ANN & HOPE, INC., & others [Note 1] vs. JOSEPH MURATORE & others. [Note 2]

WARNER, C.J. This case presents a question regarding the appropriate basis for calculating damages under G. L. c. 93A,

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s. 11. Following a jury-waived trial in the Superior Court, a judge ordered rescission of a contract under which one of the defendants, Creative Realty, Inc., doing business as Warranty Assurance Company (WAC), was to provide extended warranty protection on major household appliances sold by Ann & Hope stores, variously owned and operated by the plaintiffs, Ann & Hope, Inc., and three related corporations (collectively referred to as Ann & Hope). The judge determined that Ann & Hope was entitled to rescind the contract due to the intentional misrepresentations of one of the defendants, Joseph Muratore, in inducing Ann & Hope to do business with WAC. In addition to allowing Ann & Hope to rescind the contract, the judge ordered WAC to return to Ann & Hope the $3,038,830 it had paid for warranty protection. In order to compensate WAC for the consideration it had provided under the contract, Ann & Hope was ordered to return 12,039 warranty cards still in its possession and to reimburse WAC for its printing costs plus an additional $26,452.40, the amount WAC had actually paid for warranty repairs. The net rescission damages awarded to Ann & Hope totalled $2,973,208. Having found that the defendants' conduct constituted a wilful violation of G. L. c. 93A, s. 11, the judge doubled the award for a total of $5,946,416. [Note 3]

On appeal, the defendants argue (1) that the judge's findings of fact concerning the discrepancy between the number of warranty cards actually printed and the number for which Ann & Hope was billed were clearly erroneous and must therefore be set aside; (2) that the judge erred in ordering rescission under these circumstances and in the alternative, that the net rescission damages were improperly calculated; and (3) that the judge improperly included the purchase price of the warranties in her calculation of damages pursuant to

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G. L. c. 93A, s. 11. Because we conclude that the net rescission damages awarded to the plaintiffs were not properly subject to multiplication under G. L. c. 93A, s. 11, we remand the case to the Superior Court for a determination whether Ann & Hope has established actual damages causally related to the defendants' unfair and deceptive conduct. [Note 4] We affirm, however, all other aspects of the judgment.

We summarize the facts as found by the judge. Ann & Hope operates a group of retail discount department stores selling, among other items, home appliances, home electronic equipment, and video games. Prior to the commencement of this action, the defendant, Joseph Muratore, was employed as a senior buyer of major appliances for Ann & Hope, and the defendant, Carl Oshry, was an associate buyer.

Ann & Hope was in the practice of offering extended repair warranties to purchasers of appliances and electronic equipment. These warranties, which remained in effect after the manufacturer's warranty had expired, were provided on warranty cards given to the consumer. The cost of the warranty protection was either included in the purchase price of the appliance, or made available to the consumer at an additional cost.

Prior to 1986, Ann & Hope purchased warranty protection from two companies. The companies sold warranty cards directly to Ann & Hope, and subsequently performed any necessary repairs. In 1985, Ann & Hope became dissatisfied with the warranty services that were being provided. Accordingly, in late 1985, senior management assigned Muratore the task of seeking a new provider of warranty protection. Muratore initially suggested that Ann & Hope provide and service its own warranties, but this idea was rejected.

Muratore next suggested that Ann & Hope purchase warranty protection from WAC. Muratore represented that WAC

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was an established, national company based in the midwest that was already providing warranty services to Lechmere Sales, one of Ann & Hope's major competitors. Based on Muratore's representations, Ann & Hope's senior management decided to purchase warranty protection from WAC and began doing so in February, 1986.

Contrary to Muratore's representations, WAC was not an established company. Rather, WAC was formed by Muratore, Oshry, and other of the defendants in response to Ann & Hope's desire to locate a new warranty company. Although WAC began doing business with Ann & Hope in February, 1986, it was not even incorporated until November of that year.

Under the contract, Ann & Hope was to purchase preprinted warranty cards from WAC and sell them to consumers who purchased major appliances. When repairs became necessary, the consumer could take the appliance to an authorized repair company, and WAC would then pay that company directly. In many instances, however, the repair companies sent bills directly to Ann & Hope. Muratore or Oshry approved these bills for payment, but subsequently failed to follow established procedures to insure that Ann & Hope would be reimbursed for the cost of the repairs. [Note 5] Accordingly, Ann & Hope paid approximately $144,000 directly to repair service vendors over the term of the contract. In contrast, WAC paid only $26,452.40.

In addition to the activities described above, WAC also billed Ann & Hope for warranty cards it never received. From February, 1986, until March, 1990, Ann & Hope paid WAC for 200,980 warranty cards. WAC purchased these cards from B & M Printing Company (B & M Printing), its sole supplier of warranty cards. B & M Printing printed a total of 164,889 cards for WAC. Accordingly, Ann & Hope paid WAC for 36,091 more warranty cards than it actually received.

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Ann & Hope filed this action in March, 1990, seeking equitable relief and monetary damages against the defendants on claims of fraud, conspiracy, conversion, and violations of G. L. c. 93A. WAC subsequently refused to honor its outstanding warranties, instead advising consumers to contact Ann & Hope directly. Accordingly, Ann & Hope assumed responsibility for providing protection under any unexpired warranties. [Note 6]

1. Validity of trial judge's findings of fact. The defendants challenge the judge's findings (1) that B & M Printing was WAC's sole supplier of warranty cards, and (2) that Ann & Hope paid WAC for 36,091 warranty cards it never received. These findings form the basis of the judge's conclusion that WAC fraudulently overbilled Ann & Hope for warranty cards it never received. The defendants maintain that the findings are totally unsupported by the evidence adduced at trial and must therefore be set aside.

On appeal, we may not set aside findings of fact "unless clearly erroneous, and [we must give] due regard . . . to the opportunity of the trial court to judge of the credibility of the witnesses." Mass.R.Civ.P. 52(a), 365 Mass. 730 , 816 (1974). A finding of fact is clearly erroneous only if on the entire evidence, the reviewing court "is left with the definite and firm conviction that a mistake has been committed." Marlow v. New Bedford, 369 Mass. 501, 508 (1976), quoting from United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948). First Pa. Mortgage Trust v. Dorchester Sav. Bank, 395 Mass. 614, 621 (1985). Our review of the record in this case leaves us with no such conviction.

The defendants challenge the judge's finding that B & M Printing was WAC's sole supplier of warranty cards. Indeed, there is no dispute that B & M Printing supplied WAC with 164,889 warranty cards or that Ann & Hope paid WAC for 200,980 cards; 36,091 more cards than WAC received from B & M. The defendants maintain, however, that the testimony of defendants Muratore and Oshry, combined with that of Terra Yannone, WAC's sole office employee and Marguerite Girard, one of B & M's principals, considered in light of the

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physical appearance of the cards themselves, warranted a finding that B & M was not WAC's sole supplier, but rather, that a person identified only as "Roger the Printer" actually provided WAC with 50,000 additional cards. The defendants further claim that most of "Roger's" cards were sold to Ann & Hope, accounting for the discrepancy between the number of cards printed by B & M and the number for which Ann & Hope paid. They argue that the judge's finding to the contrary was clearly erroneous and must therefore be set aside. We disagree.

Our review of the record reveals that neither Yannone nor Girard mentioned "Roger the Printer," or stated that B & M was not WAC's sole supplier of warranty cards. Girard merely stated that WAC reduced the number of orders placed with B&M in mid-1989, but provided no insight into whether WAC subsequently purchased additional cards from "Roger the Printer" or from any other source. Yannone stated that at some point in time, the packaging of the warranty cards changed. She also stated, however, that the appearance of the cards remained the same. [Note 7]

Defendants Muratore and Oshry provided the only direct testimony regarding the existence of "Roger." Indeed, both men claimed to have met "Roger" casually in a bar, hired him to print 50,000 warranty cards, and paid him in cash, all without keeping any record of the transaction or even obtaining his last name, telephone number, or business address. Neither Muratore nor Oshry presented any documentary evidence to support their claims. In light of the inherent credibility problems of both defendants and the lack of evidentiary support for their claims, we think the judge was justified in discrediting their testimony. [Note 8] See Gallagher v. Taylor, 26 Mass. App. Ct. 876, 881 (1989). Accordingly, we conclude that the finding that B & M Printing was WAC's sole source

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of warranty cards was firmly supported by direct evidence and the reasonable inferences drawn therefrom. See ibid.

As an alternative explanation for the discrepancy between the number of warranty cards printed and paid for, the defendants maintain that the evidence adduced at trial established that a procedure known as "stock-balancing," whereby Ann & Hope exchanged with WAC surplus warranty cards of one type for cards of another type, made it appear as though Ann & Hope was billed for more cards than it received, even though this was not actually the case.

The defendants point to the testimony of one Ann & Hope employee and to the testimony of Yannone, both of whom testified to occasional stock balancing, in support of their claim. Neither witness, however, testified that stock-balancing occurred with enough frequency to account for a 36,091 card discrepancy. While defendant Oshry did describe widespread stock-balancing sufficient to explain such a large discrepancy, he was unable to provide any records to support his testimony and actually stated that no such records existed. Accordingly, the judge's failure to credit Oshry's version of the facts was not erroneous.

2. Rescission damages. The defendants next challenge the judge's calculation of Ann & Hope's net rescission damages. Here, the judge determined that rescission was the appropriate remedy due to the difficulty of calculating monetary damages and the practical impossibility of evaluating the parties' continued performance under the contract. [Note 9] For purposes of calculating the net rescission damages due Ann & Hope, WAC's costs for printing the warranty cards plus the amount it paid for repairs under outstanding warranties were deducted from the amount Ann & Hope originally paid for warranty protection. Moreover, Ann & Hope was ordered to return to WAC the 12,039 warranty cards still in its possession. The net value of Ann & Hope's rescission award was $2,973,208.

The defendants argue that the remedy of rescission was improper in light of the fact that, because many of the warranty cards had already been sold, Ann & Hope was unable

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to return to WAC all it received under the contract. The defendants also maintain that the calculation of rescission damages was erroneous in any event, because the judge based the award on the full purchase price of all the warranties initially purchased from WAC, even though a significant number of those warranties had already expired by the date of trial. They claim that Ann & Hope was unjustly enriched by the award because it had already recouped most of its initial costs by the time of trial, either through its initial markup on warranties sold to consumers or the expiration of warranties on which no claims were ever submitted.

Rescission is an equitable remedy, and, whenever possible, the result should be to return the parties to the status quo ante. Schwartz v. Rose, 418 Mass. 41, 47 (1994). Accordingly, a plaintiff seeking rescission of a contract must generally "restore or offer to restore all that he received under [the contract]." Bellefeuille v. Medeiros, 335 Mass. 262, 266 (1957). See Jurewicz v. Jurewicz, 317 Mass. 512, 517 (1945). When complete restoration is impossible, however, the court may order "whatever conditions . . . justice and equity may require," J.C. Penney Co. v. Schulte Real Estate Co., 292 Mass. 42, 45 (1935), so long as the defendant's rights are protected. Bellefeuille v. Medeiros, supra at 266, citing Thomas v. Beals, 154 Mass. 51, 55 (1891). For instance, the value of the property not restored may be considered in determining the plaintiffs' damages. Nolan & Sartorio, Equitable Remedies s. 403, at 546 n.11 (2d ed. 1993). Bellefeuille v. Medeiros, supra at 266.

In this case, the fact that Ann & Hope was unable to return all that it received under the contract does not preclude equitable relief. See J.C. Penney Co. v. Schulte Real Estate Co., 292 Mass. at 45; Bellefeuille v. Medeiros, 335 Mass. at 266. Moreover, the defendants' rights were adequately protected by the fact that Ann & Hope's right to rescind the contract was contingent upon satisfaction of the careful conditions imposed by the judge, i.e., the return of the unused cards and reimbursement for all WAC's expenses incurred in its performance of the contract. Indeed, we think that the award fashioned by the judge was both equitable and proper in that it returned to each party the consideration it provided under the contract to the greatest extent possible, while completely protecting the defendants' rights. The defendants' argument

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to the contrary fails to take into account the fact that the judge could properly consider that any profit made by Ann & Hope as a result of its initial "mark up" on the warranty cards could be more than offset by Ann & Hope's ongoing liability under the outstanding warranties. [Note 10]

3. Calculation of damages pursuant to G. L. c. 93A. We turn now to the final question presented by this appeal: when a contract is ordered rescinded due to a wilful and knowing violation of c. 93A and net rescission damages are awarded, are those damages subject to multiplication under the statute?

The judge found that the defendants' actions, in addition to warranting rescission of the contract, constituted violations of G. L. c. 93A. She further concluded that Ann & Hope was entitled to recover the same amount in actual damages under c. 93A as it would otherwise have received as rescission damages ($2,973,208), and doubled the award due to the wilful nature of the defendants' conduct, for a total award of $5,946,416. See G. L. c. 93A, s. 11.

The defendants do not deny that their conduct constituted a knowing and wilful violation of G. L. c. 93A. Instead, they challenge the judge's calculation of statutory damages. [Note 11] They maintain that because the rescission damages awarded to Ann & Hope were in the nature of equitable relief rather than

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legal damages, they did not constitute actual damages and were therefore not subject to multiplication under c. 93A. [Note 12] We agree.

In determining that Ann & Hope's actual damages under c. 93A were equal to its net rescission damages, the judge relied on language from section 11, which provides that "the amount of actual damages . . . shall be the amount of the judgment on all claims arising out of the same and underlying transaction .... " [Note 13] G. L. c. 93A, s. 11, as inserted by St. 1989, c. 580, s. 2. She then doubled the award due to the defendants' wilful conduct. See ibid. In addition to the language relied upon by the judge, however, the statute further provides:

"Any person who engages in the conduct of any trade or commerce and who suffers any loss of money or property . . . as a result of . . . an unfair method of competition or an unfair or deceptive act or practice . . . may . . . bring an action . . . for damages and such equitable relief . . . as the court deems to be necessary and proper.

". . .

"If the court finds for the petitioner, recovery shall be in the amount of actual damages; or up to three, but not less than two, times such amount if the court finds that the use or employment of the . . . act or practice was a willful or knowing violation.... In addition, the court shall award such other equitable relief, including an injunction, as it deems to be necessary and proper."

G. L. c. 93A, s. 11, as inserted by St. 1972, c. 614, s. 2.

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"The statute clearly distinguishes between actual damages, which are subject to multiplication, and equitable relief." Schwartz v. Rose, 418 Mass. at 47. This distinction has been interpreted as precluding the use of rescission damages, which are equitable in nature, as the basis for calculating multiple damages under c. 93A. Ibid. [Note 14] In Schwartz v. Rose, supra, the Supreme Judicial Court affirmed a Superior Court judge's refusal to include the purchase price of a parcel of real estate in the amount of damages subject to multiplication under c. 93A, where the transaction was ordered rescinded. Schwartz v. Rose, supra at 42. The court reasoned that because return of the purchase price of the land was necessary to secure the rescission, it was not part of the "amount of the judgment" constituting actual damages and therefore not subject to multiplication under the statute. Id. at 47. The court further explained that, "[w]hen rescission is justified by a violation of c. 93A, the actual damages subject to multiplication consist of the losses suffered by the plaintiff because of the interruption in the status quo." [Note 15] Id. at 47-48.

Here, because the net rescission damages awarded to Ann & Hope were a necessary component of the equitable remedy of rescission, they did not constitute actual damages for purposes of c. 93A. Accordingly, they were not properly subject to multiplication. The fact that Ann & Hope's inability to return to WAC all that it received under the contract required calculation of a net damage award does not alter the equitable nature of the remedy granted. See Schwartz v. Rose, supra at 47 ("It is beyond question that rescission is an equitable remedy."). See also J.C. Penney Co. v. Schulte Real Estate Co., 292 Mass. at 45.

The proper measure of damages with respect to the c. 93A violation was the loss, if any, "suffered by the plaintiff[s] because of the interruption in the status quo." Schwartz v. Rose, 418 Mass. at 47-48. In order to be compensable, these damages must be separate and distinct from any losses for which Ann & Hope will be reimbursed as a result of the rescission. See Calimlim v. Foreign Car Center, Inc., 392 Mass. 228,

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235 (1984) (duplicative damages impermissible where the same acts cause the same injury under more than one theory of recovery). See also Schwartz v. Rose, supra at 48 (actual damages awarded under c. 93A in addition to rescission of transaction involving the sale of land); Multi Technology, Inc. v. Mitchell Mgmt. Sys., Inc., 25 Mass. App. Ct. 333, 337-338 (1988) (separate awards for breach of contract and violations of c. 93A deemed permissible).

Under these circumstances, there must be a remand to the Superior Court for a determination whether the plaintiffs have demonstrated actual damages under c. 93A that are separate and distinct from their net rescission damages. If the court determines that such damages have been established and that the defendants' conduct was wilful or knowing, the amount of damages may be multiplied pursuant to the statute and awarded to the plaintiffs in addition to the rescission remedy to which they are otherwise entitled.

The judgment on the warranty claim is affirmed on all counts as to liability. The damage award on the warranty claim is vacated, and a new award shall enter in the sum of $2,973,208. The matter is remanded to the Superior Court for the purpose of recalculating damages on the G. L. c. 93A count of the warranty claim only, all in accordance with the opinion of this court. All other aspects of the judgment are affirmed.

So ordered.