Le Fort Enters., Inc. v. Lantern 18, LLC

• Decision Date: 03 January 2023
• Docket Number: SJC-13269
• Citation: 491 Mass. 144,199 N.E.3d 1257
• Parties: LE FORT ENTERPRISES, INC. v. LANTERN 18, LLC, & others.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

491 Mass. 144

199 N.E.3d 1257

LE FORT ENTERPRISES, INC.

v.LANTERN 18, LLC, & others.¹

SJC-13269

Supreme Judicial Court of Massachusetts, Middlesex.

Argued October 3, 2022

Decided January 3, 2023

Seth H. Salinger (Stuti Venkat also present) Newton, for the defendants.

Stewart A. Engel, Boston, for the plaintiff.

Present: Budd, C.J., Gaziano, Lowy, Cypher, Kafker, Wendlandt, & Georges, JJ.

WENDLANDT, J.

Pacta sunt servanda -- promises must be kept -- is the fundamental premise of contract law.² This case presents the question whether, during the economic disruption resulting from the COVID-19 pandemic, the doctrines of impracticability of performance or frustration of purpose temporarily excused the purchaser of a cleaning services franchise, and the purchaser's coowners, from their obligation to pay the outstanding portion of the franchise purchase price. The purchaser and coowners contend that the franchise was unable to perform cleaning services because of the pandemic, triggering the applicability of the two equitable doctrines. Because the summary judgment record does not support a rational finding that the pandemic caused the continued payment of the franchise purchase price to be impracticable or frustrated the principal purpose of the contract, and because the parties’ contractual provisions showcase their intent that the obligation to pay would not be conditioned on the franchise's financial performance beyond the first six months following the 2015 sale, we affirm summary judgment in favor of the seller.

1. Background. The material facts in the summary judgment record are largely undisputed. See HSBC Bank, USA, N.A. v. Morris, 490 Mass. 322, 326, 190 N.E.3d 485 (2022) ( HSBC Bank ) ("Summary judgment is appropriate where there is no material issue of fact in dispute and the moving party is entitled to judgment as a matter of law").

a. Asset purchase agreement and initial promissory note. In May 2015, the defendant Lantern 18, LLC (Lantern 18), purchased a "Merry Maids of Boston" cleaning franchise from the plaintiff, Le Fort Enterprises, Inc. (Le Fort), pursuant to an asset purchase agreement. The purchase price was payable in three parts. First, Lantern 18 paid a nonrefundable deposit; second, Lantern 18 paid a lump sum at the closing of the agreement; and third, Lantern 18 and one of Lantern 18's coowners, the defendant Samuel Bergman, as co-obligors, were to pay the remainder through consecutive monthly payments together with a balloon payment in May 2018. The remainder payment was evidenced by an initial promissory note, setting forth the parties’ agreed terms.³

In addition, the asset purchase agreement set forth that "in the event that six months after the closing date ... [Lantern 18's] sale[s] are less than [a threshold amount] that [Lantern 18] will be credited with the sum of $15,000.00 which sum shall be deducted at that time from the principal balance of the [p]romissory [n]ote."⁴ The asset purchase agreement contained no other financial contingency clause conditioning, or otherwise altering, the obligation to pay the purchase price on the franchise's performance; and the agreement did not contain a force majeure clause.⁵

b. Amended promissory note. In May 2018, the month that the initial promissory note was due and long after the six-month purchase price adjustment period had expired, Lantern 18 and Samuel Bergman apparently had not completed payment of the remainder amount owed to Le Fort for the purchase of the franchise. They requested an extension of time to complete their repayment obligation and a modification to the initial promissory note. Le Fort agreed.

Accordingly, in August 2018, the defendants (Lantern 18, Samuel Bergman, individually, and Lantern 18's other coowner, the defendant Marcia Bergman, individually), as co-obligors, and Le Fort executed an amended promissory note, granting the co-obligors an additional four years to pay the outstanding portion of the original franchise purchase price through monthly installment payments and a final balloon payment in May 2022. Under the amended promissory note, the co-obligors were "jointly and severally" liable.⁶ The amended promissory note made the occurrence of any of several listed conditions an event of default, including failure to make monthly payments within ten days of their due date and failure to timely provide the co-obligors’ financial information to Le Fort. Under the note, an event of default triggered Le Fort's option to demand immediate payment of all outstanding sums pursuant to an acceleration clause.⁷ The amended promissory note also required the co-obligors to pay late payment charges after fifteen days of a missed monthly due date.

Other relevant provisions of the amended promissory note are discussed infra.

c. The COVID-19 pandemic. Unbeknownst to the parties, approximately nineteen months after they executed the amended promissory note, the Commonwealth would be engulfed by the COVID-19 pandemic, which was "spread[ing] alarmingly, rapidly, and at an increasing rate, both in Massachusetts and throughout the world." Committee for Pub. Counsel Servs. v. Chief Justice of the Trial Court, 484 Mass. 431, 433-434, 142 N.E.3d 525, S.C., 484 Mass. 1029, 143 N.E.3d 408 (2020). "On March 10, 2020, the Governor declared a state of emergency to support the Commonwealth's response to the threat of COVID-19." Id. at 433, 142 N.E.3d 525. The next day, "the World Health Organization formally declared the expanding spread of the COVID-19 virus a global pandemic." Id.

"The 2020 COVID-19 pandemic ... created enormous challenges for every aspect of our communities." Id. Communities struggled to "reduce the number of cases the beleaguered health care system [would] treat at any one time." Id. Starting in March 2020, and until June 2020, the Governor issued executive orders affecting nonessential businesses that, in effect, shut down the co-obligors’ franchise.

Thereafter, when the pertinent executive orders had been lifted, the franchise continued to struggle because a "high percentage" of its customers were unwilling to allow cleaning crews into their homes. The franchise also experienced pandemic-related interruptions because whenever one member of a cleaning crew tested positive for COVID-19, the remaining one to two crew members were required to quarantine. As a result, the franchise's revenue "precipitous[ly] decline[d]."

d. Default. The co-obligors failed to make the monthly installment payment due on April 1, 2020. More than fifteen days later, on April 22, 2020, counsel for Le Fort notified the co-obligors by letter of their "continuing material breach and default" of payment terms of the amended promissory note. In the same letter, counsel notified the co-obligors that Le Fort was exercising its rights under the acceleration clause, and further notified them that they would be liable for the expenses, including attorney's fees, incurred by Le Fort in connection with its enforcement efforts. Counsel "advised" the co-obligors that, unless they paid the April and May payments, and Le Fort's attorney's fees, by May 1, 2020, Le Fort would commence a civil action.

That same day, counsel for Le Fort also sent a financial records demand letter to the co-obligors, seeking their "business, professional and personal financial records." This second letter advised the co-obligors that failure to timely comply with the request would be an event of default under the parties’ agreements, which would also trigger Le Fort's rights under the acceleration clause.

In late May 2020, following a second missed monthly payment and with no apparent response from the co-obligors to counsel's letters, Le Fort commenced the present action, alleging that the co-obligors committed a breach of the amended promissory note. In response, the co-obligors raised, inter alia, the affirmative defense that the pandemic excused temporarily their obligations to make monthly payments under the amended promissory note.⁸

In October 2020, by which time the co-obligors had failed to make six monthly installment payments, Le Fort moved for summary judgment. Following a hearing, a Superior Court judge allowed Le Fort's motion. The co-obligors filed a motion for reconsideration, which the judge denied. The co-obligors timely appealed, and this court transferred the case sua sponte.

2. Discussion. a. Standard of review. "Summary judgment is appropriate where there is no material issue of fact in dispute and the moving party is entitled to judgment as a matter of law." HSBC Bank, 490 Mass. at 326, 190 N.E.3d 485. "Our review of a decision on a motion for summary judgment is de novo." Id., quoting Berry v. Commerce Ins. Co., 488 Mass. 633, 636, 175 N.E.3d 383 (2021). "We review the evidence in the light most favorable to the party against whom summary judgment entered." HSBC Bank, supra at 326-327, 190 N.E.3d 485. While the nonmoving party is " ‘not required to set forth [its] entire defense to the [movant's] claims to defeat a motion for summary judgment, ... [the nonmovant is], of course, required to produce evidence sufficient to create a genuine dispute of material fact." Haverty v. Commissioner of Correction, 437 Mass. 737, 759 n.28, 776 N.E.2d 973 (2002), S.C., 440 Mass. 1, 792 N.E.2d 989 (2003). Otherwise, "summary judgment, if appropriate, shall be entered against [it]." Mass. R. Civ. P. 56 (e), 365 Mass. 824 (1974).

In general, the applicability of the doctrines of impracticability and frustration of purposes is a jury question. See Mishara Constr. Co. v. Transit-Mixed Concrete Corp., 365 Mass. 122, 126, 310 N.E.2d 363 (1974) (determination of applicability of doctrines of impossibility or impracticability and frustration of purpose "depended on the facts and circumstances which were for the jury to decide"). However, where the material facts are not in dispute and "no rational view of the evidence" permits a finding of impracticability or frustration of purpose,...