Letter Of Credit Demand Must Comply With Strict Letter Of The Law
The Massachusetts Appeals Court issued an opinion discussing letters of credit and the “strict compliance” standard of G. L. c. 106, § 5- 108 applicable to a demand for payment. In Proquip Limited v. Northmark Bank, the plaintiff, ProQuip Limited (ProQuip), a Scottish manufacturer of golf apparel, entered into an agreement with Marblehead Weather Garments, LLC (MWG) under which MWG would buy and resell the ProQuip’s apparel. Under the agreement, MWG provided a letter of credit (“LC”) from Northmark Bank (the “Bank”) guaranteeing payment to ProQuip.
The LC provided that payment would be made upon “presentation of … the original of and all amendments, if any,” to the LC. The LC was amended once to provide an automatic annual renewal provision until the Bank notified ProQuip that the LC would not be renewed. In 2020, ProQuip made demand under the LC and presented the original LC to the Bank. However, instead of the original amendment, ProQuip presented a copy, along with a document entitled, “Original Document Affidavit and Indemnity,” in which ProQuip’s company secretary (1) stated that a diligent search had failed to locate the original Amendment 1, and (2) agreed to hold the bank harmless from any potential liability relevant to Amendment 1.
The Appeals Court concluded that in a normal contract interpretation situation, the copy of the amendment and affidavit of diligent search would likely be sufficient to enforce a contract. But, as the Court explained that “[l]etters of credit are unique commercial instruments…. Traditional contract rules apply ‘only to the extent that contract principles do not interfere with the unique nature of credits.'” The Appeals Court concluded that ProQuip’s failure to strictly comply with the terms of the LC, requiring presentment of the original of the LC and the original of the amendment justified the Bank’s refusal to honor the LC.
This decision is a warning about the need to adhere faithfully to the requirements of an LC, no matter how technical or pedantic they may seem. It also is a reminder that while we all rely on copies in so many scenarios, wet-ink originals are still favored by the Courts of the Commonwealth.
Post Date: 8/24/2023
What Are You Implying? Implied Permission Stops Adverse Possession
The Massachusetts Appeals Court discussed adverse possession in a recent opinion, Killeen v. Highland Yard 5 Associates, LLC. The Plaintiff in the case owned a steel fabrication business. The defendant owned the property directly across the street. The plaintiff claimed that it owned a portion of the defendant’s land by adverse possession, or at least had a prescriptive easement, because the plaintiff had been maneuvering trucks across the disputed parcel continuously for more than 20 years. In Massachusetts, someone who uses another’s property for more than 20 years can gain ownership or easement rights by adverse possession if the use was exclusive, adverse, continuous, open, and notorious.
One common defense to adverse possession is that the use was permissive. Giving permission negates the “adverse” nature of the use, thereby defeating the adverse possession claim. In this case, there was no evidence of express permission to use the land at issue, but there was evidence that the prior owner, the MBTA, installed a fence well away from the street, thereby accommodating the use of the area by the plaintiff. Despite the absence of evidence of express permission, the Court ruled that the evidence sufficiently showed implied permission, which was enough to prevent the plaintiff from acquiring any rights by adverse possession.
This case presented a very close call, so the defendant was lucky to block the adverse possession. It is a good reminder that the best way to prevent adverse possession is to physically block any adverse use of your property, or at least obtain a written acknowledgment that the use of the land is by express permission.
Post Date: 7/20/2023
Creditor Gone Rogue
July has been a quiet month for the courts so far, but one case is worth noting for the sheer audacity of a particular creditor who wrongfully repossessed not just one, but two vehicles in succession in an effort to collect on an old judgment. In Espinosa v. Metcalf, the defendant Metcalf was attempting to collect a judgment that had entered against one of the plaintiffs, Mr. Espinosa (“Senior”) several years earlier for unpaid credit card bills. As part of this collection effort, Metcalf first repossessed the car of Mr. Espinosa’s son (“Junior”), even though Junior had no liability on the Judgment, and no connection to the underlying debt-he was a child at the time his father incurred the liability.
Over two weeks later, after much back and forth and resistance by Metcalf, even though it had repossessed the car of a non-debtor, Metcalf returned Junior’s car but then immediately repossessed Senior’s car. After being informed that Senior did not own his car; it was a leased vehicle owned by Honda, Metcalf continued to wrongfully detain it. Despite clear cut evidence that it had yet again repossessed a non-debtor’s car, Metcalf failed to return the car to Senior for seven months. All the while Espinosa Sr. had to continue to make lease payments to Honda.
The Espinosas filed suit against Metcalf and others in the federal court, claiming damages under a variety of theories, including Fair Debt Collection Practices Act, Massachusetts General Laws Chapter 93A, and for conversion. At trial, the Court ruled in favor of the Espinosas and awarded damages of $6,960 to Junior and $21,240 for Senior. The Court concluded that Metcalf had acted in bad faith and caused the Espinosas both financial damages and significant emotional distress.
This story of a creditor gone rogue and attempting to strong-arm repayment of a debt reinforces the need for those in the business of debt collection and asset recovery to act in good faith, reasonably and within the bounds of the law at all times.
Post Date: 7/14/2023
The Devil Is In The Details: A Case Of Uncertain Identity
In BRT Management LLC v. Malden Storage LLC, the plaintiff brought a contract claim in the United States District Court for the District of Massachusetts against three limited liability companies. The federal court has limited jurisdiction over state law-based claims. One common basis of federal jurisdiction is known as “diversity jurisdiction.” Diversity jurisdiction allows federal courts to adjudicate controversies between citizens of different states. To demonstrate diversity jurisdiction, a Massachusetts plaintiff, like the one in this case, must prove complete diversity of citizenship with the defendants, meaning that none of the defendants can also be a resident of Massachusetts. Absent diversity, the federal court simply lacks the authority to adjudicate the matter in controversy.
Federal courts determine “citizenship” in different ways depending on whether a party is a person or an entity. For example, an individual person’s citizenship is the state in which they have their primary residence. A corporation is deemed to be a citizen in their state of incorporation, plus the state where its primary offices are located. An LLC, on the other hand, is deemed to be a citizen of every state of which any of its members is a citizen.
The Court ordered the plaintiff to set forth the citizenship of each of the defendant LLC’s members, and this turned out to be a difficult task because the LLCs each had members that were in turn also LLCs. The Court continued to press the plaintiff to identify the citizenship of the individual members of the LLC or of any further removed LLCs. The plaintiff determined that there were more than 80 subsidiary LLC members of the three LLC defendants, Eventually the plaintiff and the defendants simply agreed to stipulate to the Court (without providing any proof) that there was, in fact, complete diversity; that is in this case none of the LLC members was a citizen of Massachusetts.
The case proceeded, and after a nine-day trial, a judgment for over $10 million entered in favor of the defendants on their counterclaim. The plaintiff appealed, and the First Circuit Court of Appeals once again raised the question of diversity jurisdiction. The First Circuit refused to hear the appeal unless and until the parties provided proof that none of the defendants’ members was a Massachusetts citizen. The First Circuit held that the parties’ stipulation of diversity was immaterial. Since the absence of diversity would eliminate the basis for subject matter jurisdiction in the federal courts, the existence of diversity was foundational and had to be established as a matter of actual fact.
Incredibly, neither party was able or willing to provide the necessary proof of citizenship to the First Circuit, so the appeal was dismissed, and the case remanded to the District Court for dismissal in the absence of proof of diversity. Having spent years of litigation and incurred likely hundreds of thousands of dollars of legal fees, the parties are now back at square one, and the defendants’ multi-million-dollar judgment is likely void. The moral of the story is that sometimes insisting on proceeding in a court with questionable jurisdiction is a very risky proposition.
Post Date: 6/15/2023
The Principle Of The Matter: A Case Of Mistaken Identity
In Harbor Group Management Co., Inc. v. Molloy, the Plaintiff obtained a judgment against a person who called himself “Joseph Molloy” for unpaid rent on an apartment in Danvers. The landlord then sued Joseph Malloy for the unpaid rent reflected in the judgment. Joseph Molloy filed a motion to void the judgment and he supported his motion with an uncontested affidavit saying that he is a long-time resident of Marshfield who never lived at the Danvers apartment and who had never been served with any papers regarding the lawsuit resulting in the Judgment. Joseph Molloy stated in the affidavit that he suspected the mix-up was caused because his brother, John Molloy, a disbarred attorney with financial problems who lived in the Danvers area likely had signed his brother Joseph’s name to the lease to show a credit history sufficient to induce the landlord to lease the apartment to him. In fact, in his affidavit Joseph Molloy said that his brother John had admitted this to him after the fact. Despite this obvious error and without any opposition from the Plaintiff landlord who had obtained the judgment, the Housing Court judge refused to vacate the judgment against Joseph. Joseph filed an appeal. The Appeals Court reversed the decision and vacated the judgment. It is hard to believe that this case of mistaken identity had to be taken to the Appeals Court to get to the right decision. This is especially true given that the amount of the Judgment was about $3,000 and the cost of the appeal was at least three or four times this amount.
Post Date: 5/11/2023
Spoil The Evidence, You Won’t Be Spared The Rod.
In the world of litigation, we sometimes deal with spoliation of evidence, which is a fancy way of describing the intentional or reckless destruction of evidence. Spoliation comes from the Latin word “spoliatio,” meaning the act of plundering or spoiling. In litigation, a party that is found culpable for spoliation typically pays a high price. A recent case in point is Rodrigues v. Home Depot, in which a Superior Court Judge determined that Home Depot had a 2-minute video of an incident in which a truck driver was injured when making a delivery. In spite of knowing a legal claim would likely ensue, Home Depot failed to protect the video from being erased, so it is no longer available to show to the jury as proof of what happened to cause the plaintiff’s injury. As punishment for not preserving the video, the Judge ruled that when the case is tried, “the jury in this case will be instructed that they may infer that Home Depot prevented the preservation, collection and presentation of relevant evidence in this case out of a realization that the evidence was unfavorable.” This ruling could be tough for Home Depot to overcome at trial.
Post Date: 5/4/2023
How To Be Liable For Wages Without Really Trying
In Wolfe v. Budzyna, an employee of a non-profit, the Boston Children’s Theater, sued two volunteer officers of the company personally for unpaid wages owed from the company. The two officers knew that the non-profit was in financial trouble, but encouraged the employees to keep working, giving assurances that they would be paid. Meanwhile, the officers continued to pay the debts of the company even when they could not make payroll.
The officers sought dismissal on summary judgment, arguing that they were covered by the Massachusetts Charitable Immunity Statute, which protects uncompensated officers of a nonprofit organization from liability for civil damages “as a result of any acts or omissions related solely to the performance of his duties as an officer.” G. L. c. 231, § 85W. The Superior Court and the Appeals Court denied the motion, stating that the statute does not protect officers if their acts or omissions were intentionally designed to harm the employee. The Courts determined that there was enough evidence of “an intentional design to harm employees” to allow the case to proceed to trial.
This case is a reminder that even unpaid volunteers at non-profits have potential liability if they are not careful.
Post Date: 4/27/2023
I Spy With Google Earth’s Eye…
The Land Court issued an interesting evidentiary decision in Raccuia, Trustee v. Chen. As part of their evidence at trial in this adverse possession case, the Chens proposed to admit images from Google Earth dated over a 16-year period to show the existence of a fence and other objects in particular locations. The plaintiff in the case objected to this evidence, arguing that the images could not be authenticated without testimony concerning Google’s photographing system.
The Judge ruled that the Chens could authenticate the Google images in a couple of different ways. First, the images would be admissible, like any normal photograph, if a witness testifies that “the image fairly and accurately depicts a scene” they were familiar with at a particular time. Photographs of all types have been admitted as evidence in this way for many years.
The second way to authenticate a Google image may be to offer proof that the Google photo or some information contained within it (such as a date stamp) was computer-generated and required no human participation in its creation. If so, that information would not be hearsay. The Land Court cited a 2021 case in which the SJC held that computer-generated maps (maps created solely by the mechanical operation of a computer that do not require human participation) were not necessarily hearsay.
This case provides a road map for lawyers who want to consider using Google images as evidence.
Post Date: 4/20/2023
Internet Scam: Who Bears The Loss?
In a scenario all too familiar these days, an elderly couple was scammed by a phony IT company who claimed they needed access to the couple’s bank account to process a refund for an accidental auto-pay subscription fee in the case of Maio v. TD Bank. The IT company then told the couple that during the refund process, the company had accidentally transferred $40,000 into the couple’s bank account and asked for reimbursement by wire transfer. The couple and their daughter then went to the bank branch and requested a wire transfer to the fake IT company in the amount of $40,000. The IT company used the same lie two more times and convinced the couple to wire another $100,000 or so, which required them to draw from their home equity line of credit.
When the phony IT company requested yet another $40,000, a bank employee told the couple that the mistaken funds from the IT company were showing as “pending,” and the couple should not reimburse any money until those funds had cleared. At that point, the jig was up, and the payments to the scammers finally stopped. Unfortunately, nearly $140,000 of the couple’s money (including advances from their home equity line of credit) had been wired to Thailand, never to be seen again.
A theft of so much money, naturally leads to finger pointing, and the elderly couple filed a complaint against the bank claiming, among other things, that the bank should have made them aware of the fact that the funds from the fake IT company had not actually cleared before the wires were sent. The couple argued that the bank had a fiduciary duty to protect them in these circumstances, and that the bank was negligent. The federal court threw out most of the couple’s case against the bank. Citing established Massachusetts law, the Court ruled that “the typical relationship between a bank and a customer is a business relationship rather than a fiduciary one.” However, the Court allowed a portion of the case to proceed, indicating that the bank may have been negligent in not making clear to the couple that some of the funds being wired to the scammers represented advances on their home equity line of credit.
The FBI reported that victims lost $10.3 billion as a result of internet crimes last year according to the 2022 IC3 Annual Report. Stay alert for scams and look out for the elderly and others who may be particularly vulnerable.
Post Date: 4/13/2023
Money For Nothing Means Dire Straits For Homeowners
The Superior Court recently issued an injunction in Commonwealth of Mass. v. MV Realty PBC, LLC, and MV of Massachusetts, LLC preventing the named defendants from continuing their activities in Massachusetts. The facts reveal shocking behavior by the defendants who are described as having tricked homeowners into signing something the companies call a “Homeowner Benefit Agreement,” which is anything but beneficial to the homeowner. The homeowners are told that by signing, they get “free money” with “no need to borrow.” The companies then recorded mortgages on the homeowners’ properties without their knowledge. Under the agreement, the companies are entitled to collect 3% of the purchase price of any future sale, plus administrative fees, when the property is sold. The Court describes this arrangement as a combination of broker commission agreement and loan, but without any of the regulatory compliance, and without disclosure to the homeowners that they are mortgaging their homes and will pay substantial “hidden” interest. The Court stated: “Based on the record before it, the Court finds that the Commonwealth is likely to succeed in proving that this marketing and these representations are false and deceptive.” This is a prime example of the old saying, “If something seems too good to be true, it probably is.”
Post Date: 4/6/2023
The Devil Is In The Details, And The Disclaimer Is In The Emails
After an exchange of numerous emails about an investment opportunity, the plaintiff in Giul, LLC v. Shenghuo Medical, LLC signed a contract that contained significantly different terms than the terms negotiated through the emails leading up to the contract. Every email from the defendants contained a disclaimer saying, in essence, that nothing in the emails was binding and that only a signed contract could bind the parties. The signed contract contained an integration clause which said that the only relevant terms were in the contract and that prior terms discussed in negotiations were not applicable. The plaintiff admitted that they did not read the terms of the contract before signing. The plaintiff sued when the deal went south, and argued that it was the victim of fraud. Not surprisingly, the Superior Court threw out the case, saying that a party is bound by the terms of a contract even if they don’t read before signing. The judge noted the significance of the disclaimers in the emails and the integration clause in the contract, and the lack of any active misrepresentation as to the contents of the form of contract. The lessons seem obvious: Use email disclaimers before a contract is finalized; and read the contract before signing.
Post Date: 3/23/2023
Estop Me If You Can
“A tale as old as commerce: Two friends, next door neighbors in fact, enter, and exit, business together, leaving behind unmet expectations and financial acrimony.” So starts the recent decision from the First Circuit Court of Appeals in Botelho v. Buscone. The two parties owned a frozen yogurt shop. After the business failed, one owner (Ann) filed for bankruptcy and received a discharge. She did not list any claims against her co-owner (Mary) in her bankruptcy schedules. Years later, Ann sued Mary in state court for fraud (among other things) and obtained a default judgment of over $90,000.
Mary then filed her own bankruptcy case, and Ann filed an adversary proceeding asking that her judgment against Mary be deemed non-dischargeable because it was based on fraud. Mary’s primary defense was based on “judicial estoppel,” which can be employed if someone like Ann takes a position in a case inconsistent from an earlier position. In this case, Mary argued that Ann’s claims against her could not be brought because Ann failed to list those claims in her own bankruptcy case years earlier. The theory is that if she had claims, she should have listed them in her bankruptcy case. Not having included them in her own bankruptcy schedules, Ann is now “judicially estopped” from raising them in Mary’s case.
The Court disagreed, saying that judicial estoppel is not automatic. At a minimum, two things must be shown: “First, a party’s … position must be clearly inconsistent with their earlier position, and second, they must have “succeeded in persuading a court to accept [their] earlier position.” But, the Court went on to say that judicial estoppel is an equitable and discretionary doctrine, and “factual circumstances drive the estoppel analysis.” In this case, the Court ruled that because of evidence that Ann’s failure to list her claims against Mary in her bankruptcy case was not intentional, the Bankruptcy Court’s refusal to employ judicial estoppel was within its discretion.
Post Date: 3/16/2023
A Superior Court Judge issued a decision denying a motion to dismiss, which allowed the plaintiff to move ahead with a fraudulent transfer case. In SHS ACK, LLC v. Ajax 5Cap NESV, LLC, the defendant who sought dismissal is an individual (the “Investor”) who was an indirect member of Ajax 5Cap NESV, LLC, an entity that had borrowed $11 million to develop property in Attleboro. After the loan went into default and the LLC was insolvent, the Investor received payments from the LLC totaling $350,000. The lender to the LLC filed the case to recover the sums paid to the Investor under the Massachusetts fraudulent transfer statute.
Under that statute (G.L. c. 109A), payments by a debtor may be set aside if the debtor did not receive “a reasonably equivalent value in exchange for the transfer;” and “the debtor was insolvent” at the time or as a result of the transfer. If the payments were to an insider (the definition of which includes an affiliate or insider of an affiliate of the debtor), the payments can be set aside if they were for an antecedent debt, the debtor was insolvent at the time of the transfers, and “the insider had reasonable cause to believe that the debtor was insolvent.”
The Investor argued that the payments to him were part of a settlement agreement in which he agreed to reduce his interest in the LLC and, therefore he gave reasonably equivalent value. The judge disagreed, saying that any consideration given in the settlement agreement did not provide any value to the LLC. The court also determined that there were sufficient facts to establish the Investor as an “insider” under the statutes.
Based on this decision, the case will continue, and the Investor is in jeopardy of losing the $350,000 he received from the LLC.
Post Date: 3/9/2023
The Pandemic “Maid” Me Do It
In Le Fort Enterprises, Inc. v. Lantern 18, LLC, the Supreme Judicial Court ruled that the COVID-19 pandemic did not excuse the default on a promissory note under the doctrines of impossibility/impracticality of performance and/or frustration of purpose. The obligors on the note were the purchaser and its principals of a “Merry Maids” franchise. In April 2020, five years after the agreement began, and one month after the world shut down due to the pandemic, the purchaser defaulted and the seller then commenced suit against the obligors for nonpayment under the note.
The purchaser argued that the pandemic fell under the doctrines of the impracticability of performance or frustration of purpose and temporarily excused the obligors from making their payments.
The SJC disagreed and noted that: (a) the purchase contract at issue did not have a force majeure clause; (b) certain contractual provisions made it clear that any risk of loss was on the purchaser; and (c) the obligors did not make any showing that the pandemic prevented repayment of the note from sources other than the cleaning franchise. The SJC determined that the obligors were stuck “cleaning” up their own mess. The takeaway: Using a defense like “the pandemic made me do it” should be avoided like the plague.
Guest Author: Jacqueline Price
Post Date: 3/2/2023
For Whom The Statute Of Limitations Tolls
The Appeals Court recently decided a case involving land in Oak Bluffs owned by the plaintiff and his now deceased sister (Zutrau v. Zutrau). The sister loaned the plaintiff money and secured the note with an agreement that upon default, the brother would deed her his interest in the property. After the brother defaulted, he filed a bankruptcy case. About six years after the bankruptcy case closed, the brother filed an action to partition the property. The personal representative of the sister’s Probate Estate countersued under the note and sought an order that the brother transfer his half interest in the property to the Estate. Among the brother’s defenses was that the claim was barred by the applicable statute of limitations (applying New York law in this case, it was six years). The Appeals Court rejected the argument and ruled that the statute of limitations was tolled throughout the bankruptcy case, meaning that the Estate’s claim (filed almost 12 years after the loan default) was timely. In this case, it was the brother who was SOL.
Post Date: 2/23/2023
Buyer’s Broker, Beware
In Huang v. Ma, the plaintiff real estate broker sued her clients after they sold their property without paying her a broker’s commission. The defendants had retained the plaintiff under an oral agreement as their exclusive buyers’ broker. Under the agreement, the buyers agreed to “’refer’ to Huang ‘all potentially acceptable real property’ they identified and would ‘notify other real estate agents’ of the arrangement.” The defendants then found a property on their own and sent the plaintiff/broker an email “recognizing the work she did for them and sending her an Amazon gift card by way of apology.”
The broker sued for her commission and a Superior Court judge dismissed the case because there was no written agreement between the parties. The Appeals Court reversed because while contracts to sell real estate must be in writing, real estate broker agreements do not need to be in writing. A Massachusetts statute (G.L. c. 259, sec.7) requires most broker agreements to be in writing, but specifically excepts real estate brokers from this requirement. The Supreme Judicial Court agreed with the Appeals Court and ruled that the broker could recover a commission assuming she proved all of her allegations at trial, despite not having a written contract.
Post Date: 2/16/2023
Partition Is Such Sweet Sorrow
In Furnas vs. Cirone, the two parties were joint owners of property with rights of survivorship. If one of them died, the other would become the sole owner automatically as a matter of law. After a dispute arose, the owners decided to partition the property through the Probate Court. They agreed to a judgment involving payments over time and an ultimate refinancing of the property.
Many months after judgment entered, the defendant died, and the surviving plaintiff claimed that they were still joint tenants with rights of survivorship, so upon the defendant’s death, the plaintiff became the sole owner despite the partition judgment and agreement. The Appeals Court ruled that the joint tenancy was severed when the partition judgment entered, so the plaintiff was bound by the judgment and could not claim full ownership of the property.
Post Date: 2/13/2023
What’s Up Dock?
Kubic v. Audette is a case in which the two parties have been fighting for years about a dock built by the defendant on Webster Lake in front of the plaintiffs’ property. (As an aside, the Algonquian name of the lake, Lake Chargoggagoggmanchauggagoggchaubunagungamaugg, is almost as big as the lake itself). The defendant in the case holds an easement over a right of way to the lake and argued that building the dock fell within the permitted use of the easement. The Land Court disagreed and ruled that building the dock constituted an overburdening of the easement, meaning that it exceeded the scope of the original intent of the easement. The Appeals Court agreed. So, absent some settlement, it appears that the dock must go.
Post Date: 2/6/2023