Opinion
16-P-644
06-21-2017
MAJA HOSPITALITY CORPORATION & another v. CENTRAL ONE FEDERAL CREDIT UNION & others.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
In 2007, Andrew Surabian assembled a five-acre parcel in Shrewsbury next to the intersection of Main Street and Route I-290. Using two corporations that he owned (plaintiffs Maja Hospitality Corporation and Surabian Realty Co., Inc.), Surabian intended to develop a hotel on the property. To do so, he needed to borrow approximately $8 million. Defendant Central One Federal Credit Union (Central One), a small credit union based in Shrewsbury, learned of the hotel project and in January of 2009 approached Surabian about being the lender on the project. Despite various assurances that Central One made regarding the loan's viability, it never came to fruition, and the project failed.
The plaintiffs brought a multi-count complaint in Superior Court against Central One and two of its officers. The plaintiffs' claims were tried before a jury, except for their claims brought pursuant to G. L. c. 93A, which the judge heard as part of the same trial. After finding in the plaintiffs' favor on promissory estoppel, negligent misrepresentation, and intentional misrepresentation, the jury awarded them $3.2 million in total damages. The judge then found in favor of the defendants on the c. 93A claim. The judge also denied the defendants' motions for judgment notwithstanding the verdict (JNOV), new trial, and remittitur. Subsequently, the judge denied the defendants' motion to limit prejudgment interest and the plaintiffs' cross motion to modify prejudgment interest. Both sides appealed. We affirm.
Background. Central One strongly wanted to serve as lender for the proposed hotel, because this was a high profile project in its "backyard." However, Central One had only a $3 million credit limit, and therefore would need "participation" from other lenders. Surabian knew that Central One needed others to participate, but he received assurances from Central One throughout the process that this would not be an obstacle. For example, when Central One first approached Surabian, it told him that it would have "a large pool of lenders to choose from." Central One also told him that finding participants would not be a problem and that, in any event, this was the credit union's problem to worry about, not his. At no point during the process did Central One inform Surabian that it never before had served as lead participant in a loan, and therefore had no experience in soliciting other participants.
The core of this appeal is the defendants' claim that the judge erred in denying their JNOV motion. The remaining arguments do not turn on disputed facts. We therefore proceed by summarizing the trial evidence in the light most favorable to the plaintiffs, who prevailed before the jury. See McCarthy v. Waltham, 76 Mass. App. Ct. 554, 560 (2010). We reserve some facts for later discussion.
In March of 2009, Surabian entered into a licensing agreement with a hotel chain that would allow him to market the proposed hotel as a Holiday Inn Express. This put the development project on an extremely tight timeline, because, under the agreement, the hotel had to open by March 1, 2011. Surabian rapidly moved forward on the project, which required, among other obstacles, rezoning of the parcel. By the end of 2009, Surabian had obtained the rezoning and all applicable land use permits. One of those approvals required that construction begin by August 15, 2010.
Short extensions could be obtained for additional payments.
Meanwhile, Surabian provided Central One with a feasibility study and the financial information it requested, and Central One secured its own outside study of the project (paid for by Surabian). Central One proceeded to process the loan, and in November of 2009, its relevant board approved the loan subject to certain specified conditions. Central One subsequently sent Surabian a letter dated December 3, 2009, stating that his request for a construction loan of up to $8 million "has been approved." The letter went on to state that the "approval is contingent upon various loan conditions that will be forthcoming in your commitment letter." Surabian was not told at that time what those conditions would be, and he was not sent even a draft commitment letter until June of 2010.
Surabian was never asked to provide a full loan application.
In the interim, Central One's efforts to secure participants foundered. In fact, Central One largely put the search for participants on hold for months while it sought to secure a Small Business Administration loan on Surabian's behalf for the postconstruction phase of the project. One of the plaintiffs' expert witnesses testified that this decision was ill-conceived and hurt Central One's efforts to secure participation. In any event, Central One was having no success lining up participants. As its chief executive officer, defendant David A. L'Ecuyer, testified succinctly at trial, "Everybody that we approached on this particular deal didn't want any part of it." In contravention of industry norms, Central One did not inform Surabian of the problems it was having lining up participants. To the contrary, when Surabian inquired in approximately March of 2010, as to how this was progressing, Central One responded that other lenders were "salivating to be part of this deal." The clock on Surabian's deadlines continued to tick.
Directly after he made that statement, he sought to suggest that the feedback Central One was getting from potential participants was not as unequivocally negative as his words had made it sound. However, the jury were not required to accept that "correction."
At the beginning of June of 2010, two potential obstacles emerged. The first obstacle involved Surabian's use of one of his other properties (a property on Belmont Street in Worcester) as "[a]dditional collateral" for the Shrewsbury loan. When he received the draft commitment letter from Central One on June 3, 2010, he became aware that Central One was counting on a first mortgage on the Belmont Street property as part of the additional collateral. This was not a condition that Surabian could fulfill, because he recently had refinanced the Belmont Street property as part of another deal (resulting in a different lender's holding a first mortgage on that property). Surabian maintained that his intentions about the availability of the Belmont Street property as additional collateral were always clear and that Central One acknowledged that it simply had made a mistake. When he raised the matter with Central One, it informed Surabian that it would not insist on being in a first position on the Belmont Street property and that this presented "no problem."
In fact, that switch made the project significantly more difficult to finance. Indeed, Central One's underwriting of the loan had assumed that a first mortgage on the Belmont Street property would be provided as additional collateral, and the absence of this at least arguably meant that the underwriting should have been redone.
The second potential impediment that emerged at the beginning of June of 2010 had to do with whether the general contractor that Surabian had selected to oversee the project was qualified for that job. Some potential participants raised questions about that person's qualifications, perhaps because he happened to be Surabian's brother-in-law. On June 9, 2010, Central One met with Surabian and the putative general contractor on this issue. Central One was satisfied with his qualifications and it pronounced to Surabian after the meeting that the project was "good to go" and that they planned to close within thirty days. In fact, Central One's loan officer, defendant Craig S. Madonia, even told Surabian that the loan "was definitely going to close." No mention was made that Central One still had not lined up any participants.
The day after Central One informed Surabian that the project was "good to go," Surabian executed a site clearance contract to make the site prepared for construction (including the razing of existing homes at the site). That work began the following week.
On or about June 30, 2010, Central One finally informed Surabian that it was having no success securing participants. Over the next few months, both sides unsuccessfully scrambled to try to keep the deal together. Meanwhile, Surabian requested an interim loan from Central One of $1 million to stabilize the project. Central One was willing to make that loan if Surabian agreed to a broader settlement agreement under which he would release Central One from any continuing obligation to make the originally intended loan. To obtain the loan, Surabian also would have to accept as true a particular statement of the facts underlying the loan discussions that the jury could have concluded was not true. Surabian refused to agree to such conditions, and he instead obtained an interim loan from another lender at a higher cost. Nevertheless, without long-term construction financing, the project ultimately failed.
In fact, Surabian testified that Madonia said, "[W]e lost our participants," although no lender had ever committed to participating.
Discussion. 1. Defendants' appeal. a. Liability. All three of the claims on which the plaintiffs prevailed rest on Surabian having reasonably relied on Central One's false material representations of fact that the loan would be forthcoming. Central One argues that its JNOV motion should have been allowed, because there was no evidence that it had made such misrepresentations. According to Central One, its various statements about the loan going forward amounted to, "at best, expressions of hope, expectation, or belief in future events, or puffery, and are far too vague and imprecise to be actionable misrepresentations." See, e.g., Yerid v. Mason, 341 Mass. 527, 530 (1960). For similar reasons, Central One argues that Surabian's reliance on any misrepresentations was unreasonable as a matter of law. See Golber v. BayBank Valley Trust Co., 46 Mass. App. Ct. 256, 257 (1999) (A misrepresentation claim "is ordinarily one for a jury, unless the undisputed facts are so clear as to permit only one conclusion"). In this regard, Central One contends that because Surabian was a sophisticated businessman, he could not reasonably have relied on the loan until participation had been obtained and a formal commitment letter issued.
Strictly speaking, a claim for promissory estoppel can be based on a promise that is not itself a misrepresentation. See Suominen v. Goodman Indus. Equities Mgmt. Group, LLC, 78 Mass. App. Ct. 723, 731 (2011) (reviewing the elements of promissory estoppel). However, with each side's blessing, the claim was presented to the jury as requiring a misrepresentation, and both parties agree that this should be treated as the law of the case.
Such arguments are not without force, especially when each of Central One's representations to Surabian is viewed in isolation. However, in reviewing the denial of a motion for a JNOV, our job "is to evaluate whether anywhere in the evidence, from whatever source derived, any combination of circumstances could be found from which a reasonable inference could be made in favor of the [nonmovant]." O'Brien v. Pearson, 449 Mass. 377, 383 (2007) (quotation omitted). When all of Central One's representations are taken together, and viewed against the backdrop of the time pressures that it knew Surabian was under and the additional information that was withheld from him, we cannot say that the plaintiffs' claims of actionable misrepresentations fail as a matter of law. See Kannavos v. Annino, 356 Mass. 42, 48 (1969) (A party "is bound to speak honestly and to divulge all the material facts bearing upon the point that lie within his knowledge. Fragmentary information may be ... as misleading as active misrepresentation, and half-truths may be as actionable as whole lies").
To the extent that Central One separately claims that the judge abused his discretion in denying its motion for a new trial, we discern no merit in that claim.
Central One also maintains that, as a matter of law, there could not have been a binding loan commitment because the closing of the loan was made subject to certain express conditions that were never satisfied, such as Central One's obtaining participation from other lenders, and approval of the project's construction costs. However, with regard to the condition that others would participate, the jury could have concluded that Central One actively misled Surabian on this point and that Central One in any event had informed Surabian that this was "[its] problem." With regard to the other conditions, there was evidence based on which the jury could have concluded that such conditions already had been, or readily could have been, satisfied. Thus, while the conditions provided Central One with additional support for its argument to the jury that any reliance here was unreasonable, they did not create an obstacle that was insurmountable as a matter of law.
For this proposition, Central One cites to Massachusetts Mun. Wholesale Elec. Co. v. Danvers, 411 Mass. 39, 46-47 (1991). However, that case addressed whether a contract included an implied condition precedent. Its direct relevance to claims based on promissory estoppel or misrepresentation is not at all clear (the plaintiffs here lost their contract claim at trial, and that claim has been abandoned). Viewed in its best light, Central One's pointing to the existence of the express conditions set forth in the draft commitment letter appears to be a variation of its argument that any reliance here was unreasonable.
In sum, we conclude that the judge did not err in denying the JNOV motion with respect to Central One's liability.
b. Damages. The jury awarded the plaintiffs $3.2 million in lost profits from the hotel project. That the hotel project could have generated such profits was amply supported by testimony given at trial. Central One therefore is left to argue that, as a matter of law, the plaintiffs were not entitled to lost profits as the appropriate measure of damages on the claims on which they prevailed. However, the jury were instructed that they could award lost profits if they found Central One liable on a theory of promissory estoppel, and Central One raised no objection to the jury instructions. Therefore, regardless of the merits of Central One's claim that, under the circumstances of this case, Surabian was entitled only to those expenses he incurred in direct reliance on any misrepresentations, that issue has been waived. See Green v. Brookline, 53 Mass. App. Ct. 120, 128 (2001). In addition, as Central One concedes, expectation damages ordinarily can be granted on a successful claim for intentional misrepresentation. See Twin Fires, Inv., LLC v. Morgan Stanley Dean Witter & Co., 445 Mass. 411, 424-425 & n.24 (2005).
In its brief, Central One suggests that the judge did not directly address in his instructions to the jury what damages would lie if they found Central One liable based on promissory estoppel. This is not accurate; the jury were instructed on promissory estoppel as part of the instructions on the contract-related claims, and the jury were informed that they could grant expectations-based damages if they found Central One liable based on such claims.
c. Prejudgment interest. The judge awarded prejudgment interest from the date of the filing of the plaintiffs' complaint. There was a firm basis for the judge's doing so. See Shawmut Community Bank, N.A. v. Zagami, 411 Mass. 807, 813 (1992). Central One nevertheless argues that "equity and fairness demand [ ] that interest be calculated from the date of the verdict." Assuming arguendo that the judge had discretion to award prejudgment interest from only the date of the jury's verdict, we discern no abuse of discretion here.
2. Central One's claims. a. Chapter 93A claim. As noted, the judge heard the c. 93A claim himself, and ruled in Central One's favor. The plaintiffs do not challenge the judge's findings and rulings as far as they go, but they argue that a remand is necessary because the judge did not address a discrete aspect of their c. 93A claim. Specifically, they argue that the judge did not address their specific assertion that Central One violated c. 93A by attempting to condition the requested $1 million interim loan on Surabian's admission to false facts regarding the history of the deal. Passing over whether the judge implicitly rejected this aspect of the plaintiffs' claim, we conclude that the requested remand is unwarranted under the circumstances of this case. Unhappy with the demands that Central One had made with respect to the interim loan, Surabian rejected the credit union's offer and secured the loan from a different lender. Thus, even if Central One acted in an otherwise actionable manner, the plaintiffs' damages from that particular alleged violation are not at all apparent. To be sure, there was evidence that the loan ended up costing Surabian more than the nominal terms that Central One otherwise had offered, but that was entirely expected under the plaintiffs' own theory. Where the plaintiffs have not demonstrated how they were harmed by any unreasonable conditions that Central One sought to attach to a loan that it never made, a remand on this issue would be pointless.
If Central One indeed was seeking to use its proposed funding of the loan as a means of securing concessions from Surabian regarding his potential underlying claims, one would expect that Central One would offer such a loan at a cost lower than others would be willing to do.
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b. Interest from date of breach. Unsatisfied with an award of pretrial interest commencing on the date they filed their complaint, and drawing analogies to contract claims, the plaintiffs argue that the judge erred by not awarding pretrial interest from the date of "breach." They offer various dates as potential candidates for that breach. Passing over whether the judge could have awarded interest from such an early date, we discern no error in his declining to do so. In this regard, we note that even if the contract analogy has some merit, there is no obvious date of a "breach," and the plaintiffs never requested that the jury determine such a date. See Deerskin Trading Post, Inc. v. Spencer Press, Inc., 398 Mass. 118, 125 (1986) ("Establishing the date of breach ... is a determination for the trier of fact, and, where trial has proceeded before a jury, neither the judge nor an appellate court can make such a determination").
Second amended judgment affirmed. Orders denying motions for judgment notwithstanding verdict, new trial, and remittitur affirmed. Order denying motion to limit prejudgment interest affirmed. Order denying cross motion to modify prejudgment interest affirmed.