Arlington Trust Co. v. Caimi

• Decision Date: 13 April 1993
• Parties: , 20 UCC Rep.Serv.2d 1167 ARLINGTON TRUST COMPANY v. Joseph D. CAIMI.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 948

610 N.E.2d 948

414 Mass. 839, 20 UCC Rep.Serv.2d 1167

ARLINGTON TRUST COMPANY v. Joseph D. CAIMI.

Supreme Judicial Court of Massachusetts,

Middlesex.

Argued March 3, 1993.

Decided April 13, 1993.

Howard M. Brown (Richard E. Gentilli, with him), Boston, for plaintiff.

Ann Brennan (Stephen E. Shamban, Braintree, with her), for defendant.

Before LIACOS, C.J., and NOLAN, LYNCH, O'CONNOR and GREANEY, JJ.

NOLAN, Justice.

The plaintiff, Arlington Trust Company ¹ (Arlington Trust), is a Massachusetts banking corporation with a usual place of business in Tewksbury. The defendant, Joseph D. Caimi, at all relevant times had been an officer and stockholder of Lawrence Packaging Corp., Lawrence Paperboard Corp., and Harriman Paperboard Corp. (corporations). In October, 1971, Caimi signed a promissory note in favor of Arlington Trust in the amount of $800,000. Caimi signed the note both individually, and as president and treasurer of Lawrence Packaging Corp. and Lawrence Paperboard Corp.

In August, 1982, Caimi signed a second note in favor of Arlington Trust in the amount of $2,000,000. Caimi signed the second note in his capacity as president of the Lawrence Paperboard Corp. In January, 1983, Caimi signed a third note in favor of Arlington Trust in the amount of $980,000. Caimi signed the third note individually and as chairman of Harriman Paperboard Corp.

The corporations executed intercorporate guaranties whereby each of them guaranteed the debts of the others to Arlington Trust. Between 1973 and 1975, Caimi signed a guaranty in favor of Arlington Trust as to all obligations of Lawrence Paperboard Corp. and Harriman Paperboard Corp. to Arlington Trust. As a result of the guarantees executed by Caimi and by and among the corporations, Caimi was indebted to Arlington Trust, as a guarantor, for all of the obligations of the corporations.

In March, 1984, the corporations filed for bankruptcy protection. On the date the bankruptcy petitions were filed, the corporations owed Arlington Trust in excess of $2,600,000 on the outstanding promissory notes and overdrafts. Arlington Trust's claims for monies owed were secured by assets of the corporations. At the time that the bankruptcy petitions were filed, the corporations had sufficient assets to satisfy Arlington Trust's claims.

In July, 1984, the creditors' committee for the bankrupt corporations brought an adversary proceeding against Arlington Trust challenging its status as a secured party. The eight-count complaint alleged, among other things, that (1) "the guaranties, security interests and mortgages executed by the Debtors and delivered to Arlington [Trust] to secure performance of their various obligations were ultra vires and unauthorized," (2) "the guaranties, security interests and mortgages which [the corporations] granted to secure performance of the obligations of the other Debtors were void and unenforceable for want or failure of consideration," and (3) "the various guarantees, security interests and mortgages granted, the obligations incurred and the payments of money or transfers of property pursuant to the guaranties, security interests and mortgages lacked fair consideration and constituted fraudulent transfers."

Arlington Trust filed a motion for summary judgment on the above described counts. In August, 1987, the Bankruptcy Court entered summary judgment in favor of Arlington Trust on the committee's claim that the subject acts were ultra vires. The Bankruptcy Court judge denied Arlington Trust's motion for summary judgment on the other counts, but wrote that "[t]he Court finds that in the last analysis that Arlington [Trust] has failed to meet its ultimate burden of persuasion, although it has gone a long way toward showing that there is an absence of evidence to support the Committee's case and that the Committee may be unable to prove an essential element of its claim." The Bankruptcy Court judge continued, "In spite of this ruling, the Court has reservations about the Committee's ability to prove its case."

By way of motion dated January 8, 1988, the trustee sought an order to approve a settlement reached between Arlington Trust and the creditors' committee. Arlington Trust agreed to settle its secured claims, then totalling $2,100,000, for $1,750,000. The settlement agreement provided that "[t]he payments described in this paragraph shall be in settlement of the Debtors complaint and the Committee Complaint and all claims which Arlington [Trust] has against the three Debtors, provided however, that nothing contained herein shall be deemed to be a settlement or waiver of claims that Arlington [Trust] has against [Caimi] on account of his guarantees of the debts of the Debtors to Arlington [Trust]."

Caimi filed a limited objection to the proposed settlement. Caimi noted that the combined assets of the corporations were sufficient to pay in full the amount of Arlington's claim. Caimi argued that, "[s]ince there are sufficient funds in the estate of the Debtors to pay the entire claim being asserted by [Arlington Trust] and since the Debtors were and continue to be the primary obligors of the obligation to [Arlington Trust], it is unequitable that [Caimi] has potential liability for an obligation in excess of $380,000.00 as a result of this settlement." Notwithstanding Caimi's objection, the Bankruptcy Court judge approved the settlement.

We now consider the proceedings in the courts of the Commonwealth. On November 19, 1984, Arlington Trust commenced suit against Caimi, in his individual capacity, in the Superior Court in Middlesex County. Arlington Trust alleged that Caimi, as guarantor of the corporate obligations described above, was indebted to Arlington Trust and liable for outstanding monies owed, including reasonable attorney's fees. ² On December 3, 1984, Arlington Trust amended its complaint. Arlington Trust additionally alleged that Caimi, on May 8, 1984--approximately three months after the corporate bankruptcy proceedings commenced--fraudulently conveyed his interest in an improved parcel of land in North Andover to himself as trustee of JDC Realty Trust. Arlington Trust asked the Superior Court to set aside the transfer as violative of G.L. c. 109A, §§ 5-7 (1990 ed.).

On April 26, 1985, Arlington Trust filed a motion for summary judgment, or in the alternative for judgment on the pleadings. A judge in the Superior Court allowed the motion as to Caimi's personal liability on the notes and guarantees but left unresolved the amount of Caimi's liability and the issue concerning the fraudulent conveyance.

By order dated November 15, 1989, the action was referred for hearing before a master. In January, 1990, the master held hearings at which the parties introduced evidence. The master filed his report on June 25, 1990, and concluded that Arlington Trust's settlement of the suit brought by the creditors' committee was an unreasonable disposition of collateral and served to discharge Caimi's personal liability. The master also found that Arlington Trust breached the duty of good faith and fair dealing it owed to Caimi by settling the creditors' committee claim for less than the full amount of its claim against the estates of the corporations.

The master denied Arlington Trust's request for reasonable attorney fees because its attorney had failed to submit detailed and contemporaneous time records. The master found that Arlington Trust's attorneys' "offered a narrative bill" in support of its request "which did not contain a breakdown of which attorney or paralegal performed the services, the time spent, or the hourly rate of the person performing the service."

As to the fraudulent conveyance, the master found that the conveyance was not fraudulent because "Caimi had no personal obligations, and the assets securing the corporate debt were more than sufficient to cover the obligations" Caimi had personally guaranteed. With regard to the trust to which Caimi conveyed the subject property, the master found that, "[a]lthough there never was a written beneficiary to the Trust, it was always Mr. Caimi's intent to have his daughter be beneficiary."

Arlington Trust subsequently filed objections to the master's findings and requested additional findings. Arlington Trust argued that the master erred in concluding that Arlington Trust acted in a commercially unreasonable manner by settling the lawsuit for an amount less than its claim against the bankrupt corporations' estates. Arlington Trust argued, among other things, that the master's findings were erroneously premised on the applicability of G.L. c. 106, § 9-504 (1990 ed.).

Arlington Trust also objected to the master's finding pertaining to the property conveyance. Among other things, Arlington Trust argued that the property conveyance failed because "Caimi never designated in writing the beneficiary of the trust, and thus the trust never existed and could not receive the property." Arlington Trust further argued that the master's failure to award attorney's fees was clearly erroneous. Caimi filed a motion with the Superior Court for confirmation and adoption of the master's report.

A judge in the Superior Court, by order dated March 15, 1991, and amended April 5, 1991, ³ confirmed the master's report with one exception. As to the disposition of the collateral the judge wrote, "Uniform Commercial Code Article 9-504, contrary to [Arlington Trust's] contention, is not limited to disposition by a creditor who takes possession of the collateral. The broad language of the first sentence of Art. 9-504(1) contain[s] no such limitation. Indeed, inclusion of the phrase 'otherwise dispose of' and the appearance of a similar phrase in Art. 9-504(3) show that the obligation to proceed in a commercially reasonable manner was designed to be extremely broad." The judge continued, "Whether the collateral has been disposed of in a commercially reasonable manner is a question of...