Phx. Reo, LLC v. Patel

96 Mass.App.Ct. 1102

134 N.E.3d 1148 (Table)

PHOENIX REO, LLC

v.Nayan C. PATEL.¹

18-P-244

Appeals Court of Massachusetts.

Entered: September 17, 2019

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

The defendant, Nayan C. Patel, appeals from a final judgment, including an award of attorney's fees, entered after summary judgment was granted in favor of the plaintiff, Phoenix REO, LLC (REO), and third-party defendants, Phoenix NPL, LLC (NPL) and Capital Crossing Servicing Company, Inc. (Capital Crossing) on count one of REO's verified amended complaint, and Patel's three third-party claims. On appeal, Patel contends that (1) the judge erred in granting summary judgment against him on his counterclaim and third-party claims; and, (2) the attorney's fee award was excessive. For its part, REO requests appellate attorney's fees. We vacate the portions of the final judgment as to Patel's counterclaim seeking a declaratory judgment, and the award of attorney's fees. The remainder of the judgment is affirmed.

Background. Patel is a manager of Hanish, LLC (Hanish), a New Hampshire limited liability company that manages a hotel in Hookset, New Hampshire. On October 5, 2007, Patel executed a construction loan agreement on Hanish's behalf for a loan in the amount of $5.9 million (first loan) from the National Republic Bank of Chicago (NRBC). The NRBC secured this loan with a mortgage on the hotel and a personal guaranty from Patel (the guaranty).

On March 6, 2009, Patel signed, as manager of Hanish, another loan agreement with the NRBC on behalf of Hanish, this time borrowing $450,000 (second loan). The NRBC secured this loan with only a mortgage on the hotel. Patel never personally guaranteed the second loan.

The NRBC failed in early 2015 and the Federal Deposit Insurance Corporation transferred both loans to NPL. Hanish struggled to repay the first loan, and Hanish and NPL entered into negotiations. These negotiations eventually fell through. When the negotiations ended, NPL transferred the loans to REO, and REO sued Patel to enforce his guaranty on the first loan. Patel counterclaimed against REO and sued NPL and Capital Crossing as third-party defendants for the following: (1) violation of G. L. c. 93A, § 9 (REO and Capital Crossing); (2) breach of the implied covenant of good faith and fair dealing (REO and NPL); and (3) declaratory judgment regarding the parties' rights under the guaranty (REO and Capital Crossing). REO and the third-party defendants moved for summary judgment on all claims, and the judge ruled in their favor, granting summary judgment on count one of REO's amended complaint and each of Patel's counterclaims. REO was awarded $7,323,570.49 on count one of its amended complaint, which included requested attorney's fees pursuant to the guaranty. This appeal followed.

Discussion. 1. Summary judgment on Patel's claims. Summary judgment for REO and the third-party defendants was appropriate only if they could " ‘show[ ] that there is no genuine issue as to any material fact and that [they are] entitled to a judgment as a matter of law’ based on the undisputed facts." Premier Capital, LLC v. KMZ, Inc., 464 Mass. 467, 474, 984 N.E.2d 286 (2013), quoting Mass. R. Civ. P. 56 (c), as amended, 436 Mass. 1404 (2002). "In reviewing the grant of a motion for summary judgment, we conduct a de novo examination of the evidence in the summary judgment record, and view the evidence in the light most favorable to the part[y] opposing summary judgment" (citation omitted). LeBlanc v. Logan Hilton Joint Venture, 463 Mass. 316, 318, 974 N.E.2d 34 (2012).

a. Chapter 93A. Patel contends that the judge should not have granted summary judgment on his claim that REO and Capital Crossing violated G. L. c. 93A by planning to foreclose on the hotel and apply the proceeds to the second loan first, thus unfairly expanding his liability under the guaranty. We disagree.

Here, Patel pleaded this claim under G. L. c. 93A, § 9, which pertains to consumer transactions, rather than § 11, which, relevant here, pertains to commercial transactions in business contexts. Gargano & Assoc., P.C. v. John Swider & Assoc., 55 Mass. App. Ct. 256, 262, 770 N.E.2d 506 (2002). In any event, Patel would fare no better even if we were to consider his claim under § 11. To prevail on a § 11 claim, Patel would have had to demonstrate a "loss of money or property, real or personal, as a result of the use or employment ... of an unfair method of competition or an unfair or deceptive act or practice." G. L. c. 93A, § 11, first par. Because there is no indication that REO or Capital Crossing foreclosed on the hotel and applied the proceeds to the second loan first, Patel is unable to make that showing on this record. Accordingly, summary judgment properly entered for REO and Capital Crossing on this claim.

b. Implied covenant of good faith and fair dealing. Patel also challenges the entry of summary judgment on his implied covenant of good faith and fair dealing claim. He asserts that REO and NPL violated this covenant by negotiating with him while simultaneously planning to expand his liability under the guaranty. We again disagree.

Under Illinois law, which is applicable here,³ "[i]n order to plead a breach of the covenant of good faith and fair dealing, a plaintiff must plead existence of contractual discretion." Mid-West Energy Consultants, Inc. v. Covenant Home, Inc., 352 Ill. App. 3d 160, 165, 287 Ill.Dec. 267, 815 N.E.2d 911 (2004). Here, Patel has not shown any contractual discretion that REO or NPL abused. Furthermore, because nothing in the record indicates that REO or NPL had expanded Patel's liability under the guaranty, his claim for damages are speculative. See Feldstein v. Guinan, 148 Ill. App. 3d 610, 613, 101 Ill.Dec. 947, 499 N.E.2d 535 (1986) (Illinois law does not allow contract breach suits for mere speculative damages). We conclude, therefore, that the judge properly entered judgment in favor of REO and NPL on this claim as well.

c. Declaratory judgment. In this last challenge to the entry of summary judgment, Patel asserts that the judge erred in granting summary judgment to REO and Capital Crossing on his prayer for declaratory relief, which if answered in his favor, would prohibit REO and Capital Crossing from applying foreclosure proceeds to the second loan before applying those proceeds to the first loan.

Declaratory judgment may enter "either before or after a breach or violation [of a right, duty, status, or other legal relation] has occurred in any case in which an actual controversy has arisen and is specifically set forth in the pleadings." G. L. c. 231A, § 1. Declaratory judgment is especially appropriate "where the circumstances ... indicate that, unless a determination is had, subsequent litigation as to the identical subject matter will ensue." Hogan v. Hogan, 320 Mass. 658, 662, 70 N.E.2d 821 (1947).

Here, an actual controversy exists as to whether the guaranty grants REO and Capital Crossing the ability to apply foreclosure proceeds to the second loan before applying them to the first loan. See Nissenberg v. Felleman, 339 Mass. 717, 725-726, 162 N.E.2d 304 (1959) (declaring obligations of principal and coguarantors is appropriate use of declaratory judgment). If, in the absence of a judicial declaration, REO and Capital Crossing applies the foreclosure proceeds to the second loan before applying them to the first, it is likely that identical litigation will ensue. Accordingly, in our view, these circumstances are ripe for declaratory judgment.

Furthermore, Patel's contention that Illinois law prohibits REO and Capital Crossing from first applying foreclosure proceeds to the second loan has some heft to it. Under Illinois law, a guarantor's liability "cannot be varied or extended beyond the precise terms of the guaranty," and "any doubts relative to the language of a guaranty ... must be resolved in favor of the guarantor." Emrick v. First Nat'l Bank, 324 Ill. App. 3d 1109, 1114, 258 Ill.Dec. 640, 756 N.E.2d 914 (2001). Patel...