781.

Here, by July 1, MGA had effectuated a surrender in compliance with the provision of termination in the lease. The lease provided that MGA agreed to “vacate the premises with thirty (30) day[s] notice to quit if a sale occurs.” When the sale occurred, Seascene provided the required notice to MGA. In response, MGA immediately agreed to “get out and vacate.” The fact that MGA surrendered the lease before the “period of notice had expired ․ [did] not affect the right to terminate. [The period of notice] exist[ed] for the benefit of [MGA] and [could] be waived by [MGA]” (citation omitted). Applebee's Northeast, Inc., 46 Mass. App. Ct. at 782. Where MGA's surrender of the lease was not voluntary, but was instead in compliance with the provision of termination in the lease, CEC's sublease terminated when MGA surrendered the lease.

Moreover, CEC was not a tenant at sufferance. A tenant at sufferance is one who continues in possession of a property after the termination of a tenancy. See Davis v. Comerford, 483 Mass. 164, 169 n.12 (2019). CEC, however, was not in possession of the property when the sublease terminated; at that point in time, CEC had already vacated the property for one of the interruption periods. While CEC may have intended to resume possession of the property at the conclusion of the interruption period, the fact remains that CEC was not in possession of the property when the sublease terminated and therefore was not a tenant at sufferance.⁹ In these circumstances, there is simply no basis for us to conclude that CEC was an “occupant” within the meaning of G. L. c. 186, § 14.¹⁰

2. Fraud on the court. The conclusion that CEC committed a fraud on the court arises from CEC's claim that it spent at least $300,000 in alternative accommodations for the period from July 1, 2014, to July 22, 2014. The basis -- or lack thereof -- for CEC's claim unraveled during discovery.

On July 15, 2015, CEC stated in an answer to an interrogatory that it had incurred the expense of renting another property, 12 Codfish Park, at the rate of $100,000 per week for three weeks. On September 11, 2015, CEC supplemented its interrogatory response by attaching (1) a lease between Cashman, individually, and Bayou Villars Holding Company, LLC (Bayou), for 12 Codfish Park (Codfish lease) and (2) checks and invoices showing two $200,000 payments from CEC to Bayou, purportedly for rent. The Codfish lease was signed by Cashman and Bayou's manager, Kim Shaughnessy; had a term of July 1, 2014, to July 22, 2014; stated a rental rate of $100,000 per week; and made clear that there were to be three different $100,000 payments, one each on July 1, July 8, and July 15.¹¹ On September 21, 2015, CEC provided a final response again stating that CEC incurred the expense of renting 12 Codfish Park at the rate of $100,000 per week.¹² CEC's initial, supplemental, and final interrogatory responses were all signed by Cashman or attorney Robert Waickowski ¹³ under the pains and penalties of perjury.

As a result of Seascene's own discovery -- which involved filing motions to compel the production of documents, conducting title searches, subpoenaing bank records, and deposing multiple individuals -- Seascene learned that the Codfish lease was not an arm's length transaction. Not only was Bayou affiliated with CEC, Cashman had “ultimate say” over who stayed at 12 Codfish Park. As CEC acknowledges in its brief, Cashman used 12 Codfish Park “as a second family home.” During Cashman's deposition, he attempted to downplay the extent to which he controlled 12 Codfish Park, but he nonetheless admitted that he often stayed there, could not identify any other occasion on which he had entered into a lease or paid rent to do so,¹⁴ and acknowledged that he entered into the Codfish lease because he “knew we were going to be in court some day.”¹⁵ Moreover, while CEC paid Bayou $400,000 in supposed rent (versus the $300,000 specified in the Codfish lease), Bayou subsequently issued two checks back to CEC for $200,000 each.¹⁶

We also note that, throughout discovery, CEC engaged in evasive discovery techniques. For example, despite Seascene's request that CEC produce bank statements pertaining to the alleged damages, CEC failed to do so, requiring Seascene to file motions to compel and, separately, to subpoena bank records. Only by subpoenaing bank records did Seascene learn about the two $200,000 checks that Bayou had issued to CEC. Then, when Seascene served Bayou with a deposition subpoena requiring Bayou to designate the person most knowledgeable about Bayou's ledgers and to have that person appear and testify, the individual who appeared for the deposition admitted that he was not the person most knowledgeable about Bayou's ledgers, causing further delay.

The Superior Court judge concluded that CEC committed a fraud on the court, and we agree. A fraud on the court occurs when “it can be demonstrated, clearly and convincingly, that a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate a matter by improperly influencing the trier or unfairly hampering the presentation of the opposing party's claim or defense” (citation omitted). Rockdale Mgt. Co. v. Shawmut Bank, N.A., 418 Mass. 596, 598 (1994). Fraud on the court applies in instances of “the most egregious misconduct, such as bribery of a judge or members of a jury, or the fabrication of evidence by a party in which an attorney is implicated” (emphasis added). Winthrop Corp. v. Lowenthal, 29 Mass. App. Ct. 180, 184 (1990), quoting United States v. International Tel. & Tel. Corp., 349 F. Supp. 22, 29 (D. Conn. 1972).

The clear and convincing evidence shows that CEC, through Cashman, entered into an illusory lease with Bayou to support an excessive demand for damages. Several pieces of evidence support this conclusion. First, the Codfish lease was not an arm's length transaction; Cashman controlled 12 Codfish Park and could have stayed there without entering into a lease or paying rent.¹⁷ Second, the exorbitant rental rate of $100,000 per week ¹⁸ and the suspect exchange of money between CEC and Bayou further support the conclusion that the Codfish lease was illusory. Third, CEC attempted to evade disclosure of the foregoing throughout discovery. The fabrication of an illusory lease to support an excessive demand for damages constituted a fraud on the court.¹⁹ See, e.g., Rockdale Mgt. Co., 418 Mass. at 598-599 (plaintiff committed fraud on court by forging letter to prove damages and proffering letter in response to interrogatories); Munshani v. Signal Lake Venture Fund II, LP, 60 Mass. App. Ct. 714, 715-720 (2004) (plaintiff committed fraud on court by submitting fabricated e-mail to support opposition to motion to dismiss).

CEC argues that this was all a miscommunication over the amount of rent. In particular, CEC contends that (1) there was a miscommunication in the drafting of the Codfish lease, which should have been for the months of July through October and at a rate of $100,000 per month, (2) the interrogatory responses that stated the rent was $100,000 per week were also mistakes, and (3) Cashman attempted to correct the various miscommunications and mistakes when deposed on January 13, 2016.²⁰ We are not persuaded. For over one year, from the signing of the Codfish lease to Cashman's deposition, Cashman and Waickowski reviewed and signed multiple documents, some under the pains and penalties of perjury, repeatedly stating that the rent was $100,000 per week. Especially where the rent for 12 Codfish Park was a key issue in litigation, it defies logic that Cashman or Waickowski would not have realized sooner that such a glaringly obvious error had been made. Moreover, CEC's argument does not address the underlying problem, which is that the lease was illusory regardless whether the rent was $100,000 per week or per month.²¹

3. Appellate attorney's fees. Seascene seeks an award of appellate attorney's fees on the basis that CEC's arguments are frivolous. Seascene further argues that CEC's appellate brief contains factual misstatements. We decline to award attorney's fees. First, this case involved an unusual set of facts -- both as to whether there was a violation of G. L. c. 186, § 14, and as to whether CEC committed a fraud on the court -- and CEC's arguments regarding how the law applies to those facts are not frivolous. See Avery v. Steele, 414 Mass. 450, 455 (1993) (appeal is frivolous when law is well settled and there is no reasonable expectation of reversal). Second, while Seascene argues that the record does not support some of CEC's factual statements, CEC views the record differently, and this sort of disagreement does not warrant an award of attorney's fees. See id. at 456 (while unsubstantiated statements “may infect an otherwise meritorious appeal,” we do not impose sanctions for frivolousness “except in egregious cases”).

Judgments entered January 26, 2017, affirmed.

FOOTNOTES

3.   The claims against Penny, as well as the other individual defendant, Joseph R. Motta, were dismissed early in the case and are not at issue in this appeal.

4.   CEC asserted various other claims that are not at issue in this appeal.

5.   The Superior Court judge's decision on the request for attorney's fees was initially more limited; on a motion for reconsideration, she expanded the award of attorney's fees. Also, we note that while MGA joined the motion to dismiss and for attorney's fees, Seascene appears to have been the driving force behind the motion, and there are no issues in this appeal regarding the fact that MGA was not awarded attorney's fees.

6.   The lease and sublease provided that the rent for the entire term was $35,000, that there was a $2,000 security deposit, and that the total charges were thus $37,000.

7.   Seascene asserted that it did so because it anticipated that, if it permitted CEC to reenter the property, CEC would continue to hold over after July 31. CEC disputed this fact below. Regardless, whether CEC intended to hold over after July 31 is immaterial to our discussion.

8.   The District Court judge who ordered the preliminary injunction later stated that he made a mistake in reviewing the lease in that he did not see the interruption periods, and he explicitly stated that his preliminary injunction order was not to be relied upon by any of the parties.

9.   CEC argues, in its reply brief and without citation to legal authority, that CEC remained in possession of the property during the interruption period because CEC continued to store personal possessions there. This argument is waived. See Mass. R. A. P. 16 (a) (9) (A), as appearing in 481 Mass. 1629-1630 (2019). See also Spinosa v. Tufts, 98 Mass. App. Ct. 1, 16 (2020).

10.   We note that CEC also argues that the sublease was not a sublease at all but an assignment. This argument has no merit where the lease contained an express provision for subleasing, but not assigning, and where MGA retained a reversionary interest in the lease insofar as MGA reserved the right to stay at the property upon request. See, e.g., Lebel v. Backman, 342 Mass. 759, 763 (1961).

11.   It remains unclear who drafted the Codfish lease. Shaughnessy and the attorney who typically drafted legal documents for CEC, Andrew Saunders, both testified during their depositions that they did not draft the lease. Two other attorneys, Robert Waickowski and Peter Kyburg, both reviewed the Codfish lease for CEC. While Waickowski testified during his deposition that he was “surprised” by the rental rate, he also testified that the rental rate was not a “concern” to him.

12.   CEC's final interrogatory response included conflicting information, stating elsewhere that the cost of staying at 12 Codfish Park was $100,000 for the entire three-week term.

13.   Waickowski appears to have been Cashman's friend, was familiar with both 10 Old North Wharf and 12 Codfish Park, and lived at both properties during the events in question.

14.   Waickowski also could not identify any other occasion on which there had been a lease for the use of 12 Codfish Park.

15.   At his deposition, Cashman backtracked on the claim that the rent for 12 Codfish Park was $100,000 per week. In particular, Cashman testified that his intent was to rent 12 Codfish Park for the months of July through October and to pay $100,000 per month for each of those months. Cashman further testified that he must have miscommunicated this intent to whoever drafted the Codfish lease, and so its term of $100,000 per week instead of $100,000 per month was a drafting error. While Cashman could not say who came up with the rental rate of $100,000 per month, CEC argues on appeal that 12 Codfish Park had three bedrooms and that the only other alternative would have been to rent three hotel rooms at the cost of $1,100 to $1,200 per room per night.

16.   CEC contends that the two $200,000 payments it received from Bayou were loan repayments.

17.   CEC cites the fact that it disclosed that Shaughnessy was associated with both CEC and Bayou as evidence that Seascene knew or should have known, from the outset, that the Codfish lease was not an arm's length transaction. This argument appears to misapprehend the basis for the conclusion that CEC committed a fraud on the court. CEC could have, hypothetically, entered into a bona fide lease with an associated entity without committing a fraud on the court. But, as explained in the text, that is not what happened here.

18.   A real estate broker familiar with 12 Codfish Park and the Nantucket real estate market submitted an affidavit stating that the rental value of 12 Codfish Park was $5,500 to $6,500 per week.

19.   In addition, we note that attorney Waickowski was implicated in the fraud by reviewing the Codfish lease and signing the interrogatory responses.

20.   In support of its position, CEC points to the fact that it paid $400,000, not $300,000, in supposed rent and the fact that it provided conflicting information about the cost of staying at 12 Codfish Park in its final interrogatory response, see note 11, supra.

21.   CEC raises two additional arguments. First, CEC argues that the amount of attorney's fees awarded by the Superior Court judge were excessive. In making this argument, CEC again tries to portray the fraud as a mistake over a single interrogatory response. For reasons already explained in the text, we disagree. Second, CEC claims that there is error in a postjudgment order concluding that CEC was liable under G. L. c. 231, § 6F. But this argument is waived, as CEC did not appeal from the postjudgment order, which entered after CEC's sole notice of appeal. See, e.g., New Bedford Hous. Auth. v. Olan, 435 Mass. 364, 372 (2001).