Lily Transp. v. Royal Institutional Serv.

• Decision Date: 05 August 2005
• Docket Number: No. 03-P-1263.,03-P-1263.
• Citation: 832 N.E.2d 666,64 Mass. App. Ct. 179
• Parties: LILY TRANSPORTATION CORP. v. ROYAL INSTITUTIONAL SERVICES, INC. & others.<SMALL><SUP>1</SUP></SMALL>
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

832 N.E.2d 666

64 Mass. App. Ct. 179

LILY TRANSPORTATION CORP. v. ROYAL INSTITUTIONAL SERVICES, INC. & others.¹

No. 03-P-1263.

Appeals Court of Massachusetts.

Norfolk.

Argued June 4, 2004.

Decided August 5, 2005.

COPYRIGHT MATERIAL OMITTED

Burton Chandler, Worcester, for the defendants.

Steven S. Broadley, Boston, for the plaintiff.

Present: ARMSTRONG, C.J., PERRETTA, LAURENCE, DREBEN, & GREEN, JJ.²

DREBEN, J.

In early April, 1999, the plaintiff Lily Transportation Corp. (Lily), under the impression that it was contracting with Royal Institutional Services, Inc. (Royal), orally agreed to transport soiled hospital laundry from Philadelphia to Royal's plant in Massachusetts and carry clean laundry back to Philadelphia. After Lily's unpaid bills mounted to more than $150,000, Lily learned that another corporation, Gem Laundry Services, Inc. (Gem), was considered by Royal to be Lily's customer.

Lily thereafter brought this action on numerous counts against Royal, Gem, Mark Liebovitz, and other individuals who were, with Liebovitz, stockholders and principals of Royal and Gem. Following a bench trial, a judge of the Superior Court found against Liebovitz and Royal on a claim of intentional misrepresentation, as well as a claim of wilful and knowing violation of G.L. c. 93A meriting double damages and attorney's fees. He also "pierced" Gem's corporate veil so as to impose liability for its debts on three of its four stockholders, Liebovitz, Mark Johnson, and Shawn Ryan.³

This is an appeal by Royal, Liebovitz, Johnson, and Ryan. We affirm the finding of violation of c. 93A by Royal and Liebovitz, including the finding that the violation was wilful and knowing, and we reverse the judgment insofar as it imposes liability on the individual defendants on the theory of piercing Gem's corporate veil. Although the judge also found intentional misrepresentation by Royal and Liebovitz, we do not reach that issue as there cannot be recovery on both c. 93A and intentional misrepresentation.

Since there is a significant difference between the majority of the court and the dissent as to whether the judge was warranted in his c. 93A findings, we will set forth the findings and the supporting evidence in some detail. We preface our discussion with the standard of review as explained in Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501, 509-510, 677 N.E.2d 159 (1997):

"We do not set aside a judge's findings of fact unless they are clearly erroneous. A finding is clearly erroneous only when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. It is the appellant's burden to show that a finding of fact is clearly erroneous. In applying the clearly erroneous standard, [Mass.R.Civ.P. 52(a), as amended, 423 Mass. 1402 (1996),] requires that due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses. We recognize that the judge, who has a firsthand view of the presentation of evidence, is in the best position to judge the weight and credibility of the evidence. The judge's advantage in weighing the testimony is particularly evident in a case involving conflicting testimony, one in which widely differing inferences could be drawn from the evidence, and the drawing of inferences cannot be separated from the evaluation of the testimony itself. As a consequence, we do not review questions of fact found by the judge, where such findings are supported on any reasonable view of the evidence, including all rational inferences of which it was susceptible. So long as the judge's account is plausible in light of the entire record, an appellate court should decline to reverse it. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." (Internal quotations and citations omitted.) (Emphasis supplied.)

1. The findings and supporting evidence as to c. 93A violation. Liebovitz, Johnson, and Ryan are the sole shareholders of Royal, a business that provides laundry services to hospitals in Massachusetts and New Hampshire. In the summer of 1998, with the intention of providing similar services to hospitals in Philadelphia, the three Royal shareholders created Gem, a Pennsylvania limited liability company, together with a fourth shareholder, a corporation, Harbor Hospital Services, Inc. The principal of the fourth shareholder was a businessman from Philadelphia, Earl Waxman.⁴ Liebovitz, Johnson, and Ryan held their two-third interest in Gem through ownership of a Pennsylvania holding company, Royal of PA, Inc.⁵ Waxman's corporation owned the remaining one-third interest in Gem.

Gem's initial capitalization was provided, for the most part, by Fleet Bank (bank) ($1,350,000) through a loan that was guaranteed personally by Liebovitz, Johnson, and Ryan, and, in part, by Royal. Waxman lent Gem another $200,000.

Gem began operating in the fall of 1998, doing business as Harbor Healthcare Laundry Services (Harbor). In the beginning of 1999, Gem became unable to process the volume of laundry required under its contracts with various hospitals in Pennsylvania. Gem contracted with Royal and began sending some of its laundry for cleaning to Royal's Worcester plant, in Massachusetts. A few deliveries were made in January and February of 1999. Transportation to and from Massachusetts for these deliveries was provided by Cardinal Logistics, a Philadelphia firm. When that arrangement proved unsatisfactory, Liebovitz sought to have TransLease, a company with which Royal had an existing contract, provide the transportation services. The TransLease contract had been drafted by Robert Kessler, a man Liebovitz had known for several years while Kessler was employed by TransLease.⁶

In mid-March, 1999, Kessler informed Liebovitz that he was now working for another trucking company, namely, Lily. Shortly thereafter, Liebovitz called Kessler to seek his advice as to whether Royal, which still had unused miles on its TransLease contract, could use the excess mileage to move the laundry "for them" from Philadelphia.

After TransLease declined, Liebovitz again called Kessler and asked him to look at the operation in Philadelphia to see if Lily might have any interest in providing transportation in Philadelphia.⁷ Liebovitz told Kessler that "we had a new hospital contract starting April first" and that "they were processing linen in Philadelphia the same way they were doing it here in . . . Worcester and Somerville, for hospitals."

Kessler and another Lily employee met Liebovitz at "a building in Philadelphia where they were processing laundry." Asked if there was any "signage" or "[a]nything that identified it," Kessler answered, "Not that I recollect." The judge inferred there were no signs, disbelieving Liebovitz's testimony to the contrary. Although Kessler did not see anything that identified Gem or Harbor, he was told by Liebovitz that the company in Philadelphia was "Harbor." He was never told that Harbor was doing business for a Pennsylvania corporation. Gem was never mentioned.

Liebovitz told Kessler that "they" might have a problem processing laundry in the Philadelphia plant and might have to start moving linen up to Massachusetts to get it processed. He asked Kessler to determine if Lily would be interested.

Kessler understood "they" to be Royal because all his contacts with Liebovitz had been with Royal. He acknowledged that his belief that it was Royal was not from anything Liebovitz "articulated." He made no inquiries because he was "pretty familiar with [Royal's] business," and the Philadelphia operation appeared to be the same as what Royal was doing in Massachusetts. When the trial judge asked Kessler, "Why is it you never clarified who you were dealing with," he replied, "I didn't clarify it, your Honor, because I knew these people very well, I had a great deal of confidence in them, and I would have thought that, if there was another entity they were doing business with, they would have told me."

After discussing the proposal with his "people" at Lily and, after further conversations with Liebovitz, Kessler orally agreed that Lily would provide the requested trucking services from Philadelphia to Worcester. Although the first delivery was April 7, pricing was not settled until after a few deliveries, and some schedules were not fixed until they were set by electronic messages (e-mails) sent to Kessler by Liebovitz dated April 29, May 7, and May 10, 1999. Kessler testified that the arrangement was a rather "fluid deal primarily because things were changing from day to day." The three e-mails from Liebovitz to Kessler were from an account entitled "royalofma." The first e-mail was received by Kessler before Lily sent the first bill for its services. That bill was sent to Royal on May 5, 1999.

Liebovitz, upon receiving the first bill, sent it to Harbor in Philadelphia. He also informed the operations manager of Lily that bills were to be sent to Harbor, but a later bill in June was also sent to Royal. Notations in Liebovitz's handwriting appeared on both the May and the June bill. Liebovitz knew from these bills that Kessler and Lily were under the impression that Lily was working for Royal. Nevertheless, Liebovitz did not inform Kessler of the billing change despite his continuing contact with Kessler whenever something new came up, and despite the fact, as Kessler testified, that the two had frequent contact for reasons unrelated to this case.⁸

Believing that Lily was contracting with Royal, Kessler informed Lily's financial officers that he had had substantial dealings with Royal at TransLease and that Royal was a good credit risk. As a result, no investigation of finances of any company was made by Lily other than a Dun & Bradstreet report concerning Royal. Kessler testified that had he known that Lily was...