Sms Financial V, LLC v. Conti

• Decision Date: 26 April 2007
• Docket Number: No. 05-P-1256.,05-P-1256.
• Citation: 865 N.E.2d 1142,68 Mass. App. Ct. 738
• Parties: SMS FINANCIAL V, LLC v. Robert CONTI, individually and as trustee,<SMALL><SUP>1</SUP></SMALL> & others<SMALL><SUP>2</SUP></SMALL> (and a companion case<SMALL><SUP>3</SUP></SMALL>).
• Court: Appeals Court of Massachusetts

865 N.E.2d 1142

68 Mass. App. Ct. 738

SMS FINANCIAL V, LLC v. Robert CONTI, individually and as trustee,¹ & others² (and a companion case³).

No. 05-P-1256.

Appeals Court of Massachusetts, Suffolk.

Argued October 18, 2006.

Decided April 26, 2007.

Thomas S. Francis for John Conti & others.

Robert L. Hamer, Worcester, for SMS Financial V, LLC.

Present: CYPHER, KANTROWITZ, & COWIN, JJ.

COWIN, J.

We consider cross-appeals from judgments in two consolidated cases arising from a claim by SMS Financial V, LLC (SMS), under a forbearance agreement entered into between John Conti and related parties⁴ (collectively, the Conti parties) on the one hand, and a predecessor of SMS on the other. The complaint of SMS in the Superior Court generated judgments in SMS's favor that totaled $526,550.14 together with twelve percent annual interest. The complaint filed by the Conti parties alleging abuse of process and violation of G.L. c. 93A terminated in favor of SMS by means of the allowance of a special motion to dismiss the abuse of process claim, see G.L. c. 231, § 59H, and a summary judgment on the claim under G.L. c. 93A.

In their appeal, the Conti parties assert that (1) it was error to enter summary judgment on liability in favor of SMS under the forbearance agreement because there were, at a minimum, genuinely disputed questions of material fact regarding alleged prior material breaches by SMS's predecessor⁵; (2) a twelve percent interest rate should not have been applied to amounts due under the forbearance agreement; (3) it was an abuse of discretion to deny their motion to compel discovery in their case alleging abuse of process and violation of G.L. c. 93A; (4) SMS's special motion to dismiss under G.L. c. 231, § 59H, should not have been allowed with respect to their claim for abuse of process, and, in any event, the attorney's fee award on the motion was excessive; and (5) it was error to grant summary judgment in favor of SMS on the Conti parties' c. 93A claim. In its appeal, SMS challenges the amount of the award of damages it received for the Conti parties' breach of the forbearance agreement. SMS also seeks an award of attorney's fees and costs with respect to this appeal. See Fabre v. Walton, 441 Mass. 9, 10-11, 802 N.E.2d 1030 (2004). With the exception of the award of attorney's fees in connection with SMS's motion to dismiss under G.L. c. 231, § 59H, we affirm the judgments.

1. Material facts. The material facts are not disputed. Various loans made to the Conti parties by USTrust, a Boston bank, went into default, and USTrust commenced, and obtained judgments in, three separate collection actions. On March 31, 1998, USTrust and the Conti parties entered into a forbearance agreement whereby USTrust agreed not to levy on executions on those judgments in return for an agreement by the Conti parties to pay a reduced amount over a period of time. Repayment terms required that the Conti parties pay a total of $333,973.17 by May 1, 2001, with $92,946.34 payable at the closing, and monthly installments of $4,438.90 for three years with interest at an annual rate of four percent under a five-year amortization schedule. In the event of a default by the Conti parties under the forbearance agreement, it was provided that the Conti parties "shall be immediately liable for the full amount owed under the Executions, with all post-execution interest then immediately due, as well as all attorney's fees incurred by the Bank in connection with [the underlying actions] and this agreement . . . and not yet reimbursed at the time of the default. The liability of the Defendants on the Executions after default and the tenday grace period shall have the effect of creating a `clawback' to the amount of the indebtedness evidenced by the Executions. . . . Notwithstanding the foregoing, any payments received from the Defendants prior to any default under the Repayment Terms[⁶] shall be credited against any amounts owing under the Repayment Terms, first to interest and then to principal."

The forbearance agreement provided further that the Conti parties would secure the debt by giving USTrust real estate mortgages on four properties. The mortgages would be discharged by USTrust sequentially as payments were made. Of particular importance to the present dispute is a provision that USTrust would discharge a mortgage on property at 19 Lynn Street, Chelsea, after the Conti parties had made the initial payment of $92,946.34 plus an additional $80,000.

By December, 1998, the Conti parties had made the required initial payment and regular monthly payments, at which time the payments were sufficient to bring about a discharge of the 19 Lynn Street mortgage. However, the mortgage was not discharged at this time. The Conti parties continued to make regular payments through December, 1999, by which time a total of $261,813.24 had been paid.⁷ In January, 2000, Robert Conti requested that USTrust inform him of the amount remaining due under the forbearance agreement. USTrust reported to him by letter dated January 7, 2000, that $95,536.47 remained to be paid. Although that figure appeared to be in error, and the Conti parties had determined themselves that the amount due was only $72,159.93, they made no inquiry or other effort to resolve the discrepancy.

At this point, USTrust was acquired by Citizens Bank. Although they had received no instructions to do so, the Conti parties forwarded their payment due in March, 2000, to Citizens Bank. The payment was returned to them on March 23, 2000, with no forwarding instructions. Robert Conti's effort to obtain forwarding instructions from USTrust was unsuccessful. The Conti parties thereupon determined that they would make no further payments until forwarding instructions were received. None were forthcoming, and the Conti parties made no further payments and no additional efforts to straighten out the confusion. In 2002, Citizens Bank assigned its rights under the forbearance agreement to SMS, and the present litigation commenced.

2. Summary judgment on liability under the forbearance agreement. Determining that the record compelled a finding that there was an unexcused failure on the part of the Conti parties to make required payments, a judge of the Superior Court allowed SMS's motion for summary judgment as to liability, deferring assessment of damages to a subsequent evidentiary hearing. The Conti parties argue that three prior material breaches on the part of USTrust excused them from performance, see Ward v. American Mut. Liab. Ins. Co., 15 Mass.App.Ct. 98, 100, 443 N.E.2d 1342 (1983); Lease-It, Inc. v. Massachusetts Port Authy., 33 Mass.App.Ct. 391, 397, 600 N.E.2d 599 (1992), and that the judge erred in attempting to resolve on summary judgment factual disputes regarding the materiality of those prior breaches.

We conclude that the evidence of prior material breaches was insufficient to support a finding in favor of the Conti parties on the subject, see Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716, 575 N.E.2d 734 (1991), and that the judge determined correctly that their failure to make payments after December, 1999, was unexcused. USTrust's failure to discharge the mortgage on 19 Lynn Street, Chelsea, immediately after the initial payment and an additional payment of $80,000 had been made, does not appear to have been a breach of the forbearance agreement of any kind, much less a material breach. The agreement specifies no time in which the discharge must be delivered, providing only that there shall be a discharge "after" the payment level is achieved. There is no evidence that the Conti parties ever sought issuance of a discharge or that its absence interfered with any transactions or economic opportunities. When it became apparent during this litigation that a discharge had not been issued, SMS produced one forthwith. The presence of a "time is of the essence" clause does not alter the outcome where no time for the performance of a particular act is specified. Even were failure to issue a discharge in 1998 to be deemed a breach, it can hardly be said that, given the benefits obtained by the Conti parties by means of the forbearance agreement, immediate availability of a mortgage discharge with respect to the 19 Lynn Street, Chelsea, property was an "essential and inducing feature" of the contract, see Bucholz v. Green Bros. Co., 272 Mass. 49, 52, 172 N.E. 101 (1930), with a breach thereof thus being material.

Likewise, the fact that neither USTrust nor Citizens Bank notified the Conti parties of an address change for purposes of forwarding payments was not a breach, material or otherwise. The forbearance agreement contained no requirement that there be a notice of the lender's change of address.⁸ The implied covenant of good faith and fair dealing concerns the manner in which contractual duties are performed; it does not create rights and duties not already present in the contractual relationship. See Ayash v. Dana-Farber Cancer Inst., 443 Mass. 367, 385, 822 N.E.2d 667, cert. denied sub nom. Globe Newspaper Co. v. Ayash, ___ U.S. ___, 126 S.Ct. 397, 163 L.Ed.2d 275 (2005).⁹ Had the Conti parties continued to forward payments to the address set forth in the agreement, they would have been in full compliance. They chose instead a strategy of doing nothing, neither paying nor inquiring further, and consequences followed.¹⁰

In the same way, USTrust's erroneous statement of the balance due in January, 2000, was neither a breach nor material. The forbearance agreement did not require that USTrust provide accountings. That USTrust provided a figure on request and that figure turned out to be mistaken, is not a breach of any covenant that USTrust contractually undertook to fulfil. Furthermore, the Conti parties were aware that the number provided by the lender was erroneous; they made no attempt to reconcile the figures; and they knew that, regardless of which figure...