Fitchburg Capital, LLC (Fitchburg) initially brought this action against defendants Lee Bourque (Lee) and Deutsche Bank National Trust Company, as Trustee (Deutsche), to clear a cloud on title attributable to Fitchburg's mortgage foreclosure on the property at 11 Nutting Street in Fitchburg (Property) without having first obtained a judgment under the Soldiers and Sailors Civil Relief Act against the mortgagor, Lee. Lee brought a counterclaim for accounting and conversion of rental income that Fitchburg had allegedly appropriated while it had possession and control of the Property following the foreclosure sale. After the Supreme Judicial Court (SJC) in Deutsche Bank Nat'l Trust Co. v. Fitchburg Capital, LLC, 471 Mass. 248 (2015), affirmed this court's decision in a companion case that the mortgages on the Property held by Fitchburg were obsolete and deemed discharged, thereby invalidating Fitchburg's foreclosure pursuant to the Obsolete Mortgage Statute, the Court in this case dismissed Fitchburg's complaint with prejudice. Lee's counterclaims for accounting and conversion are the only remaining claims.
Fitchburg moved for summary judgment asserting that (1) Lee is judicially estopped from asserting such counterclaims in this action; (2) Lee is barred from any recovery through the application of the doctrine of recoupment or quantum meruit; and (3) there is no genuine dispute of material fact regarding the reasonableness, propriety, and veracity of Fitchburg's accounting. In response, Lee first argues that summary judgment should not be granted because there are real disputes of material fact between the parties. Lee further contends that he should not be judicially estopped from seeking rental income that he would have otherwise received had Fitchburg not performed an invalid foreclosure, purchased, and managed the Property, and that the doctrine of recoupment or quantum meruit should not be applied under the circumstances of this case.
As further explained in the discussion below, Fitchburg's motion for summary judgment is ALLOWED. Judgment shall enter dismissing this entire action with prejudice.
On May 21, 2012, Fitchburg Capital filed its Complaint in this action (Fitchburg Action). On July 18, 2012, Deutsche filed its Answer. On November 9, 2012, Lee filed his Answer, Counter Complaint, and Affidavit of Lee Bourque. Lee filed his Amended Counter Complaint on November 19, 2012 (Counterclaim). On December 12, 2012, Fitchburg Capital filed its Answer to Lee's Amended Counterclaim. On January 14, 2013, Lee filed his Statement of Material Facts Relating to his Amended Counter Complaint.
Deutsche initiated its own lawsuit against Lee and Fitchburg on July 2, 2012, in case no. 12 MISC 467219 (the Deutsche Action), asserting that Fitchburg's foreclosure on the Property was improper due to the underlying mortgage having been discharged by operation of the Obsolete Mortgage Statute, G. L. c. 260, § 33. At a case management conference held on November 20, 2012, the Court ruled that the Fitchburg Action would be treated as a companion case to the Deutsche Action and the cases would proceed concurrently.
The Deutsche Action
On January 15, 2013, Deutsche filed Plaintiff's Motion for Partial Summary Judgment and supporting pleadings. On February 15, 2013, Fitchburg filed Defendant's Opposition to Plaintiff's Motion for Summary Judgment and supporting pleadings. On March 1, 2013, Deutsche filed Plaintiff's Rule 56(f) Motion and Rule 56(f) Affidavit. The motions were heard on March 5, 2013 and taken under advisement. On October 11, 2013, the Court issued its Order Allowing in Part Plaintiff's Motion for Partial Summary Judgment and denying Deutsche's Rule 56(f) Motion without prejudice as moot after finding that more than five years had passed since the expiration of the term or maturity date stated in each mortgage, deeming the mortgages discharged and Fitchburg's foreclosure void.
On December 6, 2013, the parties filed a Joint Motion for Entry of Separate and Final Judgment, a Partially Assented-To Motion for Appointment of Receiver, Supplemental Affidavit of Paul Bourque in Support of Motion for Appointment of Receiver, and Verifying Affidavit of Attorney Nicholas Shapiro in Support of Motion for Appointment of Receiver.
On January 16, 2014, Fitchburg filed an appeal of the Partial Summary Judgment decision in the Deutsche Action, on which the SJC took direct appellate review. On April 15, 2015, the SJC affirmed this Court's Order Allowing in Part Plaintiff's Motion for Partial Summary Judgment, finding the mortgages obsolete. Deutsche Bank Nat'l Trust Co. v. Fitchburg Capital, LLC, 471 Mass. 248 (2015).
On December 23, 2013, the Court allowed the Joint Motion for Entry of Separate and Final Judgment in the Deutsche Action and found sufficient grounds to warrant appointment of a receiver. On February 24, 2014, Lorie A. Spaulding (Spaulding), from L.A.S. Management (LAS), was appointed as receiver for the Property. On June 16, 2014, Bourque filed a Motion Requesting Leave of Court Regarding his Second Amended Counter Complaint against Fitchburg and Affidavit of Lee Bourque in Support of his Second Amended Counter Complaint. On July 9, 2014, Fitchburg filed Plaintiff's Opposition to Motion to Amend Counterclaim. On July 11, 2014, the Court denied Defendant's Motion for Second Amended Counterclaim without prejudice. On August 15, 2014, Spaulding, as manager of the Property, filed copies of tenant ledgers for the two occupied units. On August 26, 2014, a copy of the report of the receiver, Spaulding, regarding the Property was filed.
Following the SJC's April 15, 2015 decision in the Deutsche Action, the Court held a status conference on April 21, 2015, where it stated that pursuant to the SJC's decision, the two mortgages held by Fitchburg were obsolete and deemed discharged, making Fitchburg's foreclosure invalid. The Court ordered that the Deutsche Action and Fitchburg Action were no longer to be treated as companion cases. With respect to the Deutsche Action, the Court dismissed the Complaint with prejudice, but kept the receivership in place. With respect to the Fitchburg Action, the Court dismissed the Complaint with prejudice, leaving only Lee's Counterclaim.
On April 30, 2015, Fitchburg filed Plaintiff's Motion to Dismiss Defendant Lee Bourque's Amended Counter Complaint. On May 11, 2015, the Court issued an Order Discharging Receiver Spaulding, and Lee filed his Opposition to Fitchburg's Motion to Dismiss Bourque's Amended Counter Complaint against Fitchburg. On May 21, 2015, the Court issued an Order Denying Plaintiff's Motion to Dismiss Amended Counter Complaint. On June 9, 2015, Spaulding filed all the accounting paperwork. On August 3, 2015, Fitchburg filed the Accounting of the Plaintiff. On August 17, 2015, Lee filed Defendant's Objections to Plaintiff Fitchburg and LAS's Accounting. On October 26, 2015, Lee filed his Objections to LAS's Accounting and Motion to Add Paul Bourque as an Additional Party to Defendant Bourque's Amended Counter Complaint Against Fitchburg. On November 4, 2015, Lee filed his Requests for Production of Documents in Relation to Defendant Bourque's Objections to Fitchburg's Accounting. On November 5, 2015, Fitchburg filed a Motion to Strike and Memorandum of Law in Support of Motion to Strike Defendant Lee Bourque's Motion to Add Paul Bourque as an Additional Party. On November 20, 2015, Fitchburg filed Plaintiff's Opposition to Motion by Defendant Bourque Requesting the Court to Add Paul Bourque as an Additional Party to Defendant Bourque's Amended Counter Complaint against Fitchburg and Lee filed Defendant Bourque's Response to Fitchburg's Motion to Strike Defendant Bourque's Motion to Add Paul Bourque as Additional Party to Bourque's Amended Counter Complaint Against Fitchburg. On November 23, 2015, Lee filed a Motion to Amend his Objections to Fitchburg's Accounting. On November 24, 2015, the Court denied Lee's Motion to Add Paul Bourque as an Additional Party without prejudice and denied Fitchburg's Motion to Strike as moot. On December 4, 2015, Fitchburg filed a Corrected Accounting for the Property.
On January 4, 2016, Fitchburg filed Plaintiff's Motion for Summary Judgment, Memorandum of Law in Support of Motion for Summary Judgment, Statement of Undisputed Material Facts in Support of Plaintiff's Motion for Summary Judgment (SOF), Statement of Legal Elements in Support of Plaintiff's Motion for Summary Judgment, and Land Court Rule 4 Index of Exhibits, include the Affidavit of Paul J. Bourque (Bourque Aff.) and Affidavit of Attorney Robert K. Hopkins (Hopkins Aff.). On February 16, 2016, Fitchburg filed a Motion for Leave to Amend Answer to Lee Bourque's Amended Counterclaim, which the court allowed. The Motion for Summary Judgment was heard in part on February 16, 2016, and a continued hearing on the Motion for Summary Judgment was held on March 1, 2016, where Lee presented arguments in opposition. The motion was taken under advisement, pending receipt of all briefs. On April 8, 2016, Lee filed his Response and Opposition to Fitchburg's Motion for Summary Judgment and Request of Judgment, Responses to Fitchburg's Statements of Undisputed Material Facts (Resp.) and Additional Statements of Undisputed Material Facts, Statement of Legal Elements, and Memorandum of Law in Support of his Response and Opposition to the Plaintiff's Motion for Summary Judgment, and Land Court Rule 4 Index of Exhibits. This Memorandum and Order follows.
Summary Judgment Standard
Summary judgment may be entered if the "pleadings, depositions, answers to interrogatories, and responses to requests for admission . . . together with the affidavits . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Mass. R. Civ. P. 56(c). In viewing the factual record presented as part of the motion, the court is to draw "all logically permissible inferences" from the facts in favor of the non-moving party. Willitts v. Roman Catholic Archbishop of Boston, 411 Mass. 202 , 203 (1991). "Summary judgment is appropriate when, viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law.'" Regis College v. Town of Weston, 462 Mass. 280 , 284 (2012), quoting Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117 , 120 (1991).
For the purposes of deciding this motion for summary judgment, the following facts are undisputed:
History of Mortgages, Promissory Notes, and Assignments
1. Fitchburg is a Massachusetts Limited Liability Company duly established under the laws of the Commonwealth of Massachusetts, having its usual place of business at 27 Milton Lane, Norwell, MA 02061. SOF, ¶ 1; Resp., ¶ 1; Bourque Aff., ¶ 5.
2. Lee resides at the property located at 10 Payson Street in Fitchburg (10 Payson Street). [Note 1] SOF, ¶ 2; Resp., ¶ 2.
3. In March 1999, Lee was the grantee of the Property under a deed from Norwest Mortgage, Inc. Bourque Aff., Exh. J, pp. 63-64.
4. On April 13, 1999, Lee granted John Christiano (Christiano) a mortgage on the Property (Christiano Mortgage) to secure a note of even date from Lee to Christiano in the amount of $9,722.00. The Christiano Mortgage was recorded on May 14, 1999 with the Worcester Northern District Registry of Deeds (registry) in Book 3387, Page 223. The Christiano Mortgage shows a term and maturity date of May 1, 2000. SOF, ¶ 4; Resp. ¶ 4; Bourque Aff., Exh. J, p.11.
5. Following the Christiano Mortgage, Lee financed and refinanced the Property several times:
a. On April 15, 1999, Lee granted a mortgage to Eastern Savings Bank to secure a note of even date for $62,500.00, recorded with the registry in Book 3371, Page 134. The mortgage was discharged on June 28, 1999, by a discharge recorded with the registry in Book 3413, Page 306.
b. On April 29, 1999, Lee granted a mortgage to Household Financial Corporation II (Household) to secure a note of even date for $97,135.78, recorded with the registry in Book 3378, Page 237. The mortgage was discharged on December 16, 2002, by a discharge recorded with the registry in Book 4469, Page 164.
c. On April 29, 1999, Lee granted a second mortgage to Household to secure a note of even date for $6,000.00, recorded in the registry in Book 3379, Page 37. The mortgage was discharged on May 12, 1999, by a discharge recorded with the registry in Book 3386, Page 124.
d. On January 25, 2000, Lee granted a third mortgage to Household to secure a note of even date for $107,000.24, recorded with the registry in Book 3520, Page 350. The mortgage was discharged on August 13, 2002, by a discharge recorded with the registry in Book 4286, Page 259.
e. On July 8, 2002, Lee granted a fourth mortgage to Household to secure a note of even date for $177,545.44, recorded with the registry in Book 4248, Page 234. The mortgage was discharged on April 26, 2004, recorded with the registry in Book 5231, Page 348.
f. On December 18, 2002, Lee granted a mortgage to Bourque Development Corporation (BDC) to secure a note of even date for $88,958.65, recorded with the registry in Book 4473, Page 54 (BDC Mortgage). The BDC Mortgage shows a term and maturity date of December 31, 2003.
g. On April 13, 2004, Lee granted a fifth mortgage to Household to secure a note of even date for $234,143.57, recorded with the registry in Book 5214, Page 156. The mortgage was discharged on August 28, 2007, by a discharge recorded with the registry in Book 6551, Page 342.
SOF, ¶¶ 5-6, 16; Resp., ¶¶ 5-6, 16; Bourque Aff., Exh. J.
6. Paul Bourque (Paul) is Lee's brother and the sole member and manager of Fitchburg. Prior to the creation of Fitchburg, Paul was the sole shareholder, officer, and director of BDC, a corporation organized for the purpose of developing a residential real estate project in Pembroke. SOF, ¶¶ 7-9; Resp., ¶¶ 7-9; Bourque Aff., ¶¶ 2, 5-6.
7. On March 19, 2010, Paul formed Fitchburg for the sole purpose of holding the debts owed to BDC by Lee and the security interests granted to BDC by Lee to secure the same. SOF, ¶ 10; Resp., ¶ 10; Bourque Aff., ¶ 7.
8. Between March 28, 2001 and December 13, 2002, BDC made a series of eleven loans to Lee to help him purchase and/or improve three multi-family properties in Fitchburg. As of December 16, 2002, those loans totaled $88,986.15 in principal and interest. The funds sent to Lee were generated by BDC through the sale of residential lots. SOF, ¶¶ 11-12; Resp., ¶¶ 11-12; Bourque Aff., ¶¶ 8-9, Exh. A.
9. In December 2002, BDC had documents prepared to formalize and memorialize the extent of the loans to Lee and the commercial nature of those loans, and to provide security for the same. As part of that process a Demand Promissory Note (BDC Note) was prepared. A mortgage and security agreement were simultaneously prepared under which BDC was granted a mortgage on three properties: 1) the Property, 2) 10 Payson Street, and 3) property at 29 Payson Street in Fitchburg (29 Payson Street), to provide collateral for Lee's outstanding debts to BDC (BDC Mortgage). SOF, ¶¶ 13-15; Resp., ¶¶ 13-15; Bourque Aff., ¶¶ 10-13, Exhs. B, C.
10. On September 10, 2004, Lee granted the last mortgage on the Property to Ameriquest Mortgage Co. (Ameriquest), to secure a note of even date for $265,200.00, recorded on October 1, 2004 with the registry in Book 5440, Page 82 (Ameriquest Mortgage). The Ameriquest Mortgage was not discharged and has since been assigned to Deutsche. SOF, ¶¶ 6, 16; Resp., ¶¶ 6, 16; Bourque Aff., Exh. J.
11. In September 2004, Lee contacted Paul to ask him to subordinate the BDC Mortgage to the Ameriquest Mortgage as part of refinancing the Property. On September 30, 2004, BDC entered into a forbearance agreement with Lee, under which BDC agreed to subordinate the BDC Mortgage to the Ameriquest Mortgage and to forbear enforcement of the BDC Mortgage, on the conditions that Bourque pay $10,000.00 out of the refinancing proceeds and grant BDC a new mortgage upon the property at 10 Payson Street (Forbearance Agreement). SOF, ¶¶ 17-18; Resp. ¶¶ 17-18, 96-100; Bourque Aff., ¶¶ 14-15, Exh. D.
12. Pursuant to the Forbearance Agreement, BDC tendered an executed subordination agreement to Lee that would only come into effect upon BDC's receipt of the required $10,000 from the Ameriquest refinancing and the grant of the new mortgage to BDC (Subordination Agreement). SOF, ¶ 19; Resp., ¶ 19; Bourque Aff. ¶ 16, Exh. E.
13. Lee never paid BDC the agreed-upon sum of $10,000. SOF, ¶ 20; Resp., ¶ 20; Bourque Aff., ¶ 17.
14. A year later in the fall of 2005, Lee approached Paul for a modification of the terms of the BDC Note. BDC entered into an agreement with Lee, whereby BDC agreed to extend the period of repayment under the BDC Note to a maturity date of December 1, 2007 (Extension Agreement). The Extension Agreement was never recorded. SOF, ¶¶ 21-22; Resp., ¶¶ 21-22; Bourque Aff., ¶¶ 18-19, Exhs. F, G.
15. Lee failed to pay and perform his obligations under the Extension Agreement. SOF, ¶ 23; Resp., ¶ 23; Bourque Aff., ¶ 20.
16. In 2010, when Paul started Fitchburg, the BDC Note and BDC Mortgage were assigned to Fitchburg. The assignment was recorded with the registry in Book 7145, Page 102. SOF, ¶ 24; Resp., ¶ 24; Bourque Aff., ¶ 21, Exhs. H, I.
Proceedings in Bankruptcy Action
17. On April 20, 2011, Lee filed a bankruptcy petition under Chapter 13 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court in the District of Massachusetts (Bankruptcy Court), which was assigned as Bankruptcy Petition # 11-41607 (Bankruptcy Action). SOF, ¶¶ 25, 28; Resp. ¶¶ 25, 28; Bourque Aff., ¶ 22; Hopkins Aff., ¶¶ 4-5, Exh. B.
18. At the time, Paul believed that Fitchburg was second in priority behind the Christiano Mortgage in relation to the Property. On August 5, 2011, Fitchburg purchased the Christiano Mortgage and the underlying related note thereto, and took an assignment on the note and mortgage from the holder, the Estate of Jack Rosenblitt. The assignment was recorded with the registry in Book 7461, Page 149. SOF, ¶¶ 26-27; Resp., ¶¶ 26-27; Bourque Aff., ¶¶ 23, 25, Exh. J.
19. On April 26, 2011, Lee filed a Creditors Matrix in the Bankruptcy Action, listing various creditors, including Fitchburg, BDC, and Jack Rosenblitt. SOF, ¶ 29; Resp., ¶ 29; Hopkins Aff., ¶ 6, Exhs. C.
20. On June 16, 2011, Lee filed his first summary of schedules with the Bankruptcy Court (First Schedule). The First Schedule listed Lee as holding total assets of $282,967.00$123,650.00 of which was listed as the Property and 10 Payson Street. It listed Lee's personal assets at $159,317.00 and his liabilities totaling $870,000.00. The First Schedule noted that the total secured claims against the Property totaled $450,000.00 and the total claims against 10 Payson Street totaled $325,000.00. SOF, ¶¶ 30-34; Resp., ¶¶ 30-34; Hopkins Aff. ¶ 7, Exhs. D.
21. Schedule D of the First Schedule identified creditors holding secured claims. It listed BDC as holding a third mortgage on the Property in the amount of $60,000.00 and a second mortgage on 10 Payson Street in the amount of $60,000.00. Additionally, Schedule D listed Fitchburg as holding a third mortgage on the Property for an "unknown" amount and Jack Rosenblitt as holding a second mortgage on the Property for an "unknown" amount. SOF, ¶¶ 35-36; Resp. ¶¶ 35-36; Hopkins Aff., Exh. D.
22. On August 25, 2011, Fitchburg filed and served its Proof of Claim, asserting a total claim of $253,204.84 against Lee. SOF, ¶ 37; Resp. ¶ 37; Hopkins Aff., ¶ 8, Exh. E.
23. As of August 31, 2011, the amount creditors claimed against Lee totaled $1,031,135.46. SOF, ¶ 38; Resp., ¶ 38; Hopkins Aff., ¶ 8, Exh. F.
24. On October 10, 2011, the Bankruptcy Court ordered the conversion of the petition from a Chapter 13 to a Chapter 7 petition. SOF, ¶ 39; Resp., ¶ 39; Hopkins Aff., Exh. B.
25. On October 24, 2011, Fitchburg filed a motion for relief from automatic stay with respect to the Property, as the first and second mortgagee. Fitchburg's motion was allowed on February 21, 2012. SOF, ¶ 40; Resp., ¶ 40; Hopkins Aff., ¶ 10, Exh. B.
26. On April 3, 2012, Lee filed a Motion to Amend the First Schedule to add additional creditors. The motion was allowed on April 23, 2012. SOF, ¶ 41; Resp., ¶ 41; Hopkins Aff., ¶¶ 11-12, Exhs. B, G.
27. An Amended Summary of Schedules, also filed April 3, 2012, reflected that Lee added $185,600.00 worth of liabilities to be discharged in the Bankruptcy Action, bringing his total liabilities to $1,055,600.00 (Amended Summary of Schedules). SOF, ¶ 42; Resp., ¶ 42; Hopkins Aff., ¶ 12, Exh. H.
28. The Bankruptcy Court entered the Order of Discharge and Certificate of Notice on April 9, 2012, discharging Lee from liability for his debts to Fitchburg, BDC, and others. SOF, ¶ 43; Resp., ¶ 43; Hopkins Aff. ¶ 13, Exh. B.
29. On April 30, 2012, Fitchburg conducted a foreclosure sale of the Property pursuant to G.L. c. 244, § 14, and effected an entry for the purposes of foreclosing its mortgage. Fitchburg then took control and possession of the Property, which continued until December 2013. SOF, ¶ 44; Resp., ¶ 44; Bourque Aff. ¶ 29, Exh. K. [Note 2]
30. On June 25, 2012, the Bankruptcy Court entered an Order discharging Deutsche and an Order to close the case. On June 29, 2012, Lee filed a Motion to Reopen Case, which was allowed on July 17, 2012. SOF, ¶¶ 45-46; Resp. ¶¶ 45-46; Hopkins Aff., ¶¶ 14-15, Exh. B.
31. On July 19, 2012, Lee filed his Motion to Amend Schedules B, C, D, and F, along with those Amended Schedules, an updated Summary of Schedules (which now listed his total assets as $139,765.00 and his total liabilities at $1,543,700.00), a Verified Declaration Concerning Debtor's Schedules, and an Amended Creditor Matrix. SOF, ¶ 47; Resp., ¶ 47; Hopkins Aff. ¶ 16, Exhs. I-L.
32. Neither the Amended Schedules nor the updated Summary of Schedules filed after the foreclosure listed as personal assets claims against Fitchburg for accounting or conversion. SOF, ¶ 48; Resp., ¶ 48; Hopkins Aff., Exhs. H, K.
33. On July 24, 2012, Fitchburg filed a second motion for relief from stay, due to Lee's reopening the Bankruptcy Action, for the purposes of being authorized to prosecute this action, which was granted by the Bankruptcy Court on August 21, 2012. SOF, ¶ 49; Resp., ¶ 49; Hopkins Aff., ¶ 17, Exh. B.
34. The Bankruptcy Action was finally closed on August 29, 2014. SOF, ¶ 50; Resp., ¶ 50; Hopkins Aff., ¶ 18, Exh. B.
35. Lee never listed as personal assets in the Bankruptcy Action any claims against Fitchburg related to Fitchburg's improper foreclosure, for accounting, or for conversion. SOF, ¶ 51; Resp., ¶ 51; Hopkins Aff. ¶ 19, Exh. D, H-K.
36. The Bankruptcy Action discharged a total of $253,204.84 in debt owed to Fitchburg. SOF, ¶ 52; Resp., ¶ 52; Hopkins Aff., ¶ 20, Exh. E.
Land Court Actions
37. Fitchburg filed this action (the Fitchburg Action) on May 21, 2012, to clear any cloud on the title attributable to Fitchburg's April 30, 2012 foreclosure of the Property without having first obtained a judgment under the Soldiers and Sailors Civil Relief Act against Lee. Deutsche was also named as a defendant. SOF, ¶ 53; Resp., ¶ 53.
38. On July 2, 2012, Deutsche initiated the Deutsche Action, bringing claims for equitable subrogation and Ibanez-type title problems. On September 13, 2012, Deutsche filed an Amended Complaint in the Deutsche Action, asserting that Fitchburg's foreclosure on the Property was improper due to the underlying mortgage having been discharged by operation of the Obsolete Mortgage Statute prior to the foreclosure. SOF, ¶¶ 54, 56; Resp., ¶¶ 54, 56.
39. This Court, and ultimately the SJC, found merit with Deutsche's argument, holding that the two mortgages held by Fitchburg, the Christiano Mortgage and BDC Mortgage, were deemed discharged pursuant to the Obsolete Mortgage Statute since five years had passed following the maturity dates stated on those mortgages. It was finally determined that Fitchburg lacked any legal interest in the Property (Decision). See Deutsche Bank Nat'l Trust Co. v. Fitchburg Capital, LLC, 471 Mass. 248 (2015); SOF, ¶ 60; Resp., ¶ 60.
40. In December 2013, while the appeal was pending in the Deutsche Action, Fitchburg filed a partially assented-to (by Deutsche) motion for appointment of a receiver pendente lite. The motion for appointment of a receiver and supporting affidavits and other materials demonstrated that the Property was effectively uninsured, subject to thousands of dollars in water bill arrearages, had a non-paying tenant who had not been evicted, and was in a state of disrepair. Over Lee's objections, this court allowed that motion and appointed Spaulding, from LAS, as the receiver for the Property pending appeal, expressly finding "sufficient ground to warrant appointment of a receiver." Spaulding, from LAS, took over management and control of the Property from Fitchburg at that time. SOF, ¶¶ 61-62; Resp., ¶¶ 61-62.
Lee's Remaining Claims
41. On August 3, 2015, Fitchburg filed its accounting with the court. SOF, ¶¶ 64-65; Resp., ¶¶ 64-65; Bourque Aff., ¶ 42, Exh. L.
42. Lee's primary objection with the accounting was that he was not provided with supporting line item documentation for its revenue and expenses. SOF, ¶ 66; Resp., ¶ 66.
43. The Corrected Accounting was filed on December 2, 2015. This contains line items showing that during the period of Fitchburg's possession and control of the Property, from May 2012 through December 2013, it received a total of $41,732.00 in rental revenue, and incurred $57,481.67 in total expenses and an additional $2,500.00 relating to opening and operating bank account and funding account shortfalls, for a total of $59,981.67 expenses. Under the Corrected Accounting, Fitchburg showed a loss of $18,249.67 in managing and maintaining the Property. SOF, ¶ 69-70; Resp., ¶ 69-70; Bourque Aff., ¶¶ 45-46, Exh. N.
44. Fitchburg's $59,981.67 of expenses in the Corrected Accounting can be broken down into the following groups:
a. Water and Sewer Bills: $5,980.46, of which $2,218.99 was inherited because of Lee's failure to pay when he was in possession of the Property.
b. Electric and Gas Bills: $391.27.
c. Property Taxes: $1,181.16.
d. Insurance: $5,504.64, of which $1,359.44 was expended after this Court entered final judgment and after the appointment of the receiver.
e. Repairs, Maintenance, and General Upkeep: $12,202.70.
f. Bourque Associates, Inc. (BAI) Paul's Labor, Administrative, Misc. Costs: $28,937.44.
g. Miscellaneous: $4,636.90 (legal fees for tenant evictions, opening bank accounts and funding shortfalls, bank fees, office supplies, etc.).
h. Funding to LAS: $1,147.10.
SOF, ¶ 71; Resp., ¶ 71; Bourque Aff., ¶ 47, Exhs. M, N.
45. Approximately $2,379.04 of Fitchburg's total expenses were items for the Property that BAI purchased (painting and other supplies) and mileage reimbursements for traveling to and from the Property. Paul's mileage expenses were billed at $0.55 per mile, at 150 miles per trip. BAI charged Fitchburg $95.00 per hour for Paul's professional services as a property manager, his going rate at the time. SOF, ¶¶ 72, 75; Resp., ¶¶ 72, 75; Bourque Aff., ¶¶ 48-50, Exhs. M, N.
46. In 2012, the U.S. Internal Revenue Service projected the standard mileage rate for business purposes at $0.55, increased to $0.565 in 2013. SOF, ¶ 73; Resp. ¶ 73.
47. According to its accounting and supporting documentation, LAS, as receiver of the Property, paid $45.00 per hour for general labor and maintenance services. SOF, ¶ 76; Resp., ¶ 76.
Fitchburg has moved for summary judgment on Lee's counterclaims for accounting and conversion. Fitchburg asserts that Lee is judicially estopped from bringing his claims based on his failure to schedule them as assets in the Bankruptcy Action. Fitchburg also contends that it is entitled to recoupment of Lee's contractual debts under the promissory note otherwise discharged through the Bankruptcy Action, or entitled to recovery through the principle of quantum meruit. Conversely, Lee argues that there are disputes of material fact that make summary judgment inappropriate at this stage. Alternatively, he contends that he should not be estopped from pursuing his rental income claim and Fitchburg should not be permitted to recoup rental revenue acquired pursuant to the discharge of the mortgages and loss of Fitchburg's security interest in the Property years prior to the April 30, 2012 foreclosure.
I. Judicial Estoppel.
"Judicial estoppel is an equitable doctrine that precludes a party from asserting a position in one legal proceeding that is contrary to a position it had previously asserted in another proceeding." Blanchette v. Sch. Comm. of Westwood, 427 Mass. 176 , 184 (1998), citing Fay v. Federal Nat'l Mtge. Ass'n, 419 Mass. 782 , 787-788 (1995); East Cambridge Sav. Bank v. Wheeler, 422 Mass. 621 , 623-624 (1996). "The purpose of the doctrine is to prevent the manipulation of the judicial process by litigants." Canavan's Case, 432 Mass. 304 , 308 (2000). "[T]wo fundamental elements are widely recognized as comprising the core of a claim of judicial estoppel": (1) the position being asserted in litigation is directly inconsistent with the position asserted in prior proceedings, and (2) the party must have succeeded in convincing the court to accept its prior position. Otis v. Arbella Mut. Ins. Co., 443 Mass. 634 , 640-641 (2005). As an equitable doctrine, judicial estoppel is not to be defined with reference to "inflexible prerequisites or an exhaustive formula for determining [its] applicability." New Hampshire v. Maine, 532 U.S. 742, 751 (2001). Rather, the doctrine is properly invoked whenever a "party is seeking to use the judicial process in an inconsistent way that courts should not tolerate." Otis, 443 Mass. at 640, quoting East Cambridge Sav. Bank, 422 Mass. at 623; Guay v. Burack, 677 F.3d 10, 16 (1st Cir. 2012); see New Hampshire, 532 U.S. at 749 ("Where one succeeds in asserting a certain position in a legal proceeding, one may not assume a contrary position in a subsequent proceeding simply because one's interests have changed."). "Application of the equitable principle of judicial estoppel to a particular case is a matter of discretion." Otis, 443 Mass. at 639-640, citing New Hampshire, 532 U.S. at 750.
Fitchburg argues that Lee should be barred by the doctrine of judicial estoppel from seeking a claim for conversion of rental income generated by the Property, collected by Fitchburg to rehabilitate, manage and maintain the Property, because Lee knowingly failed to schedule the claim in the Bankruptcy Action. In contrast, Lee "believes" that he was not required to inform the Bankruptcy Court about what occurred in relation to rental income from the Property after he received his Chapter 7 bankruptcy discharged and Fitchburg received its relief from stay from the bankruptcy court. Lee, however, does not point to any relevant case law or other evidence supporting his understanding that the Bankruptcy Court was not interested in what occurred in relation to the rental income on the Property.
Bankruptcy petitioners have an obligation to disclose all assets to the bankruptcy court, including any legal and potential claims. See 11 U.S.C. §§ 521(a)(1), 541(a)(1). The disclosure must take the form of an asset schedule, which can be amended if circumstances change during the course of the proceedings. Guay, 677 F.3d at 17, citing 11 U.S.C. §§ 521(a)(1), 541(a)(7) (estate property includes "[a]ny interest in property that the estate acquires after the commencement of the case"). "A long-standing tenet of bankruptcy law requires one seeking benefits under its terms to satisfy a companion duty to schedule, for the benefit of creditors, all his interests and property rights." Payless Wholesale Dists., Inc. v. Alberto Culver (P.R.), Inc., 989 F.2d 570, 571 (1st Cir. 1993), quoting Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 416 (3rd Cir. 1988). Courts have stressed the importance of disclosure, not only to the creditors but also to the bankruptcy court, and have found that a debtor's "failure to announce a claim against a creditor [in a bankruptcy proceeding] precludes [the debtor] from litigating the cause of action [at a later time]." Id. at 572, quoting Oneida Motor Freight, Inc., 848 F.2d at 418. "[I]t is well-established that a failure to identify a claim as an asset in a bankruptcy proceeding is a prior inconsistent position that may serve as the basis for application of judicial estoppel, barring the debtor from pursuing the claim in a later proceeding." Guay, 677 F.3d at 17.
Fitchburg conducted its foreclosure on April 30, 2012 and thereafter took possession of the Property. Fitchburg's Complaint in this action was filed on May 21, 2012. The Bankruptcy Action was closed on June 25, 2012, and then reopened on July 17, 2012 by Lee's motion. Lee reopened the action to amend his schedules to add other assets and liabilities. He also filed a Verified Declaration Concerning Debtor's Schedules and an Amended Creditor Matrix. In making his amendments, Lee never listed any rights relating to the improper foreclosure and possession of the Property, although the foreclosure of the Property had already occurred and the Fitchburg Action seeking to clear cloud on title had been filed. No claims were made for accounting or conversion as personal assets in the Bankruptcy Action. In this action, Lee asserted counterclaims on November 19, 2012, a few months after Fitchburg took control and possession of the property in May 2012, seeking to recover rental income Fitchburg obtained from the Property. Fitchburg controlled the Property until December 2013, when LAS was appointed the receiver. The Bankruptcy Action was not finally closed until August 29, 2014, leaving Lee ample time to make the necessary amendments to his schedule.
In the Bankruptcy Action, Lee had a duty to make known all of his claims and assets to the Bankruptcy Court. He had knowledge of the existence of additional assets in the form of his claims concerning Fitchburg's possession and use of the Property while he was still under an ongoing obligation to schedule them in the Bankruptcy Action prior to the final closure of the proceedings in 2014. Lee's silence about these claims in the bankruptcy record is significant. Because Lee failed to disclose these claims, including claims for rental income, in the Bankruptcy Action, essentially taking the position that he had no other potential claims against Fitchburg regarding the Property, he cannot in the present matter take the opposite position and come forward with claims seeking recovery for rental income from Fitchburg. Guay, 677 F.3d at 17. As a matter of law, he is foreclosed from prosecuting such claims here.
Following the now-invalid foreclosure of the Property, Fitchburg controlled the Property from May 2012 through December 2013, during which time it generated rental income in the amount of $41,732.00. Lee asserts counterclaims for accounting and conversion of the rental income Fitchburg obtained, alleging that Fitchburg has no legal right to receive any rental revenue from the Property and must return all revenue less reasonable expenses. Lee also challenges the accuracy of Fitchburg's accounting of rental revenue and expenses. In its defense, Fitchburg relies on the common law principle of recoupment.
"Recoupment [is] a common law concept, a defendant's claim arising out of the transaction that formed the basis of the plaintiff's claim; . . . it serve[s], if the defendant succeed[s] on it, to reduce or extinguish the plaintiff's claim, but it [can] not result in an affirmative recovery for the defendant." Bose Corp. v. Consumers Union of U.S., Inc., 367 Mass. 424 , 427-428 (1975); see May v. Sun Trust Mtge., Inc., 467 Mass. 756 , 762-763 (2014). In arising from the same transaction, the creditor's claim is essentially a defense to the debtor's claim. Id. at 758; In re Abbey Fin. Corp., 193 B.R. 89, 94 (Bankr. D. Mass. 1996) (recoupment is a defensive remedy). In the early Nineteenth Century, the SJC "applied the doctrine to contract actions, recognizing the right of a defendant facing suit for nonpayment on a contract, to assert defensively within the same action a claim for damages due to the plaintiff's own nonperformance of the same contract." May, 467 Mass. at 763. "The concept of recoupment subsequently was extended beyond cases concerning the sale of goods to actions on promissory notes given in payment of property sold or exchanged.'" Id., quoting Harrington v. Stratton, 22 Pick. 510 , 513 (1839). "[A]t common law, recoupment was not limited solely to contract actions." Id. at 763 n.14, citing Carey v. Guillow, 105 Mass. 18 , 20-21 (1870).
"[T]he common-law understanding of recoupment" is that it is "a defensive mechanism whereby a defendant may, at any time, assert claims against the plaintiff in reduction of the plaintiff's claims when those claims may arise out of the same transaction; it is an offsetting of liabilities within a transaction." Id. at 765. Recoupment is not directly regulated by the Bankruptcy Code and thus "constitutes an equitable exception to the Bankruptcy Code § 362(a)(7) prohibition against offsetting reciprocal debts." In re Holyoke Nursing Home, Inc., 372 F.3d 1, 3 (1st Cir. 2004). As such, recoupment is unaffected by any bankruptcy proceeding, and may be used to deduct from debts owed to a debtor as a matter of course. In re Slater Health Ctr., Inc., 398 F.3d 98, 103 (1st Cir. 2005). This is because "it would be inequitable for [a debtor] to enjoy the benefits of [the same] transaction without also meeting its obligations." In re Holyoke Nursing Home, Inc., 372 F.3d at 5, quoting In re University Med. Ctr., 973 F.2d 1065, 1081 (3rd Cir. 1992). "Overall, recoupment was a significant development in the law because it allowed for full and complete justice [to] be done to the parties in a single suit,' thus avoid[ing] circuity of action' caused when parties had no alternative but to bring a separate cross action to assert their defensive claims." May, 467 Mass. at 763, quoting Harrington, 22 Pick. at 517.
Fitchburg is entitled to the common law defense of recoupment against Lee's counterclaims if its claims against Lee arise out of the same transaction as Lee's claims. The Fitchburg Action arose out of Lee's defaults on loans secured by mortgages on the Property. Fitchburg initially sought to clear a cloud on title to the Property, attributable to having failed to first obtain a judgment under the Soldiers and Sailors Civil Relief Act prior to proceeding with the foreclosure of the mortgages. Lee's liability on these loans has been discharged in the Bankruptcy Action. In the Deutsche Action, Deutsche and Lee successfully asserted, and the SJC agreed, that Fitchburg had no legal right to foreclose and possess the Property under the Obsolete Mortgage Statute since five years had passed following the maturity dates stated on the Christiano Mortgage and BDC Mortgage. Lee's counterclaims for accounting and conversion of the rental income from Fitchburg are derived from this successful claim. Lee's discharged debts secured by the mortgages on the Property are what put Fitchburg in a position to attempt foreclosure, take control of the Property, and acquire the rental income that is the subject of Lee's claims for accounting and conversion. There is a clear and distinct nexus between Lee's contractual debt to Fitchburg and Fitchburg's obsolete mortgages, and Lee's counterclaim for accounting and conversion against Fitchburg. These claims are closely intertwined and stem from the same transaction for purposes of recoupment.
Under the circumstances, Fitchburg is entitled to recoup, at a minimum, the $98,680.65 of the Christiano Mortgage and BDC Mortgages that was included in the $253,204.84 Lee owed Fitchburg when Fitchburg filed its Proof of Claim in the Bankruptcy Action. The recoupment figure far exceeds Lee's accounting and conversion claims, which amount to only $41,732.00 of rental income (less reasonable and necessary management expenses). Lee would receive a windfall if he were permitted to affirmatively recover in this action and receive the rental income obtained by Fitchburg in addition to having the outstanding debt on his defaulted mortgages on the Property discharged as a matter of law. It would be unjust for Lee to experience only the benefits of the same transaction, without satisfying its obligations. Lee, therefore, has no ability to recover and his counterclaims are dismissed.
III. Quantum Meruit.
Quantum meruit is a theory of recovery where "[a] person who has been unjustly enriched at the expense of another is required to make restitution to the other." Salamon v. Terra, 394 Mass. 857 , 859 (1985), quoting Restatement of Restitution § 1 (1937). Such damages are used in matters involving legal obligations which are not based on an agreement, known as "quasi-contracts." Metropolitan Life Ins. Co. v. Cotter, 464 Mass. 623 , 643-644 (2013). A quasi- contract is "not really a contract, but a legal obligation closely akin to a duty to make restitution." Salamon, 394 Mass. at 859, quoting Bloomgarden v. Coyer, 479 F.2d 201, 210 (D.C. Cir. 1973). "[T]hat a person has benefited from another is not of itself sufficient to require the other to make restitution." Keller v. O'Brien, 425 Mass. 774 , 778 (1997), quoting Restatement of Restitution § 1, comment c (1937). "The underlying basis for awarding quantum meruit damages in a quasi-contract case is the unjust enrichment of one party and unjust detriment to the other party." Liss v. Studeny, 450 Mass. 473 , 479-480 (2008), quoting Salamon, 394 Mass. at 859. "The injustice of the enrichment or detriment equates with the defeat of a person's reasonable expectations." Id. at 480; Malonis v. Harrington, 442 Mass. 692 , 697 (2004) (underlying basis for this legal obligation is derived from principles of equity and fairness, to prevent unjust enrichment of one party at the expense of another).
Under the principles of quantum meruit, Fitchburg is entitled to restitution for its reasonable expenses in rehabilitating, maintaining, and managing the Property. Those expenses, listed in the Corrected Accounting, reflect a quantum meruit claim for $59,981.67. Though Lee challenges this accounting, the Corrected Accounting and supporting documentation in the record demonstrate the reasonableness of these figures. The documents themselves contain line items for "income" and "property expenses." The expenses include actual costs of utility bills, property taxes, property insurance, repairs and maintenance, operating funding, labor, and other miscellaneous expenditures. The record contains the affidavit of Paul Bourque, in which he certifies the accuracy and veracity of those line items. Bourque Aff., ¶¶ 45-48, Exhs. M, N.
Lee argues that Paul's fees in relation to Fitchburg's management and maintenance of the Property are unreasonable and unnecessary. Lee believes that it is more reasonable to pay Fitchburg the same monthly management fee that LAS, as manager and receiver, charged, $114.00 per month. This equals $2,280.00 in management expenses for the entire twenty months of Fitchburg's control of the Property. Lee gives no justification for why Paul's expenses were too high nor does he specifically reference line items in the accounting that were unreasonable. Paul's mileage expenses of $0.55 per mile are reasonable based on the same standard mileage rate for business purposes used by the U.S. Internal Revenue Service. Though BAI charged Fitchburg $95.00 per hour for Paul's professional services as a property manager, while LAS charged $45.00 per hour, Lee has presented nothing to suggest why Paul's hourly rate is arbitrary. Paul has attested that $95.00 was his going professional market rate. Bourque Aff., ¶¶ 48, 50, Exh. N. There is no factual basis to contest Paul's travel, labor, and management costs contained in the Corrected Accounting.
Like the recoupment figure above, Fitchburg's quantum meruit amount exceeds Lee's rental income claim of $41,732.00, leaving Lee with no ability to recover damages he claims were caused by conversion. Accordingly, Lee's counterclaims are dismissed on the basis of quantum meruit as well.
For the foregoing reasons, the Plaintiff's Motion for Summary Judgment is ALLOWED. Judgment shall enter dismissing the Complaint and the Counterclaim in this action with prejudice.
[Note 1] The 10 Payson Street property is not the subject of this litigation.
[Note 2] Both the Land Court and the SJC ruled that this foreclosure was unlawful because the mortgage was obsolete and deemed discharged before the foreclosure. Deutsche Bank Nat'l Trust Co. v. Fitchburg Capital, LLC, 471 Mass. 248 (2015).