RW Granger & Sons, Inc. v. J & S INSULATION, INC

• Decision Date: 10 May 2001
• Citation: 435 Mass. 66,754 NE 2d 668
• Parties: R.W. GRANGER & SONS, INC. v. J & S INSULATION, INC.; UNITED STATES FIDELITY & GUARANTY COMPANY, defendant-in-counterclaim.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

435 Mass. 66

754 NE 2d 668

R.W. GRANGER & SONS, INC.¹ v. J & S INSULATION, INC.;

UNITED STATES FIDELITY & GUARANTY COMPANY, defendant-in-counterclaim.

Supreme Judicial Court of Massachusetts, Worcester.

May 10, 2001.

September 6, 2001.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, COWIN, SOSMAN, & CORDY, JJ.

Anthony R. Zelle (Michael D. Lurie & Mark Holtschneider with him) for United States Fidelity & Guaranty Company.

Gerald I. Katz, of Virginia (Eric B. Travers, of Virginia, & Carol Frisoli with him) for the defendant.

MARSHALL, C.J.

At issue in this appeal is the validity of a substantial punitive judgment entered against United States Fidelity and Guaranty Company (USF&G) in favor of J & S Insulation, Inc. (J&S). J&S was a subcontractor to R.W. Granger & Sons, Inc. (Granger), the general contractor on construction work at Logan Airport, for whom USF&G was the surety. See G. L. c. 149, § 29.² The punitive damages were awarded after a judge in the Superior Court concluded that USF&G had wilfully and knowingly violated G. L. c. 93A in the wake of a jury verdict against Granger on a breach of contract claim by J&S.

On appeal, USF&G argues that the judge erred in (1) ruling that USF&G wilfully or knowingly committed unfair or deceptive business practices in violation of G. L. c. 93A; (2) using the underlying judgment against it under G. L. c. 149, § 29, as the basis for calculating J&S's double damages under G. L. c. 93A; and (3) awarding "facially unreasonable" attorney's fees to J&S on its G. L. c. 93A claim. USF&G also appeals from the judge's denial of its posttrial motions and its motion for a new trial or rehearing to determine J&S's attorney's fees. We affirm in all respects the judgment against USF&G and the denial of its posttrial motions for relief.

1. Background. The circumstances giving rise to the punitive damages award are these. In May, 1992, Granger sued J&S seeking damages for breach of the Logan Airport subcontract. J&S counterclaimed to like effect, adding a claim that by wrongfully withholding payments from J&S, Granger had violated G. L. c. 93A, § 11. At the same time, J&S asserted a counterclaim under G. L. c. 149, § 29, against USF&G alleging that USF&G was liable to J&S on the surety bond to the same extent that Granger was liable to it on the subcontract.

A jury trial on the contract claims between Granger and J&S was conducted in October, 1994. The trial judge reserved for later adjudication, without a jury, J&S's claim against Granger under G. L. c. 93A, and its claim against USF&G under G. L. c. 149. On October 26, 1994, a jury returned a $203,867.31 verdict against Granger in favor of J&S. Some ten months later, on September 6, 1995, judgment entered against Granger in the amount of $307,527.31, the amount of the verdict with interest. That same day, judgment entered in favor of J&S against USF&G as surety pursuant to G. L. c. 149, § 29, in the amount of $410,245.83, the amount of the verdict, interest, and statutory attorney's fees. We explain later the significance of those judgments.

In order to explain our rulings on USF&G's various challenges to the punitive judgment against it, we now summarize in greater detail the procedural events that followed the October, 1994, jury verdict against Granger on J&S's subcontract claim. Following the jury verdict, J&S immediately made demand on USF&G for payment "on account consistent with the jury verdict." J&S also informed USF&G that it would separately "deal with" the issue of attorney's fees and costs recoverable under G. L. c. 149, § 29. J&S, receiving no response from USF&G, filed a motion seeking entry of judgment against USF&G, as surety, including treble damages for violations of G. L. c. 93A, § 11, and G. L. c. 176D. At that time J&S's only claim pending against USF&G was the G. L. c. 149, § 29, surety claim.

On February 21, 1995, four months after the jury verdict, the judge permitted J&S to amend its complaint to include a G. L. c. 93A, § 11, claim against USF&G by that date J&S had received no payment or offer of settlement, despite the jury verdict. The judge limited the G. L. c. 93A claim against USF&G to events "occurring subsequent to" the jury's October, 1994, verdict establishing the liability of Granger.³

On March 13, 1995, USF&G answered J&S's amended complaint. It both denied that J&S was entitled to the benefits of the surety bond, and that its conduct violated G. L. c. 93A. However, at a hearing on March 15, 1995, to address J&S's bond claim, USF&G did not contest the introduction of the payment bond in evidence and presented no evidence or argument to contest its surety liability. On March 16, 1995, USF&G offered to settle all of J&S's claims for $230,000. The offer was promptly rejected.

There matters stood until September 6, 1995, when, as noted above, separate judgment entered against Granger on the underlying subcontract claim in the amount of $307,527.31, representing the subcontract verdict of $203,867.31, together with statutory interest in the amount of $103,660. At the same time, a separate judgment entered against USF&G on J&S's bond claim in the amount of $410,245.83, representing the amount of the jury verdict against Granger, $203,867.31, together with $86,835.02 interest on that claim,⁴ and $119,543.50 in attorney's fees. Finally, on October 6, 1995, Granger and USF&G unconditionally paid J&S all amounts due on those two judgments,⁵ neither of which is at issue in this appeal.

Meanwhile, J&S's claims under G. L. c. 93A against USF&G and Granger remained to be resolved. A trial of those claims occurred on November 30, 1998. USF&G did not call any witnesses, nor did it tender any documents in evidence. It was agreed that evidentiary matters received during the 1994 trial on the underlying subcontract would, to the extent material, be considered by the judge.

At the conclusion of the trial, in a memorandum filed January 22, 1999, the judge ruled against J&S on its G. L. c. 93A claim against Granger.⁶ The judge concluded, however, that USF&G "acted, post-verdict, willfully or knowingly in a manner prohibited by G. L. c. 93A, § 2." See Part 2, infra. He ordered USF&G to pay J&S double damages in the amount of $820,491.66, (representing double the amount of the underlying judgment against USF&G), together with interest on $410,245.83 from February 21, 1995 (the date of J&S's pleading under G. L. c. 93A against USF&G), to August 25, 1995 (when Granger and USF&G first proffered payment on the underlying judgments), in the sum of $79,100.62.

Following entry of that judgment against it, USF&G filed a motion to amend judgment, Mass. R. Civ. P. 59 (e), 365 Mass. 827 (1974); or in the alternative to amend, clarify, and correct the findings of the court, Mass. R. Civ. P. 52 (b), as amended, 423 Mass. 1402 (1996), and Mass. R. Civ. P. 60 (a), 365 Mass. 828 (1974). The judge granted USF&G's motion only with respect to the amount of interest awarded to J&S on its G. L. c. 93A claim against USF&G.⁷ In addition, the judge awarded J&S $120,631.52 in attorney's fees with respect to the G. L. c. 93A claim.

On May 27, 1999, USF&G filed a motion pursuant to Mass. R. Civ. P. 59 (a), 365 Mass. 827 (1974), for a new trial or a rehearing on the award of attorney's fees to J&S on the G. L. c. 93A claim. The judge denied the motion. USF&G filed an appeal from the judgment under G. L. c. 93A, and from the denial of its posttrial motions to set aside that judgment and the award of attorney's fees. We granted its application for direct appellate review.

2. USF&G's liability. We consider first USF&G's challenge to the judge's ruling on liability. It argues that there was insufficient evidence to support a conclusion that it wilfully or knowingly violated G. L. c. 93A. We summarize the judge's findings.

On March 16, the day after the hearing on the payment bond, USF&G offered to settle all of J&S's claims for $230,000, which J&S rejected. The judge found that there was no evidence to explain the delay of more than four months from J&S's demand for payment on November 2, 1994, and USF&G's offer of settlement. He also found that the offer was "wholly inadequate" in light of the jury verdict, the "likely" interest calculations, and the attorney's fees "reasonably expected to be awarded."

The judge then ruled that USF&G's "inexplicably tardy" and inadequate offer, and other "cavalier" postverdict conduct, constituted violations of several provisions of G. L. c. 176D.⁸ He found that USF&G had failed to conduct "a reasonable investigation" of Granger's dispute with J&S both prior to and after the jury verdict, in violation of G. L. c. 176D, § 3 (9) (d) (see note 3, supra); failed to exercise its duty to "affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed," in violation of G. L. c. 176D, § 3 (9) (e); and failed to effectuate "prompt, fair and equitable settlements of claims in which liability has become reasonably clear," in violation of G. L. c. 176D, § 3 (9) (f). Additionally, the judge found that USF&G had violated G. L. c. 176D, § 3 (9) (g), which prohibits an insurer from forcing an insured "to initiate litigation to recover amounts due ... by offering substantially less than the amounts ultimately recovered," when it compelled J&S to pursue litigation under G. L. c. 93A, first by failing to present an offer to settle in response to J&S's November, 1994, demand letter, and later by making an inadequate settlement offer.

Having found that USF&G had violated these several provisions of G. L. c. 176D, § 3 (9), the judge then turned to J&S's claim under G. L. c. 93A. The violations of G. L. c. 176D were "persuasive evidence," the judge said, that USF&G had engaged in "unfairness under Chapter 93A." The judge further found that USF&G had engaged in unfair business practices in violation of G. L. c. 93A, independent of any violations of G. L. c. 176D. H...