FORTUNA ONE REALTY, LLC v. ROBERT D. CHRISTMAS and another [Note 1]

PER CURIUM. The plaintiff, Fortuna One Realty, LLC ("Fortuna"), appeals from an order for the entry of judgment in its favor awarding costs and no damages. For the reasons set forth below, we reverse this order, vacate the judgment, and return the case to the Worcester District Court for a hearing on damages.

Fortuna filed a verified complaint alleging that the defendants, Robert D. Christmas and Susan Christmas (the "Christmases"), made intentional misrepresentations to induce Fortuna to enter into a written purchase and sale agreement (the "Agreement") to purchase a multi-unit apartment building in Worcester (the "Property"). More specifically, the Agreement, which includes multiple written riders and addenda, provided that the Christmases were to provide copies of all leases they had entered into with tenants at the Property. The Agreement also provided that there were no written or oral agreements between the Christmases and any of their tenants that were not set forth in those leases. In addition, the Christmases represented that there was a range and a refrigerator in each apartment; that these were fixtures owned by the Christmases; and that they would be transferred to Fortuna as part of the sale. The Christmases also represented that all of the tenants at the Property were paying monthly rent in amounts the defendants had provided to Fortuna in a written disclosure prior to the closing.

The Agreement contains several provisions that properly may be categorized as "integration clauses." That is, the parties stated that the Agreement was intended to be a final expression of their contract and there were no other terms that were not included in the Agreement. In addition, Fortuna acknowledged in writing that it was not influenced to enter into the transaction and that it had not relied upon any representations that were not set forth in the Agreement or previously made in writing.

In the Agreement, the parties stated that copies of fully executed leases between the Christmases and their tenants at the Property were to be delivered to Fortuna. For reasons that are not explained in the record below, this did not happen prior to the closing on the Property. Fortuna, however, went ahead with the transaction

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without a complete set of the leases.

According to the verified complaint, after Fortuna bought the Property it learned that a basement rental unit for which no lease had been provided was occupied by a family the defendants had temporarily placed there and that the defendants had promised that this family would be relocated to another unit. When Fortuna learned of this oral commitment, it refused to relocate the family as the Christmases had promised. The family stopped paying rent, and Fortuna filed a summary process action for nonpayment. Fortuna asserted that this forced it to incur $220 for "constable costs." Fortuna also asserts that the family damaged the basement unit while the summary process matter was pending and that Fortuna had to expend $1,900 to repair this damage.

In addition, after Fortuna bought the Property, it discovered that the refrigerator in one unit was not owned by the defendants, but was owned by the tenant. Fortuna alleged that the value of the refrigerator was $1,000 and that it did not receive the benefit of its bargain. The Christmases had not provided Fortuna a copy of the lease for this unit prior to the sale of the Property.

Fortuna also alleged that the Christmases had represented that one tenant was paying $900 per month in rent. Once again, Fortuna had not received a copy of the lease for this unit before the closing. After the closing, Fortuna learned that the tenant had been paying only $825 monthly rent. Fortuna subsequently raised the rent on that unit to $900, but lost $300 in rent before that happened.

Finally, in its verified complaint Fortuna also asserted that the defendants represented that the same tenant had not paid a security deposit. After Fortuna purchased the property, it learned that the tenant in that unit had paid the Christmases a security deposit of $825. This money was not transferred to Fortuna by the Christmases when the Property was sold. Once again, Fortuna did not receive a copy of the lease for this unit prior to its purchase of the Property.

In its verified complaint, Fortuna alleged six causes of action: intentional misrepresentation; negligent misrepresentation; breach of contract; money had and received; a violation of the Massachusetts security deposit law; and an unfair and deceptive business practice. Service was made upon the defendants, but the defendants did not file a responsive pleading, resulting in the entry of default pursuant to Mass. R. Civ. P. 55(a). Fortuna filed a request for default judgment and a request for a hearing on damages at which it relied solely on its verified complaint and an unsworn "statement of damages."

Based on these pleadings, Fortuna asked the court to award it $5,972.50 on its claims of intentional misrepresentation, negligent misrepresentation, breach of contract, and money had and received. It asked the court to award damages of three times the security deposit (a total of $2,475) and $27.50 in interest. Fortuna also requested entry of judgment under the Massachusetts consumer protection act for treble damages and attorney's fees, costs, and interest.

In a written decision, the judge who presided over the hearing on damages took particular note of the fact that the Christmases did not provide Fortuna with copies of the residential leases they had for the units that subsequently proved problematic. The judge found that because the Christmases did not provide Fortuna with copies of these leases, no representations regarding any terms of those leases could be the basis for a breach of contract claim or a claim of misrepresentation. He held that as

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a matter of law the plaintiff was not entitled to damages on any of its causes of action. Consequently, he ordered that judgment enter in favor of Fortuna, but for costs only.

As Fortuna points out, generally, a plaintiff's factual allegations in its complaint are taken as true for the purpose of determining judgment on liability after a default. A defendant who has been defaulted, however, does not thereby concede that the plaintiff has a viable cause of action. The judge must determine whether the factual allegations of the complaint are sufficient to establish a right of recovery. Pursuant to Mass. R. Civ. P. 55(b)(2), an actual hearing is not required on every request for default judgment to which the rule applies, but if it is necessary to determine the amount of damages or establish the truth of any claim by evidence, the court may conduct a hearing as it deems necessary and proper. Multi Tech., Inc. v. Mitchell Mgt. Sys., Inc., 25 Mass. App. Ct. 333 (1988).

In this case, the judge held a hearing and determined that no damages were warranted because the parties were bound by the written Agreement, and that Agreement did not include the leases that formed the basis for the damages request. It is true that the plaintiffs can only recover damages on the breach of contract and misrepresentation claims based on what is contained in the Agreement. However, only some of Fortuna's claims are based on oral representations not included in the Agreement. The Fortunas are entitled to damages on the claims based on the Agreement and other writings attached thereto, and the claim based on a violation of the security deposit law.

For example, the Agreement provided that each unit came with a refrigerator and a range that were owned by the Christmases and were part of the sale to Fortuna. According to the verified complaint, in one apartment this was not the case. This allegation supports a claim of breach of contract and allows for damages. Additionally, although copies of leases for all the units were not provided, the Christmases provided written representations with regard to rents their tenants were paying and security deposits that had been collected. These writings may serve as the basis for claims of misrepresentation, breach of contract, etc. and also allow for damages.

Finally, the Fortunas allege a cause of action for failure to comply with the strict dictates of the security deposit law pursuant to G.L. c. 186, § 15B. If the Christmases held security deposits paid to them by tenants, they had an obligation to turn these over to Fortuna on the sale of the Property pursuant to the statute, whether mentioned in the Agreement or not.

For these reasons, we reverse the order that judgment enter for costs, vacate the judgment that entered, and return the case to the Worcester District Court for a hearing on damages, consistent with this opinion and with notice to the parties.

So ordered.