Chan v. Chen

• Decision Date: 06 September 2007
• Docket Number: No. 06-P-1074.,06-P-1074.
• Citation: 70 Mass. App. Ct. 79,872 N.E.2d 1153
• Parties: Chiu Chung CHAN v. Su Ru CHEN.
• Court: Appeals Court of Massachusetts

872 N.E.2d 1153

70 Mass. App. Ct. 79

Chiu Chung CHAN v. Su Ru CHEN.

No. 06-P-1074.

Appeals Court of Massachusetts, Middlesex.

Argued March 5, 2007.

Decided September 6, 2007.

John P. Connell, Lowell, for the defendant.

James M. Caramanica, Saugus, for the plaintiff.

Present: GELINAS, COWIN, & GRAHAM, JJ.

GELINAS, J.

The defendant, Su Ru Chen (seller), appeals, arguing that the trial judge erred in allowing in evidence out-of-court statements made by two witnesses, Bob Sun (Sun) and Frances Sun (Frances), to the plaintiff, Chiu Chung Chan (buyer), as "vicarious admissions" of the seller; that the judge incorrectly denied the seller's posttrial motion to vacate due to fraud; and that the judge committed error in denying the seller's posttrial motion for judgment notwithstanding the verdict or, in the alternative, for new trial.

In October, 2001, the seller owned and operated the Lucky Duck Fortune Cookie Factory in Everett, a business that made Chinese-style fortune cookies for restaurants. The seller approached Sun, a licensed real estate broker, regarding the sale of the business, and listed it for sale with him for $35,000, with Sun to receive a six percent commission on the sale.¹ Although the seller's husband, Zhao Chen, did not own an interest in the business, the seller authorized him to speak on her behalf and to communicate with Sun in trying to sell the business.

In November, 2002, approximately one year later, Sun's daughter, Frances, informed her fiancé, the buyer, of the opportunity to purchase the business. Frances, a computer consultant, was working part-time for Sun as an "associate broker." The buyer and Frances decided to purchase the business together. Frances, who planned to work at the business, did most of the investigation into its finances, and sought to help the buyer purchase the business for the best price. Acting ostensibly as a broker on behalf of the seller, Frances began to inquire of the seller by telephone as to the finances of the business, without revealing either that she was the fiancée of the buyer or that she would have an interest in the business once purchased.²

Frances testified that, during a telephone conference call with the seller, who was at home, and the seller's husband, who was at the factory, she, Frances, inquired as to how much profit the business had and how many boxes of fortune cookies it sold each month. Frances testified that both the seller and her husband answered that the business made $2,000 per month in profit, that it had eight or nine customers, and that it sold between 1,000 and 1,200 boxes of cookies every month. Frances also obtained the most recent income tax returns of the seller and her husband (for years 1999, 2000, and 2001), including Schedules C detailing income and expenses of the business. The tax returns corroborated what Frances and the buyer had been told about the business. Frances also drove with the seller's husband on one or two occasions while he made cookie deliveries in November, 2002, to determine if the delivery truck was operational. While in the delivery truck, Frances reviewed sales invoices, but was not allowed to make copies of them.³

The sale closed on December 4, 2002. At the closing, Sun produced both an offer to purchase and a purchase and sale agreement, which both the buyer and seller signed. The existing commercial lease for the cookie factory was assigned from the seller to the buyer with the lessor's permission. Although the original asking price for the business was $35,000, Sun and Frances had negotiated the price down to $23,000. Sun deducted ten percent of the purchase price ($2,300), and paid the seller the balance ($20,700) as her proceeds from the sale.

The buyer and Frances began to operate the business immediately following the closing. Frances testified that, by December 6, 2002, only two days later, she determined that the immediate demand for the business's cookies was about "500 boxes" per month, rather than the 1,000 to 1,200 she claimed the seller had represented to her.⁴ Frances also determined that, based upon a monthly demand for 500 boxes, the business would not make any profit and would probably lose money. On the same date, December 6, 2002, the buyer and Frances made the decision to cease operating the business. In mid-December, the buyer left for a previously planned vacation to China. By the end of December, 2002, no more cookies were being made, and all existing cookies were sold by the third week of January, 2003, at which time the business ceased to operate.

On February 4, 2003, the buyer commenced the present action in Superior Court against the seller alleging breach of contract, fraud and misrepresentation, and violation of G.L. c. 93A.⁵ Prior to trial, the judge conducted a lengthy evidentiary hearing on the issue whether statements made by the seller's agents (Sun and purportedly, Frances) to the buyer would be allowed in evidence as vicarious admissions. The judge ruled from the bench that the buyer had established that Sun and Frances "were authorized to act as brokers for the sale of the business ... [and] to provide information to potential buyers concerning the value of the business . . . [and that] the [probative] value of this evidence is not substantially outweighed by its prejudicial effect," even though the judge was "concerned with the dual role that was played by Frances Sun in this transaction." In answer to special questions, the jury found that the seller did not breach either the parties' written purchase and sale agreement or any oral agreement between the parties. However, the jury also found that the seller committed an act of "fraud/misrepresentation" against the buyer, and they awarded the buyer $17,000 in damages. On the buyer's G.L. c. 93A claim, which the judge reserved to himself, the judge found that the buyer had not sustained his burden of proof. The judge denied the seller's timely motions to vacate the judgment due to fraud,⁶ and for judgment notwithstanding the verdict or for new trial. The seller appeals.

It was undisputed at trial that neither the seller nor the seller's husband ever met with the buyer or said anything to the buyer prior to the closing. Even at the closing, the seller and her husband said nothing of consequence to the buyer and engaged only in polite small talk. The buyer did not contend at trial that anything contained in the seller's income tax returns, which were relied on by the buyer, was false.

To prevail on a claim for fraud or deceit, a plaintiff must prove as an essential element of the claim that the defendant has knowingly made a false statement of material fact, intending that the plaintiff rely thereon, and upon which the plaintiff did rely. See Reisman v. KPMG Peat Marwick LLP, 57 Mass.App.Ct. 100, 108-109, 787 N.E.2d 1060 (2003); Equipment & Sys. for Indus., Inc. v. Northmeadows Constr. Co., 59 Mass.App.Ct. 931, 931, 798 N.E.2d 571 (2003). Here, the sole support for this element of the claim is the out-of-court statements made by Frances or Sun to the buyer as to what the seller or her husband had said to them regarding the volume and profitability of the business.

"[A] vicarious admission describes an exception to the hearsay rule; namely, a witness may testify to the out-of-court statement of an agent of a party." Thorell v. ADAP, Inc., 58 Mass.App.Ct. 334, 339, 789 N.E.2d 1086 (2003), quoting from Turners Falls Ltd. Partnership v. Board of Assessors of Montague, 54 Mass. App.Ct. 732, 736, 767 N.E.2d 629 (2002). In conducting his hearing on the admissibility of the statements, the trial judge properly followed the procedure and standards established for making determinations as to the admissibility of vicarious admissions. See Ruszcyk v. Secretary of Pub. Safety, 401 Mass. 418, 421-424, 517 N.E.2d 152 (1988) (modifying common-law rule with respect to vicarious admissions); Thorell v. ADAP, Inc., 58 Mass.App.Ct. at 338-340, 789 N.E.2d 1086. In Thorell, this court described the two-prong test used to determine whether out-of-court statements made by alleged agents or employees of a principal should be considered vicarious admissions and therefore an exception to the hearsay rule. To determine whether a statement qualifies as a vicarious admission, the judge first must decide as a preliminary question of fact whether the declarant was authorized to act on the matters about which he spoke. Id. at 339, 789 N.E.2d 1086. If the judge finds that the declarant was so authorized, the judge must then decide whether the probative value of the statement substantially outweighs its potential for unfair prejudice. Ibid. "In so doing, the judge should consider `the credibility of the witness; the proponent's need for the evidence, e.g., whether the declarant is available to testify; and the reliability of the evidence offered, including consideration of whether the statement was made on firsthand knowledge and of any other circumstances bearing on the credibility of the declarant.'" Id. at 339-340, 789 N.E.2d 1086, quoting from Ruszcyk v. Secretary of Pub. Safety, supra at 422-423, 517 N.E.2d 152. Following a hearing on the admissibility of the statements, the trial judge ruled, in part, as follows:

"To determine whether the statements qualify by vicarious admission, the Court must find two things. First, whether the declar[ants] in this case, Bob Sun and Frances Sun, were authorized to the matter to which they spoke; second, if so, whether the [probative] value of the statements [is] substantially outweighed by its potential for unfair prejudice.... Based upon the credible testimony before me, I find that the plaintiff...