Grand Pacific Finance Corp. v. Brauer
| Decision Date | 21 February 2003 |
| Docket Number | No. 00-P-1075.,00-P-1075. |
| Parties | GRAND PACIFIC FINANCE CORPORATION v. David P. BRAUER & others.<SMALL><SUP>1</SUP></SMALL> |
| Court | Appeals Court of Massachusetts |
Jeffrey D. Ganz, for the defendants. Michael J. Michaeles, Worcester, for the plaintiff.
Present: DUFFLY, KANTROWITZ, & BERRY, JJ.
The plaintiff, Grand Pacific Finance Corporation (GPFC), brought this action in three counts for conversion, fraud, and violations of G.L. c. 93A, § 11. GPFC sought to recover $100,000 that had been misappropriated. The $100,000 was part of a commercial loan of $750,000 from GPFC to Commonwealth Snack, Inc. (CSI), a corporate client of the defendant Brauer & Brauer, P.C. (the law firm).2 At the time of the misappropriation, the money was temporarily being held by the defendant David P. Brauer, Jr. (Brauer Jr.), in an escrow account at the law firm. The $100,000 misappropriated from the escrow account was used to pay legal fees owed the law firm and consulting fees owed the third defendant, Decnos Financial Group, Inc. (Decnos), a company that had been set up by David P. Brauer, Sr. (Brauer Sr.).3
I. Procedural and factual background. Following a jury-waived trial, a Superior Court judge found both the law firm and Brauer Jr. individually liable for conversion, but dismissed the conversion claim against Decnos. The judge also dismissed the fraud claims against the three defendants on the basis that there was no proof that the defendants had made fraudulent representations at the time of the money transfer from GPFC to the law firm, or that GPFC had detrimentally relied on any misrepresentations in advancing the funds. The judge dismissed the G.L. c. 93A count on the basis that an escrow gives rise to fiduciary obligations that may be likened to a trustee's administration of a trust, and that such fiduciary responsibilities do not constitute trade or commerce within G.L. c. 93A.
Brauer Jr. and the law firm appealed from the judgments of conversion entered against them. GPFC cross-appealed from the dismissal of the conversion claim against Decnos and from the dismissal of the fraud and c. 93A counts as to all three defendants. We affirm the conversion judgment against the law firm and Brauer Jr. individually, the dismissal of the conversion claim against Decnos, and the dismissal of the fraud claim against all three defendants. We reverse the dismissal of GPFC's claims against all defendants in the count brought pursuant to G.L. c. 93A, & sect; 11.
We recount the facts from the judge's comprehensive findings, which are amply supported in the record. On June 28, 1996, GPFC and CSI entered into a commercial loan agreement for five million dollars and a depository agreement, under which loan funds advanced by GPFC were to be held in an account at the China Trust Bank of New York (China Trust Bank). Pursuant to terms in the agreements, GPFC would have an "exclusive interest" in the funds, which were to remain GPFC's "sole and exclusive property," and subject to release only upon GPFC's directions. It was further agreed that GPFC would not advance any funds under the loan agreement until resolution of a lawsuit brought by a former CSI shareholder, referred to as the Dewey litigation. Brauer Jr. represented CSI in the Dewey litigation and was aware of the restrictive terms of the loan and depository agreements. In late summer of 1996, Brauer Jr. reported that the Dewey litigation could be settled by payment of $750,000.
GPFC agreed to lend CSI the money to pay for the settlement, subject to the terms of the loan and depository agreements and an additional condition set forth in a letter agreement as follows. On August 21, 1996, Walter Quednau, CSI's chief executive officer, sent a letter to GPFC requesting that the $750,000 loan advance be transferred from the depository account at China Trust Bank to the law firm's client group account, from which, upon completion of the settlement, the funds would be wired to Dewey's designated account. On behalf of CSI, Quednau represented that "[a]ny variance from the $750,000 wired funds and the Dewey settlement will be returned wire transfer to [GPFC] within 24 hours to ... China Trust Bank (New York)." Brauer Jr. received and read this letter. On August 22, 1996, GPFC sent CSI a return letter, confirming the terms of the loan request, and stating that the $750,000 would be sent from the depository account to "David Brauer, Esq., as escrowee for the settlement of the Dewey suit." GPFC asked for Quednau's signature on the bottom of the August 22, 1996, letter acknowledging and approving the transaction on behalf of CSI. Quednau signed his assent, returned the letter to GPFC, and sent a copy of the letter to Brauer Jr. The judge found that Brauer Jr. accepted the $750,000 in escrow, subject to the restrictive terms set forth in the loan and depository agreements and the further condition in the August 21 letter agreement that the money was to be returned to GPFC if not paid in settlement of the Dewey litigation.
The $750,000 was wired to the law firm account on August 22, 1996. For reasons not appearing in the record, the Dewey settlement began to unravel. On August 30, having learned of problems with the settlement, GPFC faxed a letter to Quednau and the law firm, requesting that the funds be returned to GPFC. Brauer Jr. faxed GPFC a reply the same day, indicating that the settlement was going forward but that completion of the "paperwork" would take another week. That was not accurate.
In fact, Brauer Jr. had other plans for what would happen to part of the $750,000 being held in escrow at the law firm account. CSI owed the law firm legal fees for outstanding bills and owed Decnos $77,000 for consulting work supposedly done by Brauer Sr. Both father and son were concerned about CSI's financial wherewithal to pay these outstanding fees. The two conferred to plan how a part of the money being held in escrow could be used to satisfy CSI's debts to the law firm and Decnos. In a delaying move, Brauer Jr. took the position that he would not return the funds to the China Trust Bank account until he received written instructions to do so from CSI's Quednau. This was so, the trial judge found, even though there was no doubt in Brauer Jr.'s mind that GPFC's request for the return of the funds was "consistent with the terms under which the funds had been wired into the Brauer & Brauer account." CSI's Quednau was aware of Brauer Jr.'s selfinterest in having the law firm bills paid because, on August 30, the Friday before Labor Day, Brauer Jr. conveyed to Quednau his concerns about the law firm bill. In order to get the money back to GPFC on the next business day after this meeting, September 3, 1996 (the Labor Day holiday intervening), Quednau faxed the law firm instructions to immediately wire the full $750,000 to GPFC. Again Brauer Jr. did not comply, and the funds were held over in the law firm account. These delaying tactics by Brauer Jr. allowed Brauer Sr. time to retain Thomas Giblin, an attorney who rented space within the law firm, to file a collection action against CSI on behalf of Decnos.4
On September 4, while the law firm was still holding the funds, Giblin filed in District Court the Decnos collection complaint and an ex parte motion for trustee process. The District Court did not act on the trustee process motion that day, and so, the next day, September 5, Giblin filed a motion for a temporary restraining order (TRO) to enjoin the law firm from disbursing $77,000. Brauer Sr. filed an affidavit in support of the TRO that was misleading and false. Among other deceptive omissions, the affidavit did not disclose the GPFC rights over the subject funds, or that the law firm held the money in escrow. Based on the representations in the pleadings, on September 5, the District Court entered an order that $77,000 was to be held until further order of the court. Once the court order had issued, Brauer Jr. wired $650,000 to China Trust Bank, retaining $100,000. The $23,000 holdover beyond the amount specified in the court order was to cover the legal fees that CSI owed the law firm.5
To this point, Brauer Jr. had not responded to any of GPFC's communications demanding the return of its money, including the letter and fax mentioned above, and a series of telephone calls from GPFC's representatives. It was only on September 6, the day after the withholding of the $100,000 was a fait accompli, that Brauer Jr. wrote to GPFC, stating that, pursuant to a court order, he had placed $77,000 in an escrow account, and that he had also placed $23,000 in a separate account for legal fees CSI owed his law firm.
Thereafter, on September 17, 1996, CSI filed for bankruptcy. The existence of the bankruptcy filing was not disclosed to the District Court. Notwithstanding the automatic stay that flows from a bankruptcy filing, see 11 U.S.C. § 362 (1993), on September 27, Decnos filed for, and obtained, a default judgment against CSI. Execution issued on November 27, 1996. Upon receipt of the execution from his father on the same day, Brauer Jr. transferred the $77,000 to Decnos.
II. Analysis.
1. Conversion by the Brauer defendants. The elements of conversion require that a defendant be proved to have "intentionally or wrongfully exercise[d] acts of ownership, control or dominion over personal property to which he has no right of possession at the time...." Abington Natl. Bank v. Ashwood Homes, Inc., 19 Mass.App.Ct. 503, 507, 475 N.E.2d 1230 (1985). Brauer Jr. and the law firm argue on appeal that conversion was not proved against them because GPFC lost its security interest in the $750,000 when the money left China Trust Bank and that, when deposited into the law firm account, the funds became...
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