Puritan Medical Center, Inc. v. Cashman

Decision Date20 July 1992
Citation596 N.E.2d 1004,413 Mass. 167
PartiesPURITAN MEDICAL CENTER, INC. v. Edward L. CASHMAN, Jr., & another. 1
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

Mitchell J. Sikora, Jr., Boston (Ann Ryan-Small with him), for defendants.

Alan K. Posner, Boston (Mark W. Corner with him), for plaintiff.

Before WILKINS, ABRAMS, NOLAN, O'CONNOR and GREANEY, JJ.

ABRAMS, Justice.

A Superior Court jury determined that the defendants, Edward L. Cashman, Jr., and Carol Patricia (Patricia) Cashman, his sister, charged excessive rent for office space which they leased to the plaintiff corporation, Puritan Medical Center, Inc. (Puritan). Further, the jury concluded that Edward, one of Puritan's directors, had misappropriated a corporate opportunity by refusing to renew Puritan's lease. The jury returned a verdict of $505,100 for Puritan. 2 In addition, the jury awarded the defendants $5,000 on their counterclaim alleging damages arising from Puritan's holdover after the expiration of its lease. However, the judge entered judgment notwithstanding the verdict on the counterclaim. The judge determined that the defendants' conduct in "locking-out" Puritan after the expiration of its lease term had been wilfully and knowingly unfair and deceptive within the meaning of G.L. c. 93A, § 11 (1990 ed.), and doubled Puritan's damages. He also allowed Puritan's motions for $12,000 in costs and $141,000 in attorneys' fees. Judgments were entered accordingly. The defendants appeal. We allowed the defendants' application for direct appellate review. We reverse the judgment against Patricia on the excess rent claim. We affirm the verdict of $373,100 entered against Edward on the same claim. We reverse the judgment on misappropriation of a corporate opportunity. We also reverse the judgment entered pursuant to G.L. c. 93A (1990 ed.). We reinstate that portion of the jury's verdict entered on the defendants' counterclaim that represents recovery for rent owed. We affirm the judgment notwithstanding the verdict as to the remaining portion of that award.

Facts. Edward began his private medical practice in 1954, establishing his office in his parents' house at 96 Puritan Road, Swampscott. Shortly thereafter, he formed a partnership with another doctor, William Nash. During the 1960's, they hired two more physicians, and in 1970, the four formed the plaintiff corporation, Puritan. Each became a shareholder, director and officer of Puritan. Edward became and remained treasurer until he suffered a stroke in 1986. During the 1970's and 1980's, Puritan hired additional physicians, who also eventually became shareholders, directors and officers. By the time of this litigation, Puritan had eight principals, including Edward.

Puritan continued to operate out of the premises at 96 Puritan Road, owned by the defendants' parents, who also owned a building at 96A Puritan Road and several adjacent lots. In 1976, the defendants inherited all these properties. Shortly thereafter, Puritan expanded its office space to include a portion of the premises at 96A Puritan Road.

The minutes of a December 20, 1976, board of directors meeting state that "[i]t was agreed that a lease between Edward ... and ... Puritan ... will be signed by the Corporation and/or its representative, William C. Nash, M.D., in the near future. The terms of the lease are to be unchanged for the next five years with a slight cost of living escalation for the following five years. When the lease is available, it will be signed." Thereafter, Nash, as Puritan's then-president, executed a lease on behalf of Puritan for the office and parking space then in use. Edward executed the lease on behalf of himself and Patricia as owners. The term of the lease was ten years, from January 1, 1977, through December 31, 1986. The lease provided for an annual rent during the first five years of $24,408 for the office space and $6,000 for the parking space, assumption by Puritan of any real estate tax increases, and, beginning in the sixth year, annual rent increases tied to increases in the Federal consumer price index since the commencement of the lease. Edward, as treasurer of Puritan, wrote out the monthly rent checks payable to himself.

Puritan adduced evidence at trial that Edward had overcharged Puritan over the lease period by more than $450,000. Puritan claims that it discovered the rent overcharges for the first time in March, 1986, when, while Edward was recovering from a stroke, Doctors Casale and Calamita, Puritan's vice president and president, respectively, reviewed the lease and rent payment records. Puritan's principals claim that they were unaware of the existence and content of the lease until after Edward's stroke. Edward testified that he "forgot" about the lease, and had charged Puritan what he thought was "fair."

After discovering the overcharges, the other Puritan principals voted to remove Edward as treasurer and to relieve him of all his medical and business duties at Puritan. Although they notified Edward that they would be purchasing his shares in Puritan pursuant to their redemption agreement, they had not done so by the time of trial.

By letter dated November 12, 1986, Edward served Puritan with a notice of nonrenewal of the lease and notice to quit by December 31, 1986. Puritan commenced this action on December 19, 1986. On December 26, 1986, Puritan obtained a preliminary injunction enjoining Edward from exercising any managerial functions at Puritan and from interfering with Puritan's lawful use of the leased premises. On January 1, 1987, the date the lease expired, Puritan delivered a check to Edward in the amount of $7,500 for one month's rent. 3 Without warning, during the early morning hours of January 14, purporting to act under a "reentry provision" in the lease, Edward retook physical possession of the premises. He moved out Puritan's records and property, changed the locks, and barricaded the entrance to the driveway. Puritan relocated temporarily to a hospital, and then to office space in Salem. The defendants' counsel rejected the $7,500 rent check under cover letter of January 15, 1987. Edward resumed his medical practice part-time at the 96 Puritan Road premises.

1. Patricia Cashman's liability. The defendants argue that the evidence was insufficient to permit the verdict that Patricia was jointly liable with Edward on the excessive rent claim. The defendants' counsel moved for a directed verdict on Patricia's behalf, and, after the jury returned its verdict, moved for a new trial or entry of judgment notwithstanding the verdict. See Martin v. Hall, 369 Mass. 882, 885, 343 N.E.2d 841 (1976). The judge denied the motions. The standard of review is whether "anywhere in the evidence, from whatever source derived, any combination of circumstances could be found from which a reasonable inference could be drawn in favor of the plaintiff." Dobos v. Driscoll, 404 Mass. 634, 656, 537 N.E.2d 558, cert. denied sub nom. Kehoe v. Dobos, 493 U.S. 850, 110 S.Ct. 149, 107 L.Ed.2d 107 (1989), quoting Poirier v. Plymouth, 374 Mass. 206, 212, 372 N.E.2d 212 (1978). We conclude that no such reasonable inference could be drawn in favor of the plaintiff. 4 Therefore, we reverse the denial of the motion for judgment notwithstanding the verdict. 5

2. Excessive rent claim against Edward. A. Ratification of the rent charges. Edward argues the judge improperly refused to instruct the jury that Puritan's directors could have ratified the excessive rent payments by their protracted failure to supervise the corporation's financial matters. This argument is without merit. While it is true that officers and directors have a duty of reasonable supervision, see Perkins v. Rich, 11 Mass.App.Ct. 317, 322-323, 415 N.E.2d 895 (1981), and cases cited, this duty is for the benefit of the corporation, not the wrongdoer. The judge's instructions properly reflected the fact that there may be no ratification of self-dealing without full disclosure. 6 See Durfee v. Durfee & Canning, Inc., 323 Mass. 187, 203, 80 N.E.2d 522 (1948), quoting Earll v. Picken, 113 F.2d 150, 158 (D.C.Cir.1940) (Cestui que trust can ratify breach of trust only if apprised of all material facts as well as their legal effect. "No half-hearted disclosure or partial discovery is sufficient in either respect. The trustee's duty of disclosure is not discharged by leaving the cestui to draw doubtful inferences, conclusions and suspicions ..."); Winchell v. Plywood Corp., 324 Mass. 171, 176, 85 N.E.2d 313 (1949), and cases cited ("contracts between a corporation and one of its officers or directors are valid if, with full knowledge of all the facts, they are assented to by all the officers and the stockholders").

The cases in which courts imply ratification, unlike this case, involve third-party, arm's-length transactions from which the corporation received a benefit, and directors who, at minimum, had "knowledge of such facts or circumstances as would put a reasonable person on inquiry and which would lead to full discovery." Ingalls Iron Works Co. v. Ingalls, 177 F.Supp. 151, 162 (N.D.Ala.1959), aff'd, 280 F.2d 423 (5th Cir.1960) (directors held to have ratified settlement contract where they had constructive knowledge and their delay in approving contract benefited corporation). See, e.g., Irving Tanning Co. v. Shir, 295 Mass. 380, 384, 3 N.E.2d 841 (1936) (ratification of agent's unauthorized contracts will be inferred where, after knowledge, principal made no effort to repudiate them); Perkins, supra 11 Mass.App.Ct. at 323, 415 N.E.2d 895 (where church committee knew of "radical physical and structural changes to the church and its surroundings," and had been informed of church projects "through annual reports and publications," ratification of mortgage transactions is inferred by its failure to disavow them); Torpey v. Interstate Equip. Leasing Co., 760 F.2d 364, 366 (...

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