Diamond Crystal Brands, Inc. v. BACKLEAF, LLC., 02-P-518.

• Decision Date: 24 February 2004
• Docket Number: No. 02-P-518.,02-P-518.
• Citation: 803 NE 2d 744,60 Mass. App. Ct. 502
• Parties: DIAMOND CRYSTAL BRANDS, INC. v. BACKLEAF, LLC.
• Court: Appeals Court of Massachusetts

60 Mass. App. Ct. 502

803 NE 2d 744

DIAMOND CRYSTAL BRANDS, INC. v. BACKLEAF, LLC.

No. 02-P-518.

Appeals Court of Massachusetts.

October 8, 2003.

February 24, 2004.

Present: Gelinas, Cohen, & Mills, JJ.

Stephen A. Greenbaum for the defendant.

Garrett G. Gillespie for the plaintiff.

Middlesex.

MILLS, J.

This is a commercial lease case involving construction of a provision respecting the lessee's obligation to pay additional rent for electricity. We conclude that a landlord's unreasonable position in construction of the lease provision subjects him to damages under G. L. c. 93A.

Background. The plaintiff, Diamond Crystal Brands, Inc. (Diamond), sold its commercial real estate in Wilmington, improved by a building which it had occupied entirely, to the defendant, Backleaf, LLC (Backleaf), which agreed to lease back to Diamond approximately sixteen percent of the building space. For a period of about ten months prior to the sale, Diamond had ceased manufacturing at the building and used only office space. The parties expected that after closing the transaction, Backleaf and Diamond would share occupancy of the building, with Diamond continuing to use the office space and Backleaf occupying the remainder. It was agreed that Diamond would pay a share of utilities. Because there was no separate electrical meter, however, the parties inserted the following provision into a rider to Diamond's lease:

"4(b) In addition to the base rent, the LESSEE shall pay, as `Additional Rent':

". . .

"(ii) LESSEE's share of electricity . . . charges attributable to LESSEE's occupancy of the leased premises, said share to be based on the LESSEE's historical costs of electricity . . . charges experienced by the LESSEE from the date manufacturing ceased at the building in or about November 1999 to the date of the purchase of the property by LESSOR."

Diamond's historical costs of electricity were not set forth in the rider. After execution of the lease, it came to light that while Diamond was sole occupant, the electrical costs averaged $7,924 per month (ranging from $4,500 to $11,500). However, after both parties occupied the building, the electrical costs averaged only $2,500 per month (ranging from $2,200 to $4,800) for the entire building. Despite the drop in costs, Backleaf as lessor nonetheless demanded a monthly payment of $7,924 for electrical costs.

Backleaf billed Diamond for electricity at the level of $7,924 per month on the day after the lease came into effect, September 5, 2000. Backleaf threatened to terminate Diamond's lease unless it paid the amounts demanded. Backleaf served Diamond with a ten-day notice to quit only six days later, on September 12, 2000. Diamond paid Backleaf under protest the very next day. Over a seven-month period, Diamond paid approximately $41,000 under protest, although the actual costs for electricity for the entire building during this period totaled only approximately $18,000.

Diamond commenced this action seeking a declaration that it "is obligated to pay only those electricity charges which result from its occupancy at the Leased Premises," and subsequently amended its complaint to add a claim under G. L. c. 93A, § 11. Backleaf counterclaimed, seeking a declaration that Diamond was obligated to pay $7,943.76 per month in electricity charges.¹ After a bench trial, a Superior Court judge made findings of fact and ruled that the lease rider provision was ambiguous insofar as it indicated that Diamond's obligations would be "based on" its historical electricity costs. The judge specifically found that the parties never intended that Backleaf receive a windfall (i.e., that Diamond should pay as its proportionate share of electrical costs three times the actual cost of electricity for the entire building). The judge also ruled that Backleaf was not liable under G. L. c. 93A, § 11. The judge initially left calculation of the sum Diamond should pay for electricity to the parties, without ordering any specific refund to Diamond, but on Diamond's motion to alter or amend the judgment, she ordered that if the parties did not decide on a sum within five days, then Backleaf was to repay Diamond $30,121.

The parties have cross-appealed. Backleaf challenges the judge's ruling that the lease was ambiguous and her consideration of extrinsic evidence, and Diamond challenges her failure to award damages on its G. L. c. 93A count.

Discussion. a. Lease interpretation. The judge ruled the lease provision ambiguous and therefore turned to extrinsic evidence to ascertain the intent of the parties. It was on this basis that she ordered Backleaf to repay Diamond Crystal no less than $30,121. While we affirm her repayment order, we do so on somewhat different grounds, as we conclude that there was no ambiguity, but rather a missing term.

It was for the judge to rule as matter of law if there was an ambiguity in the lease. See Allstate Ins. Co. v. Bearce, 412 Mass. 442, 446-447 (1992) (interpretation of written contract provisions is question of law); Lumber Mut. Ins. Co. v. Zoltek Corp., 419 Mass. 704, 707 (1995) (same); Lexington Ins. Co. v. All Regions Chem. Labs, Inc., 419 Mass. 712, 713 (1995) (same); Seaco Ins. Co. v. Barbosa, 435 Mass. 772, 779 (2002) ("If a contract, in this case a lease, is unambiguous, its interpretation is a question of law that is appropriate for a judge to decide on summary judgment"). We review the judge's threshold finding of an ambiguity for error of law. See Edwin R. Sage Co. v. Foley, 12 Mass. App. Ct. 20, 26 (1981) ("conclusions of law are subject to broad review and will be reversed if incorrect"). Under Mass.R.Civ.P. 52(a), as amended, 423 Mass. 1402 (1996), her determination of the parties' intent in her findings of fact will be upheld unless clearly erroneous.

"A term is ambiguous only if it is susceptible of more than one meaning and reasonably intelligent persons would differ as to which meaning is the proper one." Citation Ins. Co. v. Gomez, 426 Mass. 379, 381 (1998). In this case, despite the lack of precision as to the formula for assessing Diamond's portion of the electrical costs, the terms "attributable to lessee's occupancy" mean with sufficient clarity that Diamond would pay an approximation of its share of the actual electrical costs. No terms in the provision contradict this intention, and no other meaning is plausible. By stating that Diamond's future share of electrical costs would be "based on" its historical costs, the lease provision merely indicated that the two figures should correlate, not that they must be equivalent. Although the judge specifically ruled that the "based on" terminology was ambiguous, we see no such ambiguity after reading the provision as a whole. Only Backleaf's thoroughly tortured reading of the lease could distort the operating cost sharing provision in this lease to mean that the lessee should pay three times the actual electrical costs for the entire building, thus conferring a windfall upon the landlord and abandoning the duty of good faith and fair dealing. Backleaf's proposed reading is unreasonable and inconsistent with common sense. The ruling that the lease was ambiguous was error.

Rather than an ambiguity of the sort determined by the judge, there was a missing term in an otherwise unambiguous provision. The parties failed to include a specific formula for calculating the lessee's share beyond indicating that it would in some way correlate to Diamond's historical costs as the sole occupant of the building. It was therefore the task of the trial judge to fill in the missing term in accordance with the intent of the parties. See Fay, Spofford & Thorndike, Inc. v. Massachusetts Port Authy., 7 Mass. App. Ct. 336, 342 (1979).²

There is no error in the judge's findings of fact as to the parties' intent, and we defer in particular to her findings of credibility (or lack thereof) among the witnesses at trial. Because she found that (1) "it was always the intent of the parties to charge Diamond . . . for the electricity actually used by that company during the period of the lease," (2) "the intent of both parties was to find a method to allocate the electricity charges equitably, based upon usage, between the parties," and (3) "never was such a windfall to the landlord intended or bargained for by the parties," it was not erroneous for the judge to declare that Diamond's share must not exceed the total actual cost for the entire building.³

b. Diamond's G. L. c. 93A claim. Despite finding that Backleaf was not entitled to the windfall it demanded, the judge found that Backleaf's conduct did not amount to bad faith or an unfair and deceptive practice in violation of G. L. c. 93A, §§ 2 and 11. Diamond argues that the judge found all the elements of a violation, yet erred in failing to order c. 93A relief.

General Laws c. 93A, § 11, prohibits unfair or deceptive acts or practices among those engaged in trade or commerce. Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 474 (1991). If the unfair or deceptive act was wilfully or knowingly committed, then the court must award no less than double and no more than treble damages. G. L. c. 93A, § 11. Even if the conduct falls short of being wilful or knowing, an unfair or deceptive act that violates G. L. c. 93A, § 2, requires the payment of reasonable attorney's fees and costs. G. L. c. 93A, § 11.

Not every breach of contract constitutes a violation of G. L. c. 93A, see Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 100-101 (1979),⁴ but a knowing violation of contractual obligations for the purpose of securing unwarranted benefits does....