A.J. Props., LLC v. Stanley Black & Decker, Inc., SJC–11424.

• Court: United States State Supreme Judicial Court of Massachusetts
• Writing for the Court: DUFFLY, J.
• Citation: 469 Mass. 581,15 N.E.3d 198
• Parties: A.J. PROPERTIES, LLC v. STANLEY BLACK AND DECKER, INC.
• Docket Number: SJC–11424.
• Decision Date: 05 September 2014

469 Mass. 581
15 N.E.3d 198

A.J. PROPERTIES, LLC
v.
STANLEY BLACK AND DECKER, INC.

SJC–11424.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued May 5, 2014.
Decided Sept. 5, 2014.

15 N.E.3d 199

Gerard A. Butler, Jr. (Andrew D. Black, Boston, with him) for the defendant.

John A. Mavricos, Worcester, for the plaintiff.

Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, GANTS, DUFFLY, & LENK, JJ.¹

Opinion

DUFFLY, J.

At issue in this case is the right to payment under a performance bond issued to secure the obligation of an environmental consulting company to perform environmental remediation of a contaminated site that included land that had been owned by Stanley Black and Decker, Inc. (Stanley). In 2011, A.J. Properties, LLC (A.J. Properties), commenced the underlying action in the Superior Court, contending that it had acquired the rights to payment under the bond, and that Stanley had wrongfully collected payment. A.J. Properties argued that Stanley had assigned the rights to payment when it assigned a mortgage on the property to the Wyman–Gordon Company (Wyman–Gordon), which later assigned the mortgage to A.J. Properties.

After Stanley removed the case to the United States District Court for the District of Massachusetts, a judge of that court certified the following question to this court pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981):

“Does the rule of Quaranto v. Silverman, 345 Mass. 423, 426–[427, 187 N.E.2d 859] (1963) [ (Quaranto ) ], that ‘the assignment of a debt carries with it every remedy or security that is incidental to the subject matter of the assignment and could have been used or made available to the assignor,’ extend to a situation where a mortgage and a surety agreement secured an obligation, and both the mortgagor and the surety breached that obligation prior to a written assignment of the mortgage, does the assignee, by operation of law, acquire the right against the surety's receiver for the surety's breach of its obligation?”

We answer that whether the right against the surety's receiver is deemed assigned by operation of the rule of Quaranto, supra, depends on whether the right is an incident to the subject matter of the assignment. If it is, and the parties do not manifest an intent not to assign the right,

15 N.E.3d 200

the right may be assigned by operation of the rule stated in Quaranto, supra. The nature of the obligation and the breach, however, could be such that the right against the surety's receiver would not be an incident to the subject matter of the assignment, but, rather, a collateral cause of action. If so, the right against the receiver would be assigned only if the parties manifested an intent to make such an assignment. In the particular circumstances of this case, the answer to the question depends on interpretation of the agreement to assign the mortgage and the obligations it secured, as well as the nature of the breach which occurred.

Background. We summarize the undisputed facts in the summary judgment record. In 1995, Stanley became aware of soil and groundwater contamination on its property located at 149 Washington Street in Worcester (149 Washington Street property); the contamination extended to an adjacent parcel at 105 Madison Street, owned by Wyman–Gordon, on which Wyman–Gordon operated an industrial facility. Stanley faced liability for the contamination pursuant to G.L. c. 21E,² and entered into an agreement with Vargo & Associates Environmental Consulting Corporation (Vargo) to remediate both the 149 Washington Street and Wyman–Gordon properties. Stanley agreed to pay Vargo $400,000 to perform the remediation, and to sell the 149 Washington Street property to Vargo for one dollar. In December, 1997,

Stanley and Vargo entered into a purchase and sale agreement for the 149 Washington Street property that included the following conditions for the closing of the sale. Vargo was to obtain and deliver a performance bond in the amount of $800,000; to deliver an indemnity agreement executed by it and its principal, Patrick Vargo,³ promising to complete the remediation and to hold Stanley harmless from all liabilities arising from any breach by Vargo; and to grant Stanley a mortgage on the 149 Washington Street property (1997 mortgage). The mortgage was to “secure all obligations” of Vargo and its principal to Stanley under the indemnity agreement, mortgage, and “all other agreements between” Stanley and Vargo, including any “indebtedness, obligations and liabilities” under “instruments ... executed or delivered in conjunction [with the purchase and sale agreement or the indemnity agreement].”⁴ All documents were executed,

15 N.E.3d 201

Vargo obtained a $800,000 performance bond, and the closing took place.

In 2001, before remediation was complete, Vargo suspended remediation operations and abandoned the site. Stanley attempted to obtain performance from Vargo pursuant to their agreements; in January 2002, Stanley was advised by counsel for Vargo that Patrick Vargo had filed for personal bankruptcy. In February, 2002, Stanley contacted United Capitol Insurance Company (United Capitol), the surety on the performance bond, to request

performance as surety under the bond, and learned that United Capitol had become insolvent and ceased operation earlier that month and liquidation proceedings had commenced. In October, 2002, Stanley filed a proof of claim under the bond with the receiver for United Capitol in the amount of $800,000, the full amount of the bond.⁵

In December, 2002, Stanley entered into a settlement agreement with Wyman–Gordon, which provided that Wyman–Gordon would retain a different contractor to remediate the contaminated portions of the 149 Washington Street and Wyman–Gordon properties, and that Stanley would contribute $599,000 to the total cost of the remediation, which was fixed at $855,000. Stanley also agreed to assign to Wyman–Gordon at a future date the 1997 mortgage on the 149 Washington Street property and the obligations secured by the mortgage.

In February, 2003, creditors of Vargo foreclosed on a second mortgage on the 149 Washington Street property; A.J. Properties purchased the right to acquire the property at the foreclosure sale.⁶ In March, 2003, after Wyman–Gordon had signed the settlement agreement with Stanley, but before it had been assigned the 1997 mortgage, Wyman–Gordon entered into an agreement with A.J. Properties. That agreement provided that A.J. Properties would assign to Wyman–Gordon the right to purchase its interest in the 149 Washington Street property, and that, at the option of A.J. Properties, Wyman–Gordon would assign to A.J. Properties the 1997 mortgage on a portion of the 149 Washington Street property,⁷ as well as “all rights that Wyman–Gordon has to the obligations and debts which the [1997 Mortgage] secures.”

Stanley assigned the 1997 mortgage to Wyman–Gordon in May, 2003, pursuant to the settlement agreement between Stanley and Wyman–Gordon. In 2007, A.J. Properties exercised its option to acquire the 1997 mortgage from Wyman–Gordon; Wyman–Gordon

executed an assignment granting to A.J. Properties the 1997 mortgage “and the claims secured thereby.”⁸

15 N.E.3d 202

Prior proceedings. In 2011, A.J. Properties commenced the underlying action against Stanley in the Superior Court. A.J. Properties alleged that it had been assigned the right to recover all funds paid to Stanley by the receiver for United Capitol in settlement of the claim under the performance bond. Stanley removed the case to the United States District Court for the District of Massachusetts. A.J. Properties then moved for partial summary judgment and Stanley filed a motion for summary judgment. A Federal District Court judge determined that A.J. Properties was entitled to the amounts paid by United Capitol's receiver to Stanley, and allowed, in part, A.J. Properties's motion for summary judgment.

In allowing A.J. Properties's partial motion for summary judgment, the District Court judge determined, based on a number of written instruments executed by the parties,⁹ “that the performance bond was indeed among the obligations that were secured by the mortgage.” The judge determined further that the “subsequent assignments of the [1997] mortgage, which included the obligations secured by [the mortgage], also included the right to recover against the surety [United Capitol] for the performance bond.” The judge noted that he reached this determination by applying the rule set forth in Quaranto, supra, that “the assignment of a debt carries with it every remedy or security that is incidental to the subject matter of the assignment and could have been used or made available to the assignor,” and that, pursuant to that rule, United Capitol's “liability under the bond is a remedy incidental to the duty of [Vargo] to pay what was available to Stanley before it assigned that obligation; thus, the assignment of the duty of [Vargo] carried with it that of its surety.” Stanley sought interlocutory review in the United States Court of Appeals for the First Circuit, pursuant to 28 U.S.C. § 1292(b), contending that the...