Plaintiff Analogic Corporation (Analogic), a former tenant at the 20 Computer Drive facility in Haverhill then-owned by defendant Richs Enterprise Realty Trust (the Trust), [Note 2] brought this action seeking a declaration that its lease expired on April 30, 2005, that it surrendered the facility to the Trust on or before that date in a rentable condition and in accordance with the lease and the requests of the Trust, and that it had no further financial or other obligations to the Trust. In addition, it sought the return of its $109,958.33 security deposit and the $14,152.19 May 2005 real estate tax payment it previously had advanced to the Trust, [Note 3] alleging that the Trusts refusal to return those sums was a breach of contract, unlawful conversion, unjust enrichment, and in violation of G.L. c. 93A, § 11, entitling Analogic to multiple damages and attorneys fees. [Note 4]
The Trust denied these claims and counterclaimed for additional rent (the months of May and June, 2005), additional management fees (for the same two months), and compensation for damage to the facility (an issue related to the epoxy floor installed by Analogic and Analogics removal of its security system, discussed more fully below). [Note 5] Analogics denial of liability for such sums and consequent refusal to pay them was alleged to be in violation of G.L. c. 93A, § 11, for which multiple damages and attorneys fees were sought.
Since at least some of these claims were outside the jurisdiction of the Land Court (e.g. the alleged violations of G.L. c. 93A [Note 6]), I sought and received an interdepartmental assignment as a Justice of the Superior Court to hear and decide those claims. Order of Transfer and Assignment (Mulligan, CJAM). (Aug. 9, 2006). All aspects of the case were thus before me.
The lease, which began April 17, 2002, allowed for termination April 30, 2005 if notice and payment of $317,187.50 were received by the Trust no later than July 15, 2004. Analogic sent such notice and payment in timely fashion but mistakenly stated that its term would end May 31, 2005. [Note 7] Analogic thus moved for partial summary judgment that its termination letter, despite this mistake, was nonetheless valid to give notice that the lease term would end effective April 30, 2005. The Trust did not contest this when the motion was argued, clarifying that its claim to additional rent and fees was limited to the months of May and June 2005 and based solely on after-term holdover, either under the holdover provisions of the lease (Net Lease § 3, ¶ 3, (Apr. 17, 2002)) or the common law. Analogics motion was thus allowed. [Note 8] Its Mass. R. Civ. P. 11 request for attorneys fees related to that motion, however, was denied. [Note 9]
The remaining issues in the case were tried before me, jury-waived. Based upon the testimony and exhibits admitted into evidence at trial, my assessment of the credibility, weight and inferences to be drawn from that evidence, and as more fully set forth below, I find and rule as follows.
These are the facts as I find them after trial.
Analogic, a corporation based in Peabody, designs and builds imaging equipment for use in medical and security applications. In the aftermath of the September 11, 2001 terrorist attacks it received an order from the United States government for approximately 500 CT (computed tomography) machines to scan checked baggage at the nations airports an order too large to fill from its existing production lines. Accordingly, in April 2002, it began seeking additional space to manufacture those machines.
The Trust was the then-owner of the facility at 20 Computer Drive in Haverhill a 203,000 square-foot, single-story, open-floor warehouse and annex, previously used as a warehouse/distribution center by Richs Department Stores and, most recently, by Lucent Technologies. Lucent had moved out and the facility was immediately available. With system upgrades and other improvements, its space could be converted to a manufacturing facility suitable for Analogics needs. Analogic and the Trust thus began negotiations for its rental. In rapid succession, counsel were retained, lease drafts were prepared, those drafts were marked-up, discussed, and exchanged again, and the process culminated in a written Net Lease Agreement dated April 17, 2002 (the Net Lease).
The Net Lease was lengthy and detailed, but its relevant provisions can be summarized briefly as follows.
* The term was for three years (April 17, 2002-April 30, 2005), automatically extended for a fourth year unless a notice of termination, accompanied by a payment of $317,187.50, was delivered by July 15, 2004. There were also options for further extensions.
After the lease was signed, the Trust contacted Analogic and requested an additional provision one it claimed it had inadvertently neglected to raise during negotiations and omitted from the lease drafts exchanged by the parties. This was a $25,000 per year management fee. [Note 22] Analogic agreed to this and, over the three years it occupied the facility, paid $75,000 over and above its rental obligations in the lease itself.
From April 17-June 30, 2002, to prepare the building for the manufacture of CT machines, Analogic made a series of upgrades and improvements. These included the installation of parabolic lighting, 4000 amp electrical wiring, dropped ceilings, 400 tons and 30 commercial units of HVAC (heating, ventilating and air conditioning) to supplement the existing system, a telephone and data system, overhead crane beams, improved employee bathrooms, fire sprinklers and alarms, partition walls and office renovations. Analogic also installed a card-reader security system to identify people who went through doors, custom-configured for its security needs. [Note 23]
For cleanliness and maintenance purposes, Analogic also needed a better floor. The existing floor was bare concrete with bolt holes, scars, imperfections and blemishes, and its clear polyurethane coating was loose and peeling. However fine for a warehouse, it was not suitable for the manufacture of sensitive CT machines. [Note 24] Analogic thus contracted for the installation of an epoxy floor. This encountered problems. The Trust had not disclosed the high degree of moisture in the concrete floor and such moisture, depending upon its degree, could affect the epoxy surface. Analogic thus installed a moisture barrier over the concrete. Even with this barrier, however, minor bubbling and occasional cracks occurred in limited areas from time to time, which Analogic addressed by cutting out the affected flooring and re-coating with new epoxy. The areas repaired were visually obvious, but only that. They performed functionally the same as the other areas of the floor. The Trust observed all this on an on-going basis and raised no objections. In particular, it was aware of the issues with the epoxy floor and the need for occasional repair.
All told, the upgrades and improvements cost Analogic nearly $8,000,000, and the Trust was pleased with the vastly improved appearance and functionality of the facility. What formerly had been a drab, poorly lighted and poorly heated warehouse had now, at no expense to the Trust, been transformed into Class-A manufacturing space.
At the time it leased the facility, Analogic was hopeful it would receive additional orders for baggage-scanning machines. As it turned out, however, there were no further orders and, as early as May 2004, the Trust was aware that Analogic would be leaving at the end of the third year. The Trust thus hired a marketing representative who began work immediately to find a new tenant. By letter dated July 9, 2004, the Trust informed Analogic that it wanted to keep all the upgrades and improvements Analogic had made. Indeed, Analogics renovations, described as having created a dramatic manufacturing area, were a major selling point in the Trusts marketing materials. [Note 25]
On July 12, 2004, Analogic sent the Trust its formal notice opting out of the fourth year of the lease, including the termination payment of $317,187.50. Although the letter mistakenly stated that the lease would terminate May 31, 2005, the error did not operate to extend the lease term beyond the end of the 36th month (April 30, 2005). Memorandum and Order on Plaintiff Analogic Corporations Motion for Partial Summary Judgment (Oct. 23, 2007).
The Trust concedes that Analogics July 12, 2004 letter was proper notice of the termination of the lease term as of April 30, 2005 despite the mistaken May 31, 2005 date in the body of the letter. Id. It contends, however, that the May 31 date legally obligated Analogic to holdover rent for that extra month, and that it interpreted and relied on it as such. I do not find this credible, for at least two reasons.
First, the letter states that it is the termination election notice pursuant to which the Term of the lease shall end (emphasis added, capital T in original). Term (capital T) is defined in the Net Lease as the period commencing on the Commencement Date and ending on the last day in the 36th full month in which the Commencement Date occurs [i.e. April 30, 2005] subject to automatic one (1) year extension unless timely termination notice and payment is given Net Lease, § 1(d) (emphasis added). The word holdover does not appear anywhere in Analogics July 12 letter. Rather, as any fair reading makes plain, the letter is solely and exclusively Analogics notice that it is opting out of the one-year automatic extension of the lease Term. Its mistaken use of the May 31 date did not change the intent or the legal effect of the notice. It was sent and intended to give notice of the opt-out and thus the end of the lease on the last day in the 36th full month and, for the reasons set forth below, its legal effect was to do that and nothing more.
Second (and the reason why the July 2004 letter had no legal effect beyond giving notice of the opt-out and consequent end of the lease Term on April 30, 2005), holdover is a two-way street. As the lease provides, having given notice that it was opting out of the automatic one-year extension, Analogic could only remain at the facility beyond the end of its Term (April 30, 2005) with the Trusts sufferance. Net Lease, § 3 (emphasis added). [Note 26] Analogic could not unilaterally decide it could stay another month, certainly not without risk, and thus would never assume that the simple sending of that letter entitled it to stay. Based on the evidence at trial, I find that the Trust and its lawyers knew this and thus knew that a response (yes or no) was both expected and necessary if a holdover truly was at issue. Analogic and the Trust were both sophisticated commercial parties, represented by sophisticated counsel, with a major manufacturing operation and over $100,000 in monthly rent and other charges at stake Had the Trust truly considered the July 2004 letter to be a request for a one-month holdover, it would immediately have communicated that understanding to Analogic and then memorialized the agreement in writing. It did neither. For those same reasons, I find the Trusts alternate contention that the letter was a lease amendment equally not believable. Again, any amendment would have required mutual assent and been negotiated and put in a detailed, signed writing. [Note 27]
To the extent the Trust has any tort-based claims based on the mistaken May 31 date in Analogics July 2004 letter, these fail as well. For the reasons set forth above, the Trust could not (and, I find, did not) reasonably rely on that letter as promising a one-month holdover or extension of the lease. Moreover, the Trust did not suffer any consequent damage. It did not have a tenant, or even any prospect of a tenant, ready, willing and able to take occupancy on May 1, 2005. The rental market was soft and, despite the Trusts best efforts, it did not have a tenant for any space in the facility until Middleton Aerospace signed a lease for half of it on March 30, 2006. In short, I find the Trusts contentions on these points to be after the fact pretexts, made by the Trust in an effort to justify its retention of the security deposit.
The events surrounding Analogics advance of a tax payment for May, 2005 do not change this. On March 17, 2005, the Trust sent Analogic a demand for payment of the facilitys tax bill for the quarter April-June, 2005, a total of $42,246.62 ($14,152.19 per month). [Note 28] In response, on March 22, 2005, Analogic sent payment of $28,304.40 $14,152.19 for the month of April and the same amount for May. This was done under its Chief Financial Officers then still-mistaken belief that the formal lease term ended May 31 rather than April 30. [Note 29] This letter and check, however, had no legal significance to hold over or extend the lease term (see the discussion above). In any event, the mistake was caught almost immediately and brought to the Trusts attention on April 7, 2005 [Note 30] and again on April 28, [Note 31] both before the April 30 end of Term. The Trust was not mislead, and certainly not to its detriment. [Note 32] A formal end-of-lease walk through of the facility occurred on April 28 attended by three representatives of the Trust and four from Analogic, and Analogic confirmed by letter the next day (April 29) that it would be vacating the facility on or before 30 April 2005. [Note 33] (bold in original). By still another letter that same day (April 29), Analogic again stated that it will have vacated the Premises by April 30 and requested (1) return of its $109,958.33 security deposit, and (2) return of the $14,152.12 May 2005 tax payment it had advanced. [Note 34]
The return of the security deposit had been under discussion since early April. The lawyer conducting negotiations on behalf of the Trust (JoAnn Marzullo) told Analogic that John Hancock, the Trusts mortgage lender, was holding the security deposit, had interpreted Analogics July 14, 2004 letter as a lease extension through May 31, and would not return the deposit unless a full May rental payment was made. This was false. John Hancock never held the security deposit provided by Analogic to the Trust. Stipulations of Fact (Nov. 24, 2008). Moreover, no employee or agent of John Hancock ever told or otherwise indicated to Ms. Marzullo an unwillingness or a hesitancy to return Analogics security deposit, or portions thereof, without being paid additional rent. Id.
During an early April walk-through, [Note 35] the parties discussed an approximately 20 foot by 20 foot area of the epoxy floor that was flaking. This was primarily a visual issue. It had not interfered with or affected Analogics manufacturing operations in any way. Nonetheless, Analogic offered to cut away the epoxy in a square, remove it, and repaint the exposed concrete floor the same color as the surrounding epoxy. The Trusts representative, Allan Roscoe, agreed that Analogic could do this if it wanted, and the repair was subsequently done. The repaired floor remained completely functional for clean manufacturing and other purposes and, as Mr. Roscoe conceded, was not only acceptable but looked fine. [Note 36] This acceptance included not only the repaired area, but also the other portions of the floor that had bubbling or flaking. [Note 37]
During the April 28 walk-through, Analogic gave the Trust a key to the facility. [Note 38] The Trust later claimed that this was only a partial key (one that gave access to only part of the facility, not all) but I do not find this credible. The key was a master key used by a senior Analogic director; it came with the statement that this key opens everything; it opened every door in the facility except for the offices used by the plant managers; [Note 39] and the Trust representative to whom it was given (Mr. Roscoe), who at first claimed it would not open the main inside door, admitted when questioned further that he had never tried the key on that door. I thus find that, by April 28 at the latest, Analogic gave the Trust full access to the facility to use in any way and any time it pleased. I further find that the Trust freely came and went to the facility at any time it chose from and after April 28.
By April 28, Analogic had ceased all operations and removed all of its equipment from the facility. This included its card-reader security system, which it was entitled to remove under the terms of the lease. [Note 40] Only a few supplies remained, consisting of some paints, a gas cylinder and some paper goods. These were in a small corner of the annex (not the main building), occupied no more than twenty to forty square feet, [Note 41] and could easily have been removed at any time. Mr. Roscoe, for the Trust, indicated that they could remain past the April 30 date and did not change his mind until May 5 when he asked Analogic to remove them. Analogic did so that same day.
There were also minor punch-list-type items to address in connection with the turn-over, which I find to be typical and expected in such situations. Analogic had taken its portable fire extinguishers when it left the facility. The Trust claimed that others had been there at the time the lease began and wanted a full complement restored. It was unclear whether the extinguishers left by the Trust were actually functional, but Analogic did not argue and immediately put replacements in the facility. There were small holes in a wall, missed during the April 28 walk-through, which were brought to Analogics attention and promptly repaired. Internal lock cores were removed and replaced. A few ceiling tiles were replaced. The electrical system was tested and confirmed to be in good working order. Telephone and fire/intruder alarm lines were switched over.
The Trust requested an inspection of the HVAC system, which was done. The inspection confirmed that the system was fully operational, but identified a number of minor, maintenance-type issues. See Trial Ex. 57. I find that the problems identified were the result of normal wear and tear. Regardless, Analogic agreed to have them addressed and paid a contractor approximately $3,900 to do so. This maintenance work took no more than two days total, occurred primarily on the roof, was fully completed by May 31, and did not interfere in any way with the use of the facility.
With the exception of those performing the minor repairs requested, all Analogic employees and security guards were gone by April 30. Trust employees were trained on the environmental system computer controls. With the exception of the last of the work on the HVAC system (completed by May 31), most of this was done by April 30 and the rest within days thereafter. None of these activities interfered with the transfer of the building or its availability for occupancy by a new tenant. There was, in fact, no new tenant. The Trust initially complained about Analogics removal of the card-reader security system, but had no right to do so and never had it replaced.
Over the course of the year after Analogic left the building, the Trust made various repairs to the epoxy floor. These were in small, limited areas where the floor was bubbling or experiencing minor cracks. None made the facility unrentable or affected its use as a warehouse, distribution center or manufacturing facility. All were within the range of normal wear and tear to be expected from this type of floor in this type of facility.
Analogic sent letters to the Trust on April 29 and June 16, 2005 requesting the return of its security deposit and May tax advance. No response was received until June 30, 2005 when the Trusts law firm wrote to Analogic. In that letter, the Trust not only refused to return the security deposit and taxes but insisted on payment of an additional $139,881.37 as rent for the months of May and June, management fees for May and June, June taxes, and $20,000 for a new computerized security system. Three reasons were given in support of this demand. The first, now withdrawn, was that the mistaken date in Analogics July 12, 2004 letter had extended the lease term to May 31, 2005. The second was that Analogic, by storing materials on-site and continuing repair activities, did not surrender the premises until June 2, 2005 at the earliest and thus was liable for rent and associated tax and management charges through the end of that month (the holdover theory). The third was an assertion that, by removing the card-reader security system, Analogic had not surrendered the facility in rentable condition. No mention was made of any problems with the flooring or other aspects of the building. Analogic denied these claims, and this lawsuit followed.
Additional facts are set forth in the analysis section below.
As noted above, the lease requires the return of Analogics security deposit at the end of the lease term except for such sums, if any, necessary to compensate the Trust for any breaches of the lease. Net Lease, § 32. These breaches are asserted to be (1) the removal of the card-reader security system, (2) the failure to pay holdover rent and pro-rated management fees for the months of May and June, 2005, (3) the failure to pay taxes for the month of June and, in an issue now raised in this lawsuit although never mentioned in the Trusts June 30, 2005 demand letter, (4) an allegedly inadequate repair of the epoxy floor (the cut-out and paint-over of the 20 x 20 area rather than its re-epoxy and, presumably, the failure to address whatever bubbles, flaking and cracks might exist in that floor elsewhere, to whatever degree.).
The return of Analogics tax payment for May, and its liability for a tax payment for June, depend upon whether it was a holdover tenant those months. Analogics liability for May and June rent, plus associated management fees, likewise depends upon whether it was a holdover tenant. The issues of the card-reader security system and the epoxy floor are determined by the lease and the parties statements and conduct. The question of G.L. c. 93A liability ties directly into these issues. I thus address each in turn.
The Card-Reader Security System
I begin with Analogics removal of its card-reader security system at the time it left the facility. As the lease makes plain, Analogic had no obligation to leave it behind and no obligation to replace it. The Trust thus had no right to withhold any part of Analogics security deposit for this reason.
Under the terms of the lease, Analogic had the full, unrestricted right to remove its trade fixtures and personal property from the facility, with the sole exception of Building Systems as the lease defined that term. Net Lease, § 11. The security system was clearly Analogics trade fixture and personal property. Analogic installed it at its own expense. The Trust made no contribution towards its cost, nor adjust the rent in any way based on whether the system was there or not. The security system was chosen to meet Analogics needs, particularly the requirement for high security associated with the manufacture of airport security scanners in the wake of the September 11 terrorist attacks. It mirrored the ones used at Analogics other facilities, and its keys operated the same way. It was programmed to recognize and admit only those persons Analogic authorized, and was placed on both outer and inner doors.
Moreover, it was specifically excluded from the Building Systems that were required to be left behind. The Trusts initial lease draft defined Building Systems as including the HVAC, mechanical, electrical, security, sprinkler and plumbing systems contained in and on the Premises. Trial Ex. 109, § 8 (emphasis added). The word security was stricken from that draft by Analogic (Tr. Ex. 109) and never appeared again. The definition in the final lease was thus electrical, mechanical, sprinkler, plumbing and heating, ventilating and air conditioning systems. Net Lease, § 8.
With this right of removal, Analogics only obligation was to restore the Premises to the condition as of the Commencement Date, reasonable wear and tear and damage by fire or other casualty excepted. Net Lease, § 8. This was done with the replacement of the lock cores. Tellingly, the Trust never replaced the card-reader with a similar system. Analogic thus has no liability to the Trust related to the card-reader security system, and the Trust had no right to withhold any part of the security deposit because of its removal.
The Epoxy Floor
The issue of the epoxy floor is also easily addressed. The Trust was fully aware of the floor at the time it was installed and raised no objections. Indeed, the epoxy floor significantly improved the appearance and functionality of the space, making it cleaner and brighter. The problems it experienced minor bubbling and flaking could not be avoided in this facility with its high moisture content in the underlying concrete and the advantages of the epoxy far outweighed these minor issues. The Trust was fully aware of the epoxy-related issues from the visits of its representatives throughout the term of the lease.
Both the condition of the floor and the repairs made by Analogic were found acceptable (indeed, fine) by the Trusts representatives at the time of the end-of-lease walk-throughs. They did not make the facility unrentable nor affect its functionality. Even the visual effect was minor small areas in a facility of over 200,000 square feet. There was no evidence, and certainly none persuasive, that the condition of the floor discouraged any prospective tenant or measurably affected either its rent or sale price. The minor amount of bubbling and cracking that occurred was well within the ordinary wear and tear contemplated by the lease terms. Net Lease, § 27.
The Alleged Holdover and Associated Claims
As noted above, Analogics July 12, 2004 letter and March 22, 2005 letter and May tax payment could not and did not constitute a holdover or extend the lease term beyond April 30, 2005. Nor could the Trust justifiably have relied on their doing so. The Trust was on clear notice, well in advance of April 30, 2005, that Analogic would be leaving the facility no later than April 30.
The question thus becomes whether any of Analogics post-April 30 activities, singly or cumulatively, constitute a hold over after that date. I find that they do not.
All of Analogics manufacturing equipment, all of its office equipment, all of its vehicles, all of its personnel, and all of its trade fixtures were gone by April 30. The almost $8,000,000 in improvements left behind (new wiring, new lighting, new dropped ceiling, new HVAC, new floor, overhead crane beams, etc.) were left behind at the Trusts request. Full-access keys were provided to the Trust. Lock cores were arranged for change. What telephone service remained was left (at the Trusts request) to enable a smooth transition to the Trusts telephones and intruder/fire alarms. The facility was broom-clean, and all personal property removed except for a small 20 to 40 square foot area in the annex where a few remaining supplies had been stacked. These were intended to be there a short time only, and remained beyond April 30 with the Trusts (Allan Roscoes) approval. When Mr. Roscoe changed his mind on May 5 and asked that they be taken away, they were removed in their entirety that same day. All of the repairs that were requested by the Trust prior to April 30 were completed by April 30 a few damaged ceiling tiles, an overhead door apparently brushed by a forklift, scattered holes in the walls, and the cut-out, smoothing and repainting of the 20 by 20 foot section of the epoxy floor. At the Trusts request, Analogic left behind the PC that controlled the HVAC system and trained the Trust in its use. The end-of-lease term walk-through had taken place, and the Trust had given the facility its blessing. Trial Exs. 51, 53.
Thereafter, the Trust noticed two additional small holes in a wall and another damaged ceiling tile, which promptly were repaired. An electrical inspection was performed, and the system was found to be in safe and excellent working condition. A full complement of fire extinguishers was placed in the facility by May 5, with no argument from Analogic as to whether it was required to do so or not.
A tenant must be deemed in possession of the premises to incur hold over liability. See n. 18, supra. Where, as here, hold over is alleged to have occurred as a result of items left on the premises after the end of term, the question is one of fact, to be determined by taking into consideration the nature of the property leased, the amount paid as rent, the value of the real property, the value of the personal property left on the leased premises, the intent with which it was left, and all the other facts and circumstances surrounding the transaction. Canfield v. Elmer E. Harris & Co., 222 A.D. 326, 225 N.Y.S. 709, 712-713 (NY Sup. Ct., Appellate Div., 4th Dept.,1927) and cases cited therein. See also Myers v. Beakes Dairy Co, 132 A.D. 710, 117 N.Y.S. 569, 572 (NY Sup. Ct., Appellate Div., 1st Dept, 1909) (possession of tenant must be an actual possession of the property as against the landlord, so that the tenant would by virtue of his possession become a trespasser); Beck v. Troiano, 138 A.2d 492, 493 (D.C. Mun. Ct. of Appeals, 1958) (A holding over does not result from the leaving of property which is practically worthless or which is left merely for the convenience of the incoming tenant, nor does it result from the leaving of a small amount of the property on the premises without any intention of retaining or enjoying possession of the premises.); Vosburgh v. Corn, 23 A.D. 147, 48 N.Y.S. 598, 599-600 (NY Sup. Ct., Appellate Div., 2nd Dept., 1897) (collecting cases; no holdover occurs when keys have been turned over, removal of property has been practically accomplished, and only small items, soon removed, remain). By this test, no holdover occurred. As the facts show, Analogic had no intention to remain and clearly yielded possession by April 30. [Note 42]
The Trusts second argument for hold over is somewhat different. Reduced to its essentials, it is a contention that the HVAC system needed repair, that without such repairs the facility had not been yielded up in rentable condition, and thus that Analogic remained liable for rent as a hold over tenant until the HVAC repairs were completed. [Note 43] I find otherwise.
First, I am not convinced that Analogic had an obligation to repair the HVAC units or, more precisely put, that they needed repair. Analogic had not warranted their perfect condition and, so far as the record shows, they were working sufficiently well on April 30 for manufacturing and other activities at the facility. Analogic certainly used them, in their then-current condition, up until the time it left. The repair work at issue was in the nature of maintenance. [Note 44] Moreover, whether obligated to or not, Analogic had the units inspected, worked on, and brought to full performance at its sole expense. The Trust has no cause to complain on that score and, because Analogic paid for it, no basis to retain any portion of the security deposit to pay for that work or any asserted need for that work.
Second, for holdover to occur when damage or repair is at issue, the key question is whether the tenant has left the premises with substantial damage or in an unusable condition. Consumers Distributing Co., Ltd. v. Hermann, 107 Nev. 387, 812 P.2d 1274, 1277 (Nev., 1991); Friedman, supra at 18-50. Such is not the case here. Analogics obligation, at most, was to return the facility in good, clean, tenantable condition, repair and order, reasonable wear and tear excepted. Net Lease, § 27. The HVAC system was in working condition [Note 45] and its issues, all minor, were the result of reasonable wear and tear. In short, Analogic went above and beyond its obligations in the lease, and the Trust had no basis whatsoever to view the HVAC repair as a holdover for which Analogic was liable for rent.
Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing
For the above reasons, the Trust was in clear breach of its contract with Analogic (the Net Lease) and the implied covenant of good faith and fair dealing in that contract, [Note 46] from and after May 1, 2005, when it refused, after demand, to return Analogics security deposit and May 2005 tax advance in full. It was obligated to do so as of May 1, and did not. Analogic fully complied with its lease obligations and has no liability to the Trust.
G.L. c. 93A, § 11
It goes without saying that Analogic has no liability to the Trust under Chapter 93A, § 11 or otherwise. It honored its obligations in full, and went above and beyond those obligations.
The question remains, however, whether the Trust has G.L. c. 93A, § 11 liability to Analogic. I thus turn to that next.
G.L. c. 93A, § 11, the so-called business-to-business provision of c. 93A, has six elements, four related to liability and the remaining two to the proper measure of damages.
To establish §11 liability, the plaintiff must show that the defendant engaged in the conduct of trade or commerce, that it employed an unfair method of competition or engaged in an unfair or deceptive act or practice, that that conduct occurred primarily and substantially within the commonwealth, and that the plaintiff suffer[ed] [a] loss of money or property as a result of that conduct. G.L. c. 93A, § 11. The remaining two questions are reached only if §11 liability is found. Was the conduct at issue a willful or knowing violation? And, if so, are double or treble damages the appropriate recovery? Id.
The Trust clearly engaged in trade or commerce in connection with this transaction. It is a commercial entity, and leased a commercial building to a commercial tenant. Its actions occurred exclusively in the commonwealth. The conduct at issue relates to the Trusts refusal to return Analogics security deposit and May tax payment. The refusal to return that deposit and payment a total of $124,110.52 caused Analogic to lose that money. Thus, of the liability issues, only the question of whether that refusal was an unfair or deceptive act or practice within the statutory meaning is in real dispute. I thus discuss it first.
[U]nfairness is determined from an examination of all the pertinent circumstances. Ordinarily a good faith dispute as to whether money is owed, or performance of some kind is due, is not the stuff of which a c. 93A claim is made. Mere nonpayment of a debt normally does not justify finding c. 93A liability. However, other additional conduct may lend support to finding a c. 93A violation. Northern Security Ins. Co. v. R.H. Realty Trust, 78 Mass. App. Ct. 691 , 696 (2011) (internal citations and quotations omitted). The inquiry focuses on the nature of challenged conduct and on the purpose and effect of that conduct as the crucial factors in making a G.L. c. 93A fairness determination. Massachusetts Employers Ins. Exchange v. Propac-Mass, Inc., 420 Mass. 39 , 42-43 (1995). That determination is primarily a factual one. [Note 47] It is not the definition of an unfair act which controls but the context the circumstances to which that single definition is applied. Kattar v. Demoulas, 433 Mass. 1 , 14 (2000). On the facts of this case, I find that G.L. c. 93A, § 11 was violated by the Trust. 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. Anthonys Pier Four, Inc. v. HBC Associates, 411 Mass. 451 , 474 (1991). That is what happened here. Analogic was terminating its tenancy earlier than the Trust had hoped. The Trust had mortgage obligations on the building, and months of marketing efforts had failed to find a new tenant. Worse, there was not even the prospect of a new tenant or a sale of the building in the near future. The Trust had been successful in getting extra money from Analogic in the past the $25,000 per year management fee it neglected to put in the lease and had demanded only after Analogic was committed to the facility by the deadlines in its contract with the government. The Trust now pressed again, successfully obtaining new fire extinguishers and Analogics payment for maintenance repairs to the HVAC system. Its attorneys falsely stated that its mortgagee, John Hancock Insurance, considered Analogics July 12, 2004 letter to be an extension of the lease, for the purpose of leveraging an additional months rent. When that failed, the Trust reached for other excuses to withhold return of the security deposit and May tax payment. Its claims regarding the card-reader security system had no basis in the lease. Its holdover contentions (a claim for two months rent for the full 200,000 square foot facility when (1) less than 40 square feet was used to store stray items, with its permission, for less than a week, and (2) for the time it took to finish HVAC maintenance that was (a) not required by the lease, (b) did not interfere with the use of the facility, and (c) was for its benefit) do not survive scrutiny. Its complaints about the epoxy floor were after the fact and, again, had no basis.
For these same reasons, I find that the Trusts actions were willful and knowing within the statutory meaning. These were not good faith disputes on what was owing. They were known, intentional over-reaches at the very least, reckless and provided no basis for the withholding of the security deposit and taxes, forcing Analogic to file and pursue this lawsuit. Multiple damages are thus appropriate. See Kattar, 433 Mass. at 16. Focusing on the degree of the defendants culpability, id., I find that double damages are the appropriate measure of recovery.
For the foregoing reasons, it is ORDERED, ADJUDGED and DECREED that plaintiff Analogic Corporation recover its actual damages of $124,110.52 from defendant Richs Enterprise Realty Trust for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of G.L. c. 93A, § 11, [Note 48] that those damages be doubled pursuant to G.L. c. 93A, § 11, that interest to those sums be added in accordance with applicable law, and that Analogic recover its reasonable attorneys fees in accordance with G.L. c. 93A, § 11. The Trusts counterclaims are dismissed in their entirety, with prejudice.
Analogic is directed to file a properly supported application for its attorneys fees within thirty days, and the Trust shall file its response to that application within fifteen days thereafter. After the attorneys fee amount is resolved, Final Judgment shall promptly enter.
[Note 1] John Hancock Life Insurance Company, initially also named as a defendant, was dismissed from the case prior to trial, with prejudice, by stipulation of the parties. Stipulation of Dismissal (Nov. 24, 2008). A stipulation of facts relating to John Hancock was filed at the same time. Stipulations of Fact (Nov. 24, 2008).
[Note 2] The Trust has since sold the property.
[Note 3] As more fully set forth below, the lease required Analogic to pay the real estate taxes on the facility for the period of its occupancy. On March 22, 2005, Analogic sent payment to the Trust for the months of April and May.
[Note 4] Second Amended Complaint (Nov. 15, 2006).
[Note 5] Answer to Second Amended Complaint and Counterclaim of Defendant Howard Rich, Trustee of Richs Enterprise Realty Trust (Jan. 4, 2007).
[Note 6] G.L. c. 93A. § 11 (claims to be brought in superior court, housing court or district court).
[Note 7] The author of Analogics termination letter mis-counted the months.
[Note 8] More precisely, I ruled that the Net Lease between Analogic Corporation and Richs Enterprise Realty Trust terminated on April 30, 2005. Memorandum and Order on Plaintiff Analogic Corporations Motion for Partial Summary Judgment at 2 (Oct. 23, 2007). As the ruling made plain, [t]he parties [were] not foreclosed by this Order from asserting that any provision in the Lease, either by its own terms or in view of the facts of this case, retain[ed] viability or applicability after the lease terminated. Id.
[Note 9] Memorandum and Order on Plaintiff Analogic Corporations Mass. R. Civ. P. 11 Motion for Attorneys Fees (Dec. 18, 2007).
[Note 10] Net Lease, § 1(f).
[Note 11] Taxes. The Lessee shall, as additional rental, on the first day of each month of the Term, make tax fund payments to the Lessor. Tax fund payments refer to such payments as the Lessor shall reasonably determine to be sufficient to provide in the aggregate a fund adequate to pay all taxes and assessments referred to in this Section 7 when they become due and payable. The Lessee shall not be entitled to interest on any such payments ..Any balance remaining at the expiration or earlier termination of the Term shall be refunded to the Lessee, provided the Lessee is not then in default under this lease. Net Lease, § 7.
[Note 12] Utilities. The Lessee will pay all charges for light, heat, hot and cold water, sewer, electric current, telecommunications and any other services or utilities furnished to the Premises whether called a charge, tax assessment, fee or otherwise, all such expenses to be paid as the same from time to time become due. The Lessee is obligated to pay for all utilities consumed at the Premises beginning on the earlier of the date when the Lessee enters the Premises or the Lessor delivers possession of the Premises to the Lessee. Net Lease, § 9.
[Note 13] Security Deposit. The Lessee hereby gives to the Lessor the Deposit Amount set forth in Section 1 [$109,958.33] as security for the full, faithful and punctual performance, fulfillment and observance by the Lessee of any and all covenants, agreements, warranties, conditions, terms and provisions of this lease to be performed, fulfilled or observed by the Lessee hereunder. It is expressly covenanted and agreed between the Lessor and the Lessee that (a) the Security Deposit Amount is not a measure of the damages that the Lessor might suffer or a limit upon the damages the Lessor may recover in the event of any failure or breach by the Lessee with respect to any or all of said covenants, agreements, warranties, conditions, terms or provisions, (b) in the event of each and every such failure or breach by the Lessee, the Lessor may at the Lessors option at any time and from time to time apply any part or the whole of the Security Deposit Amount to exonerate, indemnify or save harmless the Lessor from any loss, cost, damage, liability or expense, including reasonable attorneys fees, that the Lessor may have suffered, sustained, or become obligated to pay or may suffer, sustain or become obligated to pay because of such failure or breach by the Lessee; the Lessor shall in no way be precluded by such application from any of the remedies at law or in equity otherwise available to the Lessor, or from recovering at any time the full, total amount of the Lessors actual loss, cost, damage, liability and expense, including reasonable attorneys fees, less the amount of any such application or applications of the Security Deposit Amount; no such application of the Security Deposit Amount shall in any way excuse the Lessee from, and from continuing, the full, faithful and punctual performance, fulfillment and observance of any and all of said covenants, agreements, warranties conditions, terms and provisions, and within thirty (30) days after the receipt of a demand therefore, the Lessee will pay to the Lessor a sum to be added to the Security Deposit Amount equal to that so applied by the Lessor hereunder; [and] (c) in the event of the termination prior to expiration of this lease, without any prior notice of such failure or breach at any time by Lessee, then on the date of such earlier termination, and otherwise at the expiration of the Term provided in this lease, and not earlier in either case, the remainder of the Security Deposit Amount, after deducting all sums which the Lessor has applied or is or may be entitled to apply under Clause (b) of this Section 32 or in satisfaction of any claim or judgment which the Lessor may then have against the Lessee, shall be returned by the Lessor to the Lessee . Net Lease, § 32.
[Note 14] Id.
[Note 15] Acceptance As-Is. Except for the duties of the Lessor expressly set forth in this Lease, the Lessee shall be accepting the Premises as-is except that (a) the Lessor warrants that as of the Commencement Date all of the Building Systems (which term shall include the electrical, mechanical, sprinkler, plumbing and heating, ventilating and air conditioning systems contained in or on the Premises) are in good working order, (b) the Lessor shall remove the pallet racking and cause the building on the Premises to be broom clean and free of all occupants and their possessions prior to the Commencement Date, and (c) upon the request by the Lessee, which shall be received by Lessor no later than June 30, 2002, the Lessor shall perform repairs to cracks and broken pavement on the Premises to put the parking areas in good condition and repair, but in no event shall the Lessor be obligated to expend more than Twenty-Five Thousand Dollars ($25,000) for such repairs. Net Lease, § 8.
[Note 16] No Alterations or Improvements. The Lessee will make no alterations, additions or improvements to the Premises either in excess of Twenty-Five Thousand Dollars ($25,000) in the aggregate per twelve (12) month period or involving the structure, or the mechanical, electrical, sprinkler or security systems of the Premises or the building located on the Premises without on each occasion first obtaining the prior consent of the Lessor, which consent shall not be unreasonably withheld or delayed ..Notwithstanding any consent by the Lessor, at the expiration or sooner termination of the Term, the Lessee shall have the right to remove all trade fixtures (which shall expressly include any so-called clean room) and the Lessees personal property, but not the Building Systems, and at the election of the Lessor shall have the obligation to remove any trade fixtures or personal property of the Lessee designated by the Lessor and in the Lessors discretion as to particular alterations, modification or improvements either restore the Premises to the condition as of the Commencement Date, reasonable wear and tear and damage by fire or other casualty excepted, or allow the leasehold improvements to remain. In the absence of an express election by the Lessor, the Lessor shall be deemed to have required the Premises to be returned to its former condition. Net Lease, § 11.
[Note 17] Use of Premises. The Premises shall be used and occupied for the Permitted Uses described in Section 1 [light manufacture and distribution of electronic devices, including explosive detection systems (EDS) and ancillary office and repair uses] and for no other purpose whatsoever .. Net Lease, § 6.
[Note 18] Term, Option to Terminate, Automatic Extension and Further Extention Options. . In the event that the Lessee should hold over after the expiration or sooner termination of the Term, the Lessee shall be a lessee at sufferance subject to all of the terms and provisions of this lease immediately prior to such holdover, except that the Lessee shall for each calendar month or portion thereof during which the Lessee shall holdover, pay on account of the Net Minimum Rental an amount equal to one and one-half (1 ½ ) times one-twelfth (1/12th ) of the Net Minimum Rental provided for the immediately preceding period. Net Lease, § 3.
The lease did not define the term holdover. Dictionary definitions and common usage thus provide its meaning. See Suffolk Construction Co., Inc. v. Illinois Union Ins. Co., 80 Mass. App. Ct. 90 , 94 (2011). Both require that possession be kept for a holdover to occur. See G.L. c. 186, § 3 (Tenants at sufferance in possession of land or tenements shall be liable to pay rent therefore for such time as they may occupy or detain the same.) (emphasis added); Concise Oxford Dictionary, Tenth Ed. at 677 (1999) (definition of hold keep or detain, keep possession of); Delano v. Montague, 4 Cushing (58 Mass.) 42, 45 (1849) (actual occupation necessary for holdover to occur). Leaving property behind and/or conducting repairs after the lease term has ended may or may not constitute holding over depending upon the circumstances, and whether they do so is an issue of fact. 2 Friedman on Leases (5th Ed., Nov. 2011) at §18:4.1, 18-49 18-50.
[Note 19] Maintenance, Repairs and Surrender. Subject to Section 14 [Fire, Casualty, Taking], the Lessee will at all times maintain the Premises (including all improvements thereto in, on or under the demised land) in good, clean, tenantable condition, repair and order, subject to exceptions for fire and other casualty and reasonable wear and tear.
* * *
The Lessee will, subject to Section 14, at the expiration or sooner termination of the Term, leave the Premises in good, clean, tenantable condition, repair and order, subject to exceptions for fire and other casualty and reasonable wear and tear and the provisions of Section 11. The Lessee shall remove from the Premises at or prior to such expiration or sooner termination all fixtures, equipment, signs, inventory, supplies and other property of the Lessee, and the Lessee shall, at its sole cost and expense, repair any damage caused by such removal. Net Lease, § 27.
[Note 20] Net Lease, § 11. See n. 16, supra. As shown by the lease drafts that went back and forth between the parties and the witness testimony at trial, Analogics security system was deliberately excluded from the definition of Building Systems.
[Note 21] Net Lease, § 32.
[Note 22] It was not completely clear what the Trust did in return for this fee. At a minimum, however, I find that it included the duty to monitor Analogics use of the facility and compliance with the lease, and immediately to notify Analogic of any breaches or other issues it observed. Representatives of the Trust visited the facility regularly and spoke with Analogics on-site personnel, and I find that Analogic had the right to rely on what was said (and not said) in connection with these visits. In particular, the Trust could not simply sit back and, at the end of the lease, raise or rely on issues that had long been obvious. This has particular relevance to the epoxy floor, discussed below.
[Note 23] As previously noted, Analogic used the space to manufacture airport baggage scanning machines, designed to detect explosives. Ensuring the integrity of the machines guarding against tampering, alteration or sabotage was thus of prime importance.
[Note 24] The baggage scanners required clean manufacturing conditions.
[Note 25] Trial Exs. 36, 39.
[Note 26] It would also have required the assent of the Trusts mortgagee, John Hancock Life Insurance Co. See Trial Ex. 45.
[Note 27] Indeed, this is exactly the process used by the parties when they discussed a possible lease extension in early 2005. The lawyers communicated directly with each other and drafts of a formal agreement (Lease Amendment No. 1) were prepared, exchanged and discussed. No such agreement was ever reached. Importantly, it was during those negotiations that Analogic reviewed its July 2004 letter, noticed the mistaken May 31 date, and brought that mistake to the Trusts attention, stating explicitly that it would be leaving the facility on April 30, 2005, not May 31. The language in the Trusts draft of the proposed lease extension reflecting an extension start date of June 1, 2005 was stricken and, in Analogics April 7, 2005 response to that draft, replaced with the correct date of May 1. See Trial Ex. 46.
[Note 28] As noted above, the lease required Analogic to pay the real estate taxes on the facility in addition to the base rent.
[Note 29] See Trial Ex. 44.
[Note 30] Trial Ex. 46
[Note 31] Trial Ex. 50.
[Note 32] As noted above, despite its continuing marketing efforts, it did not have a tenant, or even a prospective tenant, for any of the space in the facility until March 2006 nearly one year later. Even then it was able to rent out only half.
[Note 33] Trial Ex. 51.
[Note 34] Trial Ex. 52.
[Note 35] This walk-through occurred in early April, preliminary to the final April 28 walk-through, for the purpose of identifying potential issues.
[Note 36] Trial Transcript, Day 2 at 19 (Roscoe testimony) (At that particular time, [that portion of the floor] was painted gray, and that portion looked fine to me. The rest of the building looked the floor looked fine too. There were some minor cracks, but nothing at that time caused me any concerns.), 25-25 (Roscoe) (Q: Now with respect to the floor had Analogic done anything with respect to that area of the floor that had been the subject of the April 15 meeting? A: They did. Q: And what was discussed with respect to that area of the floor? A: That area of the floor, the 20 x 20 approximately piece, was leveled off and painted. Q: And did you make any comment with respect to that portion of the floor? A: Told him it was acceptable. It looked good.)
[Note 37] Id.
[Note 38] It previously (in February) had given a key to the Trusts marketing representative so that he would have it to show the property to potential customers.
[Note 39] There was no evidence that these were locked either at or any time after the April 28 walk-through.
[Note 40] See supra at 6 and n. 20.
[Note 41] The facility totaled over 200,000 square feet.
[Note 42] The supplies still stacked in the annex past the April 30 date do not constitute the retention of possession. First and foremost, they were there with the Trusts permission (asked and given) and removed immediately when that permission was withdrawn. Second, the facility has over 200,000 square feet. The supplies took up no more than 40. Such de minimus impact is insufficient for holdover. See 2 Friedman on Leases (5th Ed., Nov. 2011 supp), § 18:4.1 at 18-49 18-50 and the cases cited at n. 234 236 (hereafter Friedman). As noted in Friedman, in a typical case, leaving debris and some nondescript articles is not enough to make tenant a holdover. In addition to the cases cited in the text above, see Caserta v. Action for Bridgeport Cmty. Dev. Inc., 34 Conn. Supp. 561, 377 A.2d 856 (1976) (leaving duplicating machine temporarily until removed by its third-party owner; no holdover) (cited in Friedman). Contrast Commercial Wharf Corp. v. Boston, 194 Mass. 460 , 466 (1907) (defendants leaving of piles and platforms it installed to anchor and access float, even though it removed the float itself for repairs, was sufficient to hold over its tenancy, making it liable for rent).
[Note 43] The Trust makes the secondary argument that the HVAC repairs were not completed until the beginning of June and thus that Analogic is liable for both May and June rent and management fees. I find that all HVAC-related work was completed no later than May 31, 2005, and thus that there is no liability for the month of June even if the Trusts HVAC-repair/holdover argument has merit. In any event, as discussed below, I find that they do not. Thus, Analogic has no hold over obligations for either May or June.
[Note 44] See Trial Ex. 57. All of the items to be addressed were minor and the result of normal wear and tear. The total cost to fix them was less than $4,000, and the work took less than two days.
[Note 45] It is instructive to note that this was the standard the Trust had set for itself at the time it rented the facility to Analogic. Net Lease, § 8 (good working order).
[Note 46] See Anthonys Pier Four, Inc. v. HBC Associates, 411 Mass. 451 , 471-473 (1991) (Every contract implies good faith and fair dealing between the parties to it. The implied covenant of good faith and fair dealing provides that neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.) (internal citations and quotations omitted). Here, the breach of that covenant was the Trusts unjustified refusal to return Analogics security deposit and tax payment, to which Analogic clearly was entitled under the terms of the Net Lease and the facts of this case.
[Note 47] 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 G.L. c. 93A violation is a question of law. R.W. Grainger & Sons, Inc. v. J&S Insulation, Inc., 435 Mass. 66 , 73 (2001), citing Schwanbeck v. Federal-Mogul Corp., 31 Mass. App. Ct. 390 , 414 (1991).
[Note 48] Because recovery would be duplicative, I need not and do not reach Analogics conversion and other claims.