Berish v. Bornstein

• Decision Date: 08 January 2002
• Citation: 770 NE 2d 961,437 Mass. 252
• Parties: STEPHEN BERISH & others, trustees v. STUART BORNSTEIN, individually and as trustee, & others.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

437 Mass. 252

770 NE 2d 961

STEPHEN BERISH & others,¹ trustees² v. STUART BORNSTEIN, individually and as trustee,³ & others.⁴

Supreme Judicial Court of Massachusetts, Barnstable.

January 8, 2002.

June 28, 2002.

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

Stephen Schultz for the plaintiffs.

Jennifer S.D. Roberts for the defendants.

The following submitted briefs for amici curiae:

Benjamin Fierro, III, for Home Builders Association of Massachusetts, Inc.

Stephen M. Marcus, Thomas O. Moriarty, & Edmund A. Allcock for Community Associations Institute.

CORDY, J.

The plaintiff trustees of the Trust of the Cotuit Bay Condominium (unit owners' association)⁵ commenced an action against the developer of the Cotuit Bay Condominium (condominium development), Stuart Bornstein (Bornstein); the original trustees of the unit owners' association, including Jamila, Morris, and Paul Bornstein (Bornstein trustees)⁶; and the general contractor of the condominium development, Cotuit Bay Condominium, Inc. (CBC).⁷,⁸ In their complaint, the trustees alleged, inter alia, that Bornstein breached the implied warranty of habitability by improperly constructing the condominium development, and that he and the Bornstein trustees breached various duties by failing properly to manage the unit owners' association and care for the common areas while they were original trustees.⁹

After thirteen years of litigation, judgment was entered in the Superior Court in the trustees' favor on breach of fiduciary duty and breach of contract claims. Both parties have appealed. We granted the trustees' application for direct appellate review. The principal issue we decide is whether a warranty of habitability is implied in the sale of a newly constructed condominium unit or in the transfer of newly constructed common areas to an organization of unit owners. We conclude that such a warranty is implied in both types of transactions.

1. Factual background. In addition to being an original trustee of the unit owners' association, Bornstein was the principal beneficiary and trustee of the Cotuit Bay Condominium Trust

(nominee trust),¹⁰ which owned both the land in Mashpee on which he built the condominium development¹¹ and all of the condominium units until they were individually sold. Construction of the condominium development began in 1981, and as the units were completed and sold between 1981 and 1985, Bornstein amended the master deed to expand the condominium development from the thirty-two original units to a total of sixty-two units.

On October 30, 1981, the unit owners' association was created. The declaration of trust, which sets out the trustees' rights and responsibilities, conveyed "[a]ll rights and powers in and with respect to the common areas and facilities of [the condominium development]" to the trustees "to exercise, manage, administer and dispose of the same and to receive the income therefrom for the benefit of the owners of record." It also required that the trustees set and assess common expenses for the upkeep of the common areas as follows:

"At least thirty days prior to the commencement of each fiscal year of this trust and within thirty days after the execution hereof with respect to the portion of a fiscal year then remaining, the Board of Trustees shall estimate the common expenses expected to be incurred during such fiscal year together with a reasonable provision for contingencies and reserves, and after taking into account any undistributed common profits from prior years, shall determine the assessment to be made for such fiscal year. The Trustees shall promptly render statements to the Unit Owners for their respective shares of such assessment, according to their percentages of interest in the common areas and facilities (or 25% thereof with respect to unoccupied Units owned by Declarant as above provided), and such statement shall, unless otherwise provided herein, be due and payable within thirty days after the same are rendered."

While Bornstein was a trustee of the unit owners' association, the nominee trust owned a number of unsold units on which it should have paid $36,223 in annual assessments. It was not billed for, nor did it pay, those assessments to the unit owners' association. However, during this same period of time, CBC provided all of the landscaping and maintenance at the condominium development and paid a substantial portion of the condominium development's operating expenses, including the insurance, electric, and telephone bills. In total, CBC expended $69,293 for the benefit of the condominium development, $33,073 more than the nominee trust would have paid for the units that it owned.

Between 1982 and May, 1985, serious problems were identified in the common areas of the condominium development, including problems with the sliding doors, chimneys, skylights, decks, and roofs. None of the skylights, chimneys, or sliding doors had been installed with flashing, as required by the State building code (code), resulting in water leakage and damage to the sheet rock and other materials on the inside of the individual units. In addition, none of the outside decks was constructed in accordance with the code, causing their supporting columns to deteriorate prematurely and rot. No action was undertaken by Bornstein and the other original trustees of the unit owners' association to cure these and other problems.¹²

Pursuant to the declaration of trust, the original trustees of the unit owners' association had staggered terms that expired between 1982 and 1985.¹³ As the terms of these trustees expired, the vacancies on the board of the unit owners' association were presumably filled pursuant to the provisions of the declaration of trust. Bornstein, the last remaining original trustee, completed his term as trustee in July, 1985.

2. Procedural history. The trustees filed their complaint in the Land Court in February, 1987, naming Bornstein as the sole

defendant. They set forth claims for misrepresentation, failure to properly administer the unit owners' association, and failure to pay common charges for individual units that the nominee trust owned. The trustees filed an amended complaint adding a claim for violation of G. L. c. 93A, and a second amended complaint adding negligence claims against CBC and various subcontractors who had built the condominiums. In April, 1988, a judge in the Land Court ordered the case transferred to the Superior Court.

In October, 1988, the trustees filed their third amended complaint, which set forth the following claims against Bornstein:

(1) negligence, individually and as a trustee of the unit owners' association, based on his failure to exercise due care in the design and construction of the condominium (Count I);

(2) misrepresentation, individually, based on statements about the condominium that the unit owners relied on to their detriment (Count IX);

(3) breach of the implied warranty of habitability (Count X);

(4) breach of fiduciary duty, individually, for his failure to ensure that the condominium units were properly constructed, that all known deficiencies were addressed, that "all that had been represented was provided," and adequately, duly, and competently to administer the condominium (Count XI);

(5) breach of contract and violation of the Massachusetts Condominium Act, individually and as a trustee of the unit owners' association, for failure to pay the plaintiff trustees the proportionate share of common expenses due on the units (Count XII);

(6) violation of G. L. c. 93A, individually (Count XIII).

The complaint also included one count against CBC for negligence based on its failure to exercise due care in the design and construction of the condominiums (Count II),¹⁴ and three counts alleging breach of fiduciary duty against the Bornstein trustees (Counts XIV, XV, and XVI).¹⁵

a. Ruling on the defendants' motion to dismiss. In December, 1993, the Superior Court judge dismissed the negligence claims against Bornstein and CBC (Counts I and II),¹⁶ holding that the complaint failed "to assert any damage other than the allegedly defectively designed and constructed condominium itself, [and that therefore] this claim is barred by the `economic loss' doctrine." The judge explained that:

"[T]he only damages which the plaintiffs have alleged in their complaint is the `substantial expense' they will likely incur in correcting the alleged defects and deficiencies. This is essentially a claim for `economic loss', as the plaintiffs have not plead[ed] any personal injury or physical damage to property separate and apart from the allegedly defective building itself."

The judge also dismissed the claim for breach of implied warranty of habitability against Bornstein (Count X) because Massachusetts did not recognize a cause of action for breach of implied warranty of habitability arising out of the purchase of a house or condominium unit.¹⁷ Both of these pretrial rulings are before us on appeal by the trustees.

b. The trial. The case proceeded to trial before a master on the remaining claims, the scope of which was narrowed before and during trial to the following: misrepresentation against Bornstein (Count IX)¹⁸; breach of fiduciary duty against Bornstein in his capacity as trustee of the unit owners' association (Count XI)¹⁹; breach of contract against Bornstein based on his failure to pay his proportionate share of common expenses for condominium units that the nominee trust owned (Count XII)²⁰; violation of G. L. c. 93A against Bornstein based on his failure to pay common expenses when they were due (Count XIII)²¹; and breach of fiduciary duty against the Bornstein trustees based on their actions as trustees of the unit owners' association (Counts XIV to XVI).²²

There were forty-one days of hearings between January 3, 1994, and January 24, 1995, during which the trustees presented thirty-nine witnesses, including one...