City of Beverly v. Bass River Golf Mgmt., Inc.

• Decision Date: 14 November 2016
• Docket Number: No. 15–P–171.,15–P–171.
• Citation: 93 N.E.3d 852,92 Mass.App.Ct. 595
• Parties: CITY OF BEVERLY v. BASS RIVER GOLF MANAGEMENT, INC., & another.
• Court: Appeals Court of Massachusetts

92 Mass.App.Ct. 595

93 N.E.3d 852

CITY OF BEVERLY

v.BASS RIVER GOLF MANAGEMENT, INC., & another.¹

No. 15–P–171.

Appeals Court of Massachusetts, Essex..

November 14, 2016

January 5, 2018

Denis J. Sullivan, Medford, for the defendants.

Eitan Y. Goldberg, Assistant City Solicitor (Stephanie M. Williams, City Solicitor, also present) for the plaintiff.

Present: Sullivan, Maldonado, & Neyman, JJ.

MALDONADO, J.

In this case, we consider the propriety of actions taken by the city of Beverly (city), which owns the Beverly Golf and Tennis Club (Golf Club), and by Bass River Golf Management, Inc. (Bass River), which operated the facility for almost two years pursuant to a management contract with the city. On March 11, 2011, the city commenced an action in the Superior Court against Bass River and 31 Tozer Road, L.L.C. (Tozer), the guarantor of Bass River's payment obligations to the city, asserting claims for breach of contract against each party and seeking damages. Bass River filed counterclaims against the city (subsequently amended) which alleged violations of G. L. c. 93A, breach of contract, breach of an implied covenant of good faith and fair dealing, breach of warranty, and conversion.

Following a trial, the jury, in response to special questions, found that Bass River had breached its management contract with the city, that Tozer had guaranteed Bass River's payment obligations, and that the city was entitled to damages of $631,969.63. The jury also found that the city had violated the covenant of good faith and fair dealing in its contractual relationship with Bass River, and that the city had converted Bass River's property. The jury awarded Bass River damages of $48,967.33. Thereafter, the judge determined that Bass River had not proved that the city violated G. L. c. 93A.

Bass River and Tozer filed a motion to amend the findings of facts and rulings of law, to amend the judgment, or, in the alternative, for a new trial. The judge amended the judgment against Tozer to $600,000, in conformity with the language of the guaranty. In all other respects, the motion was denied. An amended final judgment entered on October 3, 2014, adding interest accrued on the damages awarded by the jury, limiting the judgment against Tozer as guarantor, and dismissing the parties' remaining claims and counterclaims. Bass River and Tozer appealed, contending that the judge erred in (1) denying their motion for a directed verdict; (2) denying their motion to amend the judgment or for a new trial; (3) refusing to give, or improperly giving, particular jury instructions; and (4) dismissing the counterclaim alleging violations of G. L. c. 93A.

1. Background. The jury could have found the following facts. As of January 1, 2005, the city entered into a five-year management contract with Johnson Golf Management, Inc. (Johnson Golf), whereby Johnson Golf agreed to manage, control, and operate the Golf Club, and to collect related fees from permit holders, in exchange for paying the city $600,000 annually, plus certain other fees. At the sole option of the city, the contract could be extended for an additional five-year term.

The management contract provided that the city would keep the Golf Club compliant with all Federal, State, and local laws, rules, and regulations. Johnson Golf was solely responsible for maintaining and repairing the buildings and the grounds, including the golf course and the interior of the clubhouse,² in keeping with their existing condition. The city was solely responsible for maintaining, repairing, and rebuilding the structural components of the buildings, including the walls, floors, roofs, and exterior facades. All work necessary to protect lives, safety, and the structural integrity of the buildings was to be performed first, after a review of two reports prepared by Gale Associates, Inc. (Gale reports), an engineering and design firm retained by the city to help it develop a facility maintenance plan and budget. Thereafter, the city would determine the order of its maintenance, repair, and rebuilding projects.

Over time, the relationship between Johnson Golf and the city deteriorated. On April 3, 2008, Johnson Golf agreed to assign its rights, interests, and obligations under the management contract to Bass River for $620,750, plus $50,500 for certain equipment, tools, and fixtures. Manuel Barros was the sole owner of Bass River. Prior to entering into the assignment, he toured the Golf Club and was familiar with the condition of its clubhouse, including the fact that the second floor, where a large function room was located, was not accessible to persons with disabilities.

To induce the city to execute the assignment with Bass River, Tozer provided a written guaranty to the city. It unconditionally guaranteed full and punctual payment "of all sums which may be presently due and owing and of all sums which shall in the future become due and owing to the City from Bass River." Among other matters, Tozer also agreed that its liability was "the lesser of $600,000.00 or such sums as may, from time to time, be due to the City by Bass River under the Management Contract." The guaranty was signed by Barros, as manager of Tozer.

Once Bass River started operating the Golf Club, it made numerous improvements to the facility in an effort to increase the number of permit holders. In September, 2008, the city's mayor sought, and the city council approved, a $1.5 million bond to pay for capital improvements to the golf course, the clubhouse, and a maintenance building that needed environmental remediation. Architectural and engineering work was initiated, and repairs were undertaken. During the time that Bass River was managing the Golf Club, the city spent approximately $130,000 on various repairs and improvements.

By late 2009, Bass River had fallen significantly behind in its payments to the city under the management contract, by then owing the city over $600,000. The mayor decided not to extend the contract with Bass River for an additional five-year term, choosing instead to hire a new manager for the Golf Club.³ When Bass River failed to pay its arrearage, the present action ensued.

2. Suggestion of bankruptcy. On November 10, 2016, Tozer filed a voluntary petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Tozer then filed a suggestion of bankruptcy with this court, requesting that the present appeal be stayed.⁴ We ordered the parties to submit supplemental briefs addressing the matter. In their supplemental briefs, both parties contend that this appeal should be stayed as to Tozer, but not as to Bass River. We agree.

The filing of a voluntary bankruptcy petition operates as an automatic stay of "the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the [bankruptcy] case."⁵ 11 U.S.C. § 362(a)(1) (2012). Section 362"should be read to stay all appeals in proceedings that were originally brought against the debtor, regardless of whether the debtor is the appellant or appellee." Association of St. Croix Condominium Owners v. St. Croix Hotel Corp., 682 F.2d 446, 449 (3d Cir. 1982). The purpose of the automatic stay is "to relieve a debtor of collection proceedings which would nullify the Bankruptcy Code's objective of orderly liquidations or reorganizations which treat creditors equally." Marine Midland Bank v. Herriott, 10 Mass.App.Ct. 743, 746, 412 N.E.2d 908 (1980). It is well settled that "proceedings in violation of the stay are void." Amonte v. Amonte, 17 Mass.App.Ct. 621, 624, 461 N.E.2d 826 (1984).

The automatic stay provisions of the Bankruptcy Code only apply to a "proceeding against the [petitioning] debtor," not against others. 11 U.S.C. § 362(a)(1). See In re Two Appeals Arising Out of the San Juan Dupont Plaza Hotel Fire Litigation, 994 F.2d 956, 969 (1st Cir. 1993). "Thus the stay provisions have been held not to apply to proceedings against a codefendant of the debtor, ... against individual partners of the debtor, ... or against the guarantors of its debts." Allegheny Intl. Credit Corp. v. Bio–Energy of Lincoln, Inc., 21 Mass.App.Ct. 155, 158, 485 N.E.2d 965 (1985). See In re Furlong, 660 F.3d 81, 89–90 (1st Cir. 2011) (automatic stay does not extend to assets of corporation in which debtor has interest, even where interest is 100 percent of stock).

The present appeal is a continuation of the judicial action against Bass River and Tozer that was commenced by the city prior to Tozer's initiation of bankruptcy proceedings. The parties assert, and we agree, that none of the exceptions to the automatic stay provisions, set forth in 11 U.S.C. § 362(b)(1)-(28) (2012), is applicable in this case. We also agree with the parties that, because the automatic stay provisions of the Bankruptcy Code only apply to Tozer, Bass River's appeal should proceed. Tozer's appeal is hereby stayed, and we turn to the merits of Bass River's arguments.

3. Motion for directed verdict. Bass River contends that the judge erred in denying its motion for a directed verdict at the close of the city's evidence. Bass River argues that the city failed to show that it satisfied its obligation under the management contract to ensure that the Golf Club was in compliance with all Federal, State, and local laws, rules, and regulations, particularly the regulations of the Architectural Access Board (AAB), which are designed to make public buildings accessible to and safe for persons with disabilities. See 521 Code Mass. Regs. § 2.1 (2006). Given that the second floor of the clubhouse was only accessible by stairs during Bass River's tenure as manager of the Golf Club, Bass River claims that the city was in material breach of the management contract which, in turn, excused Bass River's performance under the contract. Therefore, Bass River asserts, the judge should have granted its motion for a directed...