TOWN OF BRIMFIELD v. BRIAN R. CARON, MICHAEL F. SOSIK, JR., and BATISTA & SONS, INC.

Introduction

This case concerns a 35.9 acre lot in Brimfield containing forest and mineral deposits, currently owned by defendant Brian Caron, classified and taxed as a forest lot under G.L. c. 61 (hereafter, the “forest lot”). Mr. Caron purchased the forest lot, together with an adjoining residential lot (the “residential lot”), from defendant Batista & Sons, Inc. in 2005. The Town brought this action to enforce its right of first refusal on the sale of the forest lot pursuant to G.L. c. 61, § 8, and, if it votes to acquire that lot, to compel its sale to the Town.

In connection with previous motions in the case, I ruled, inter alia, that “[t]he conveyance of the [forest lot] to Mr. Caron constituted a ‘s[ale] for, or conver[sion] to, residential, industrial or commercial use while so taxed’ under G.L. c. 61, § 8”, and, as such, because “Batista & Sons and Mr. Caron failed to comply with the notice provisions of that section, the town’s right of first refusal endures.” Mem. & Order at 24 (Jan. 12, 2010). [Note 1] Full relief could not be granted at that time, however, because a genuine issue of material fact existed on the appropriate purchase price [Note 2], whether that purchase price was subject to adjustments due to Mr. Caron’s conduct after acquiring the forest lot, and, if so, what those adjustments should be. See id.

The Town contends that the purchase price of the forest lot should be reduced to compensate the Town for minerals that Mr. Caron admittedly excavated (for resale and his own use) after acquiring the forest parcel, arguing that this not only deprived the Town of a valuable commodity that it would have used upon exercising its right to purchase the forest lot, but also that this removal significantly decreased the property’s value. Mr. Caron contends in response that only a small amount of minerals was actually removed from the forest lot, and that such removal should not impact the purchase price.

A trial was held before me on these remaining issues, jury-waived. Based on the evidence admitted and my assessment of the credibility, weight, and inferences to be drawn from that evidence, I find and rule that the Town has the right to purchase the forest lot for $186,500.00, which reflects an adjustment to account for Mr. Caron’s removal of valuable minerals. [Note 3]

Facts

These are the facts as I find them after trial. Undisputed additional facts are contained in my January 12, 2010 Memorandum and Order. See generally Mem. & Order at 2-10 (Jan. 12, 2010).

The forest lot is a 35.9-acre parcel with frontage on Palmer Road in Brimfield. It is heavily forested and contains wetlands (i.e., a stream), which affect its potential residential development. Its chief value lies in its extensive glacial deposits of valuable minerals -- an estimated 125,000 cubic yards of usable gravel, sand, and other aggregate material. [Note 4] The residential lot is a 1.667-acre parcel that abuts the forest lot to the west.

Mr. Caron is in the business of extracting and selling gravel and other minerals, and his intention in purchasing the forest lot was to obtain (for resale) the extractable minerals found there. By purchase-and-sale agreement (“P&S”) dated January 21, 2005, Mr. Caron agreed to purchase the forest lot and the residential lot from Batista & Sons for a total purchase price of $275,000.00. The amount was not apportioned between the parcels. The deeds (each dated May 9, 2005) conveying the two lots state that the consideration paid for each lot was $137,500.00. [Note 5] Prior to these conveyances, neither Batista & Sons nor Mr. Caron provided the Town with notice of the proposed sale or its proposed terms and conditions. [Note 6] On May 17, 2005, Mr. Caron granted defendant Michael Sosik, Jr. a $250,000.00 purchase money mortgage on the two lots. [Note 7] Mr. Batista testified that he loaned Mr. Caron $25,000.00 for the remainder of the purchase price, foregoing immediate receipt of payment in exchange for a promise to pay. [Note 8]

At some point in late 2006, Mr. Caron began excavating material from the excavation area on the forest lot. Mr. Caron testified that this began in October of 2006. It involved removing the topsoil covering the Woodbridge deposits (which Mr. Caron piled to the side of the excavation area), excavating fill from the excavation area, and then processing most of the excavated fill (with a portable, motorized screening plant that he had installed) into separate on-site stockpiles. Mr. Caron admits that he removed some of this stockpiled material from the forest lot at or around this time, and sold it at a profit. Mr. Caron also made use of the excavated materials in connection with certain contour alterations on the forest lot (as well as to the residential lot) [Note 9] in order, he claimed, to make the lot more accessible to vehicular traffic. Most notably, he reinforced and widened the access road from Palmer Road to the excavation area, and he built paved parking and turnaround areas for his vehicles. The parties dispute how much material was excavated, and how much was used for these improvements. They also dispute whether a number of these improvements (the parking and turnaround areas, for example) added value to the property or reduced it. [Note 10]

Mr. Caron testified that he removed only about 918 cubic yards of material from the site -- just below the amount (1,000 cubic yards) for which he would have been required to obtain a special permit. [Note 11] He testified that he did so only between October of 2006 and February of 2007. Mr. Caron further testified that, in addition to the materials he transported offsite, he used about 10,000 cubic yards of sand and gravel to create a parking lot on the forest lot (for storage and parking for his various business operations) and around 1,778 [Note 12] cubic yards to expand and improve the access road leading to the excavation area.

One of the Town’s expert witnesses, civil engineer Steven Bressette, painted a somewhat different picture. Specifically, he testified that he performed a topographical comparative analysis of the excavation area as it existed in 2005 (before Mr. Caron performed any mineral extraction) and in 2010, 2012, and 2013 (after the period during which Mr. Caron admitted to having removed materials from the forest lot). [Note 13] Then, using digital, three-dimensional models of the 2005 and 2010 surveys of the excavation area, Mr. Bressette attempted to measure the amount of material extracted based upon changes in elevation. [Note 14] On the basis of this analysis, Mr. Bressette concluded that approximately 16,100 cubic yards of material had been excavated from the excavation area between 2005 and 2013. [Note 15]

The Town brought this action in November of 2006 to enforce its right of first refusal, and, subsequently, moved for a preliminary injunction preventing Mr. Caron from continuing to excavate, pending the outcome of the case. The injunction was entered on February 28, 2007, prohibiting Mr. Caron from conducting any activities to alter the forest lot (including land clearing, excavation, and/or removal of soil or gravel) until further order of the court.

Further facts are set forth in the Discussion section below.

Discussion

As noted above, I have previously ruled that the forest lot is subject to G.L. c. 61, § 8, that Batista & Sons and Mr. Caron failed to comply with the notice provisions of that section, and that the Town retains its right to purchase the forest lot. See Mem. & Order at 24 (Jan. 12, 2010). The only remaining issues are thus (a) the purchase price the Town must pay in order to exercise its right to purchase the forest parcel, (b) whether that price should be adjusted to compensate the Town for the materials Mr. Caron excavated, and (c) if so, what that adjustment should be.

A. The Purchase Price of the Forest Lot

G.L. c. 61, § 8 -- both in its current form, and in the version in effect as of 2005 -- provides that, in the case of sale of forest land, the Town has the option to “meet a bona fide offer to purchase the land.” [Note 16] Determining the appropriate amount that the Town would be required to pay to purchase the forest lot is complicated by the fact that the P&S for the forest lot also included the residential lot in the same transaction, for a total consideration of $275,000.00, without apportioning that amount between the two properties. As previously noted, the two deeds conveying the lots simply split this total down the middle, reciting consideration for each lot of $137,500.00. By all accounts, however, the value of the forest lot (which is many times larger and contains the highly valuable mineral deposits previously referenced) was and is much greater than the value of the residential lot.

The Town argues that the pre-adjustment purchase price for the forest lot should be $137,500.00 -- the amount recited in the deed to Mr. Caron for the forest lot. I disagree. Whatever Mr. Caron’s reasons for placing these figures in the two deeds, that allocation is not dispositive. As the evidence showed, the value of the residential lot was $50,000.00. [Note 17] The remainder of the purchase price ($225,000.00) is thus allocable to the forest lot.

The Town disputes this $225,000.00 allocation, based on the testimony of its expert witness, Richard McCowan, that the forest lot was only worth $135,000.00 at the time. In his opinion, therefore, Mr. Caron overpaid for the properties by about $90,000.00, and the Town should not be required to pay more than the pre-adjusted figure of $135,000.00 for the forest lot. For the following reasons, I disagree.

I accept Mr. McCowan’s assessment of the value of the residential lot ($50,000.00). [Note 18] That valuation is not complicated by the presence of mineral resources nor of any potential use other than residential development, and is thus relatively straightforward and well within his competence and expertise. His calculation of the value of the forest lot, however, is not persuasive. It was based upon the estimated amount of valuable material present on the forest lot (based on the estimate of the Town’s geologist) multiplied by his estimate of the value of such material, which he then compared to the value of three allegedly similar properties. However, not only did Mr. McCowan acknowledge that he had no expertise in assessing the value of mineral resources, his property comparisons did not take into consideration numerous variables, all of which undermines the comparability of the forest lot with his alleged “comparables”. [Note 19] Moreover, despite testifying that the forest lot could potentially be sold for conversion to residential use after removing the valuable minerals, Mr. McCowan acknowledged that he did not take this possibility into account in his $135,000.00 valuation. These deficiencies undercut Mr. McCowan’s estimate of the 2005 fair market value of the forest lot.

Instead, I accept the valuation produced by subtracting the $50,000.00 value of the residential lot from the overall $275,000.00 purchase price paid, resulting in a forest lot valuation of $225,000.00.There is no evidence that the P&S was anything other than a bona fide offer made in the course of an arms-length transaction. The evidence indicates no connection or affiliation of any kind -- personal, corporate, or otherwise -- between Batista & Sons and Mr. Caron that would tend to suggest that the transaction was anything other than a straightforward business transaction. Therefore, the intended price for the forest lot in the P&S ($275,000.00 minus $50,000.00, i.e., $225,000.00) is the purchase price the Town must meet, subject to the adjustments set forth below, to exercise its right of first refusal.

This valuation is corroborated by the arms-length purchase-money financing that Mr. Caron obtained for the full $275,000.00 purchase price of both lots from Mr. Sosik (who granted a $250,000.00 mortgage secured by both properties) and Mr. Batista (who lent him the other $25,000.00). Both were independent third parties with no prior relationship with Mr. Caron. It is further substantiated by the testimony of Mr. Sosik’s son, Matthew Sosik, a bank executive, who confirmed Mr. McCowan’s valuation of the residential lot ($50,000.00), and testified that, at the time of the sale, he and his father viewed the remainder of the mortgage ($200,000.00) as having been secured by the forest land and the gravel operation Mr. Caron intended to conduct there. Mr. Flynn, Mr. Caron’s business partner, also corroborated this valuation in his testimony, as did the partnership agreement between Mr. Flynn’s development company and Mr. Caron, which specifically valued the residential lot at $50,000.00 and the forest lot at $225,000.00. See Trial Ex. 38, p. 1.

In view of the foregoing, I find that, pursuant to G.L. c. 61, § 8, the Town had a right to purchase the forest lot at the same purchase price paid by Mr. Caron. While the P&S itself does not identify the specific purchase price for the forest lot, the evidence establishes that it was $225,000.00. Thus, had Batista & Sons complied with G.L. c. 61, § 8 and properly communicated Mr. Caron’s bona fide offer to purchase the forest lot prior to consummating that sale, the price to the Town would have been $225,000.00. [Note 20]

B. Adjusting the Value of the Forest Lot

Batista & Sons, however, did not comply with G.L. c. 61, § 8. Rather, it proceeded with the sale of the forest lot to Mr. Caron, and the Town only learned of that sale after the fact. Moreover, after acquiring record title, Mr. Caron made subsequent alterations to the property -- most notably, the excavation of a significant amount of the valuable minerals found there.

Since the primary value of the forest lot is as a source of easily extractable mineral deposits, Mr. Caron’s extraction and/or removal of such materials clearly affected the value of that lot. Because Mr. Caron extracted and/or removed the material after the forest lot should have been made available to the Town to purchase pursuant to G.L. c. 61, § 8, I find that the purchase price that the Town must now pay for the forest lot should be adjusted to reflect the diminution in value of the forest lot, measured by the value of the material extracted and thus no longer available to the Town. [Note 21] See, e.g., Trinity Church in the City of Bos. v. John Hancock Mut. Life Ins. Co., 399 Mass. 43 , 48 (1987); Commonwealth v. Mass. Turnpike Auth., 352 Mass. 143 , 147-148 (1967).

The parties dispute both the exact quantity of material that Mr. Caron extracted and/or removed from the forest lot, and how that material should be valued. I thus turn to a discussion of those questions.

1. The Amount of Material Removed by Mr. Caron

At trial, the parties provided widely disparate calculations of the extent of Mr. Caron’s excavation and/or removal of material from the forest lot. As noted above, while Mr. Caron claims to have removed only about 918 cubic yards of sand and gravel from the site (his log states the total as 915 cubic yards), the Town, through the testimony of its expert, Mr. Bressette, estimated that approximately 16,100 cubic yards of material had been removed. These differing calculations are not “apples to apples” -- Mr. Caron’s is of material he transported off-site, while the Town’s is of total material excavated, including that used elsewhere on the property -- and each is problematic.

The Town’s estimate has several issues that undermine its reliability. First, there is the question of the fidelity of Mr. Bressette’s model (see nn. 13 & 14, supra) -- that is, how closely the model tracks actual conditions on the ground. As discussed in the Facts section above, the actual surface of the excavation area is highly complex and varied, yet Mr. Bressette’s survey measured and compared elevations at points located at a distance of twenty-five feet from each other. This, at best, represents only a rough depiction of actual conditions on the ground. [Note 22] Had Mr. Bressette plotted more data points, his results would have been more reliable. And while the court understands that greater fidelity (i.e., more data points) no doubt entails more work, here it appears that a greater effort to ensure fidelity was called for. In other words, due to the relatively low fidelity of Mr. Bressette’s survey, significant topological variation could have been missed entirely -- for instance, piles of topsoil, gravel, and other aggregate that are small in length and width, yet great in height. [Note 23]

Next, despite the fact that his measurement of volume (based on the above- discussed grid method) represents, at best, an approximation, Mr. Bressette did not specify the margin of error associated with his estimate. See, e.g., Commonwealth v. Trainor, 374 Mass. 796 , 804 (1978) (discussing the margin of error on a public opinion survey); Commonwealth v. Rumery, 78 Mass. App. Ct. 685 , 689 (2011) (identifying the margin of error for breathalyzer machines). Likewise, he made no effort to acknowledge the possibility of measurement error inherent in his methodology. Rather, Mr. Bressette presented his analysis as definitive. Indeed, the closest that Mr. Bressette came to addressing potential errors in his analysis was when he explained that he had (very roughly) confirmed his results with a non-computer geometric calculation -- a method he acknowledged was more imprecise than the computerized model he had used. [Note 24] By presenting his analysis in this way, Mr. Bressette not only raised questions regarding his testimony (by failing to acknowledge the obvious possibility of error), he provided no way for the court to assess for itself the reliability of his analysis (by providing no margin of error for the court to consider). [Note 25]

Furthermore, because Mr. Bressette only surveyed the areas that had previously been surveyed and mapped on the 2005 Frydryk plan, he cannot state with certainty that the amount of material he estimated had been excavated from the excavation area was actually removed from the forest lot. Clearly, Mr. Bressette considered the areas of the forest lot where excavation and filling was most likely -- i.e., the excavation area, the access road [Note 26], and the parking lot. [Note 27] However, the vast majority of the forest lot was not surveyed, nor is there any indication that Mr. Bressette investigated other areas of the forest lot to determine if any activity had taken place there. [Note 28]

Finally, even setting aside the shortcomings of Mr. Bressette’s survey, it is highly unlikely that Mr. Caron could have removed more than 16,000 cubic yards of material from the forest lot over the course of only five months (October of 2006 to February of 2007). Mr. Caron’s gravel business is a small-scale operation that involves only Mr. Caron himself, his business partner, and a small number of third parties with whom Mr. Caron contracts. [Note 29] The Town presented no evidence that such a massive amount of material was being transported offsite, nor that the Town suspected so. Surely that number of trucks would have attracted attention on such a main road in a small town.

Thus, the Town’s estimate has problems. But so does Mr. Caron’s. While Mr. Caron’s estimate (~918 cubic yards) is backed by what appears to be a contemporaneous record documenting the removal of 915 cubic yards of material from the forest lot, it accounts only for materials that were physically removed from the forest lot entirely, mostly for resale. His estimate does not take into account materials that were excavated and put to use on the forest lot and/or residential lot, even though he acknowledged that he used a substantial amount of material to expand and reinforce the access road through the forest lot and to construct a parking area near the entrance to the forest lot off Palmer Road. [Note 30]

When pressed, Mr. Caron estimated that -- in addition to the 915 cubic yards of materials that he removed from the forest lot entirely -- he used about 10,000 cubic yards of sand and gravel to create the parking lot and around 1,778 [Note 31] cubic yards to expand and improve the access road. In total, then, on Mr. Caron’s account, approximately 12,700 cubic yards of material were extracted from the excavation area, which were then either removed from the forest lot entirely (for resale) or were used by Mr. Caron on the forest lot and/or residential lot.

Mr. Caron’s account of the total amount of material extracted (irrespective of its ultimate destination) is plausible for several reasons. First, it explains why the parties’ estimates initially seemed vastly different: the Town was considering all material extracted, and Mr. Caron was only considering materials removed from the lot. It would also explain why the Town was not alerted to Mr. Caron’s transportation of materials offsite, which would have created hundreds of vehicle trips to and from the site.

However, while Mr. Caron strives to draw a distinction between materials removed from the forest lot and materials extracted from the excavation area but not removed from the forest lot, there is no reason to make such a distinction for purposes of assessing the loss in value to the Town. It is true that much of this material has not been taken offsite. Yet, because it has been used to construct improvements on the forest and residential lots, the effect is the same as it would have been had the material been removed entirely. In either case, it is of no use to the Town as extractable mineral. [Note 32]

Nonetheless, because Mr. Caron’s testimony that the access road was reasonably necessary to enable extraction of materials from the excavation area, it stands to reason that the Town would also been required to perform the same (or substantially similar) work in order to obtain access to the valuable materials. The same is not true for the parking lot, which Mr. Caron testified was used for other purposes personal to him and his business, and which would not have been of any use to the Town. Moreover, there is no evidence that the parking lot has increased the forest lot’s value to the Town.

In sum, as previously noted, the Town had the right to purchase the forest lot at the bona fide offer price of $225,000.00 in 2005. Mr. Caron excavated roughly 12,700 cubic yards of sand and gravel. Of that amount, approximately 11,000 cubic yards (i.e., 915 cubic yards extracted and removed plus 10,000 cubic yards extracted and used on the forest lot) represent materials that were either removed from the lot entirely or put to uses of no value to the Town. The Town is thus entitled to an adjustment in its purchase price for the forest lot to offset that amount of extracted materials.

2. The Valuation of the Mineral Deposits Removed by Mr. Caron

At trial, the Town’s expert geologist, Mr. Geagan, testified that, in 2005-2007, the wholesale price of the onsite “Woodbridge” material was $3.25 to $3.50 per cubic yard. [Note 33] This estimate was roughly corroborated by Mr. Caron’s testimony. Mr. Geagan also testified as to a significantly higher value (estimated at between $7.00 and $9.00 per cubic yard) for processed, delivered materials, which also was corroborated by Mr. Caron. The Town argues that it is entitled to be compensated for extracted materials at the full price of extracted, delivered materials. This argument fails for several reasons.

First, in order to obtain the full price cited by Mr. Geagan for processed, delivered materials, Mr. Caron undertook a significant amount of work and incurred the attendant expenses of doing so, including: extracting the material, screening it into its various sizes and contents, storing the various sizes and contents of materials, marketing said materials, and eventually delivering said materials -- which Mr. Geagan and Mr. Caron both testified, is the most significant expense. Only after incurring these expenses is the full price for final products available. However, had the Town purchased the forest lot, it would not have obtained final product; it would have obtained wholesale material, in the ground. As Mr. Caron testified, that material is immediately saleable, without need even for delivery, at a 2005 market value of $3.25 to $3.50 per cubic yard.

Second, the testimony at trial established that the actual value of the materials in the ground varies based on the nature of the yield (i.e., on the actual contents of the fill), which cannot be determined until after it is extracted and processed. One excavation may yield more valuable gravel than another. Another excavation may yield more sand, silt, and clay, yielding a lower value. There is simply no way of knowing. Far more reliable would be to avoid speculation as to yield, and simply value the materials based on its price as immediately saleable fill -- again, $3.25 to $3.50 per cubic yard. Given that Mr. Caron removed the material without right to do so, I will accept the high end of this estimated range, setting the value of the materials at $3.50 per cubic yard.

In sum, I find that the 2005 wholesale value of the mineral deposits removed by Mr. Caron from the forest lot ($3.50 per cubic yard) most closely approximates the value that the Town would have received from that material had Mr. Caron not removed it. That price, multiplied by the 11,000 cubic yards of material for which an adjustment is needed, comes out to $38,500.00. Thus, if the Town chooses to exercise its right to purchase the forest lot, it must pay Mr. Caron $186,500.00 -- i.e., the $225,000.00 offer price reflected in the P&S ($275,000.00 minus the $50,000.00 value of the residential lot), less $38,500.00 for materials extracted by Mr. Caron. [Note 34]

Conclusion

For the foregoing reasons, I find and ORDER that the Town has the right to purchase the forest lot from Mr. Caron at a price of $186,500.00, plus the amount of the rollback taxes and release fees paid by Mr. Caron (if not already returned). The Town shall have 120 days [Note 35] from the date of entry of such judgment to exercise its right to purchase the forest lot in accordance with G.L. c. 61, § 8. In the event that the Town exercises its right to purchase the forest lot, upon such sale, the forest lot will no longer be subject to the mortgage lien held by Mr. Sosik. See n. 20, supra. [Note 36]

Judgment shall enter accordingly.