Home HRI SERVICES, INC. vs. LSZ, INC. and others [Note 1]

2016 Mass. App. Div. 53

July 31, 2015 - May 6, 2016

Appellate Division Southern District

Court Below: District Court, Dedham Division

Present: Hand, P.J., Welch & Kirkman, JJ.

Richard F. McCarthy for the plaintiff.

Richard F. Dionisi, Jr., and Michelle J. Blair, for defendants Simmons and Zagami.

WELCH, J. The plaintiff, HRI Services, Inc. (“HRI”), comes before us seeking reversal of the judgment of the trial court that the actions of the defendants, Steven Simmons (“Simmons”) and Thomas Zagami (“Zagami”), did not violate G.L. c. 93A, § 11. [Note 2] HRI contends that the behavior of Simmons and Zagami was so egregious that for the trial judge to have found no violation of G.L. c. 93A, § 11, was the equivalent of the court’s “turn[ing] a blind eye to proper business ethics.”

HRI provides brokerage services to owners of restaurants seeking to buy or sell a business. Simmons and Zagami are the corporate officers of LSZ, Inc., doing business as Medfield Seafood. Simmons and Zagami engaged HRI as a broker to sell their seafood business. The agreement was memorialized in a contract. The undisputed terms of the contract included HRI’s agreement to render services to secure a buyer and LSZ, Inc.’s promise to pay a commission of, at a minimum, $10,000.00 if the business were sold or traded within six months. The parties also agreed that LSZ, Inc. would pay $10,000.00 to HRI if, within twelve months following the termination of the agreement, the business were sold to a person introduced to LSZ, Inc. through HRI.

Undertaking the task of finding a buyer, HRI contacted William Saro (“Saro”), who operated a business named, “The Fresh Catch.” HRI made the introductions between Saro and Simmons and Zagami, resulting in an offer from Saro in June, 2009, to purchase the business for $100,000.00. Simmons and Zagami refused the offer, and Saro walked away from the deal (although, as we shall see, he did not walk far).

Page 54

After the Saro negotiations seemingly concluded, HRI caught wind of Saro possibly having purchased the business from Simmons and Zagami. HRI contacted Zagami regarding the rumor. Zagami answered the telephone call and said he would call HRI back (claiming he had just been in an accident in a tunnel and could not talk); Zagami never returned the telephone call. Upon further investigation, HRI confirmed that after the initial meeting arranged by HRI between Saro and Simmons and Zagami, Saro met with Simmons and Zagami and purchased the business for the original $100,000.00 offer. The closing occurred in September, 2009, well within the time frame in the contract where HRI would be paid a commission of $10,000.00 for introducing the parties. It does not require a great deal of intellectual or creative effort to see what transpired between Saro and Simmons and Zagami. As previously noted, initially Saro would not budge on the offering price and Simmons and Zagami wanted more for the property. Without the broker’s fee, Saro was able to purchase the property for the original $100,000.00 offer and Simmons and Zagami captured the full $100,000.00 without a deduction for a broker’s fee, which would have left them with only $90,000.00.

In furtherance of the scheme, Simmons and Zagami misrepresented the attested disbursement amounts during the closing. The HUD settlement statement listed a broker’s fee in the inexplicable amount of $7,000.00, which was never paid to HRI (and which would have left a balance of $3,000.00). [Note 3] As to the trial testimony regarding the closing and disbursement of funds, Zagami’s responses to questions consisted of a pattern of possibilities, maybes, and failures to recall. Notwithstanding Zagami’s vagueness and memory issues, the undisputed facts are that Simmons and Zagami knew they owed the commission, at the time of the closing had the ability to make the payment, and chose not to pay the commission in order to save $10,000.00. Simmons and Zagami offered no excuse or justification, only misdirection and mendacity. The issue presented is whether the trial judge, as a matter of law, erred in finding there was no violation of G.L. c. 93A, § 11.

Whether conduct is unfair or deceptive under G.L. c. 93A is a mixed question of law and fact. See Schwanbeck v. Federal Mogul Corp., 31 Mass. App. Ct. 390, 414 (1991), S.C., 412 Mass. 703 (1992) (“Although whether a particular set of acts, in their factual setting, is unfair or deceptive is a question of fact, . . . the boundaries of what may qualify for consideration as a c. 93A violation is a question of law” [citations omitted]). We review the judge’s subsidiary findings of fact under the clearly erroneous standard, while reviewing de novo his ultimate conclusion of law. See Diamond Crystal Brands, Inc. v. Backleaf, LLC, 60 Mass. App. Ct. 502, 507-508 (2004). See also R.W. Granger & Sons, Inc. v. J & S Insulation, Inc., 435 Mass. 66, 73 (2001). [Note 4]

Page 55

Under G.L. c. 93A, it is an accepted maxim that in the § 11 context of business-to-business relationships, the conduct of the defendant will be judged by a higher standard of what constitutes unfair or deceptive conduct than in the consumer-to-business context under § 9. See Madan v. Royal Indem. Co., 26 Mass. App. Ct. 756, 763 n.7 (1989). Although a mere breach or nonpayment of a debt will not establish liability under § 11, Community Bldrs., Inc. v. Indian Motocycle Assocs., Inc., 44 Mass. App. Ct. 537, 559 (1998) (nonpayment of debt); Madan, supra at 762 (breach of lease), “conduct ‘in disregard of known contractual arrangements’ and intended to secure benefits for the breaching party constitutes an unfair act or practice for c. 93A purposes.” Anthony’s Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 474 (1991), quoting Wang Lab. Inc. v. Business Incentives, Inc., 398 Mass. 854, 857 (1986). In considering whether a particular act or practice violates the unfairness prong of G.L. c. 93A, courts “look to ‘(1) whether the practice . . . is within at least the penumbra of some common law, statutory or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; [and] (3) whether it causes substantial injury to consumers (or competitors or other businessmen).’” Massachusetts Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 552 F.3d 47, 69 (1st Cir. 2009), quoting PMP Assocs., Inc. v. Globe Newspaper Co., 366 Mass. 593, 596 (1975). [Note 5]

The trial court found that “[e]ven if the two non corporate defendant’s [sic] [Simmons and Zagami] had deliberately breached the broker’s contract,” such acts did “not constitute a tortuous [sic] act under 93A, § 11.” The decision goes on to reference the applicable standard to apply in determining whether particular acts are unfair in a business-to-business context as “much higher (or lower standard) for conduct than for consumer transactions.” [Note 6] The ruling appears to describe the more robust standard of review between actions in the business-to-business versus consumer contexts.

We examine the court’s legal conclusion anew. These not so artful dodgers, Simmons and Zagami, attempted to save a quick $10,000.00 in selling the business without honoring their undeniable obligation to HRI to pay at least $10,000.00 for

Page 56

brokerage services rendered. In furtherance of their misdeeds, they provided false information on a HUD settlement statement (as everyone at the closing was a coconspirator, there were no objections). When initially confronted, Zagami claimed he was involved in an accident in a tunnel rendering him unable to speak or ever return HRI’s calls. Simmons and Zagami’s actions resulted in a substantial loss to HRI of $10,000.00. The actions of Simmons and Zagami go beyond a mere breach of contract and exhibit the kind of unscrupulous behavior G.L. c. 93A, § 11, was designed to sanction.

Respectfully, we reverse the judgment of the trial court and conclude that the actions of Simmons and Zagami constituted a knowing and wilful violation of G.L. c. 93A, § 11. We return the matter to the trial court for a hearing on damages consistent with this opinion.


[Note 1] Steven Simmons and Thomas Zagami.

[Note 2] For purposes of procedural context, HRI brought suit against LSZ, Inc. for breach of contract, and against Simmons and Zagami for violation of G.L. c. 93A, § 11. Summary judgment was entered against LSZ, Inc. for breach of contract, and the case proceeded to trial against Simmons and Zagami, individually, for breach of G.L.c. 93A. The decision by the trial court included a section addressing the “piercing of the corporate veil.” The trial court found that the corporation would not be pierced and that Simmons and Zagami did not violate G.L. c. 93A,

§ 11. This appeal is limited to the sole issue of whether the trial judge, as a matter of law, was incorrect in the determination that no violation of G.L. c. 93A occurred.

[Note 3] The HUD settlement statement, which Simmons and Zagami signed, stated that as to the figures in the statement: “I have carefully reviewed the HUD-1 Settlement Statement and to the best of my knowledge and belief, it is a true and accurate statement of all receipts and disbursements made on my account or by me in this transaction.” As the settlement statement reflected a disbursement, albeit $3,000.00 less, to HRI and the disbursement was not made, the HUD statement is false.

[Note 4] There is no dispute regarding the findings of fact, which were adopted in the decision by reference to the requests for findings and rulings filed by HRI. The requests for findings were not made part of the record.

[Note 5] In the past, trial judges were to assess the “level of rascality” and “rancid flavor of unfairness” of the offending party to determine whether an unfair or deceptive action had occurred. Massachusetts Employers Ins. Exch. v. Propac-Mass, Inc., 420 Mass. 39, 43 (1995), quoting Levings v. Forbes & Wallace, Inc., 8 Mass. App. Ct. 498, 504 (1979), and Atkinson v. Rosenthal, 33 Mass. App. Ct. 219, 226 (1992). These phrases are now viewed as uninstructive in resolving questions of unfairness under G.L. c. 93A, § 11. Id. Instead, the focus should be on “the nature of challenged conduct and on the purpose and effect of that conduct.” Id.

[Note 6] “[C]orporate officers are personally liable for any tortious activity in which they personally participate.” Frontier Mgt. Co. v. Balboa Ins. Co., 658 F. Supp. 987, 991 (D. Mass. 1986), citing LaClair v. Silberline Mfg. Co., 379 Mass. 21, 29 (1979). Officers are “liable for their participation in unfair and deceptive practices,” including practices that violate G.L. c. 93A. Nader v. Citron, 372 Mass. 96, 103 (1977). Although not clearly articulated in the decision, it is reasonable to infer that within the decision not to find a violation of G.L. c. 93A, § 11, on the evidence as presented, the trial judge recognized that if the facts had so warranted, the corporate officers would be held individually liable for their conduct under G.L. c. 93A.