v. Prosky

468 Mass. 247

10 N.E.3d 117

K.G.M. CUSTOM HOMES, INC.

v.Stephen J. PROSKY & others.¹

SJC–11449.

Supreme Judicial Court of Massachusetts, Bristol.

Argued Feb. 4, 2014.

Decided May 29, 2014.

Michelle N. O'Brien, Boston, for the plaintiff.

Edmund A. Allcock (Haley Byron with him), Braintree, for the defendants.

Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, GANTS, DUFFLY, & LENK, JJ.

CORDY, J.

On October 12, 1999, the defendants, Stephen J. Prosky, Karen Monteiro, and Joan Stormo (Proskys),² executed a purchase and sale agreement with the plaintiff, K.G.M. Custom Homes, Inc. (K.G.M.). The Proskys agreed to sell approximately 45.7 acres of land in Norton to K.G.M. for the purpose of developing residential homes, with the price to be determined by the number of “approved and permitted buildable house lot[s],” and the closing set for twenty-one days “after all final approvals are granted and the expiration of any and all appeal periods.” In or about August, 2004, after a five-year process, during which time K.G.M. worked to gain approval for its development plan, and after a dispute over the calculated sale price, Peter T. Clark, the Proskys' attorney, falsely told one of K.G.M.'s attorneys that the Proskys had received a higher offer for the property and informed him that K.G.M. should calculate its damages based on the liquidated damages provision of the purchase and sale agreement. K.G.M. filed suit for specific performance. While the suit was pending, K.G.M. received final approval for its plan, and the parties met at the office of K.G.M.'s real estate attorney, Henry J. Sousa, Jr., in an attempt to close on the sale of the property. Due to Clark's withholding of information in the days leading up to the closing, as well as his behavior at the closing, the parties were unable to close the sale.

After a jury-waived trial, a Superior Court judge ruled that the Proskys anticipatorily repudiated the purchase and sale agreement when Clark told K.G.M. that the Proskys had a higher offer and to calculate its liquidated damages. The judge further found that Clark's “attempt to scuttle the deal” at closing constituted an actual breach of the implied covenant of good faith and fair dealing and, as a result, he allowed K.G.M. to choose either compensatory damages as provided by the liquidated damages provision of the purchase and sale agreement, or specific performance.³ K.G.M. elected to receive compensatory damages.

On appeal, the Proskys do not contest the finding that they anticipatorily repudiated the agreement, but argue that their attorney's actions at the closing did not constitute an actual breach, and that therefore monetary damages were not available, as specific performance is the only recognized remedy for anticipatory repudiation. They further argue that it was K.G.M. who committed a breach of the agreement at the closing by failing to show that it was able to perform in accord with its terms. Additionally, the Proskys argue that K.G.M. failed to make a seasonable election of remedies where it did not amend its complaint to seek compensatory damages under the liquidated damages provision of the agreement. Finally, they argue that, even if they did commit an actual breach that properly gave rise to the judge's remedy, the judge erred in holding them liable for attorney's fees incurred in connection with the litigation of this matter.

In an unpublished memorandum and order pursuant to Appeals Court rule 1:28, a panel of the Appeals Court affirmed the judgment insofar as it awarded the plaintiffs specific performance, and reversed the judgment insofar as it awarded money damages and attorney's fees. KGM Custom Homes, Inc. v. Prosky, 81 Mass.App.Ct. 1118, 2012 WL 694429 (2012). We granted K.G.M.'s application for further appellate review.

We conclude that the findings of the trial judge, based on the scope of the actual litigation, sufficiently established that the initial anticipatory repudiation of the agreement morphed into an actual breach by the Proskys, and not K.G.M., at the failed closing. Thus, the judge's decision offering K.G.M. a choice of remedy was proper, and an amendment of the complaint was not necessary. We further conclude that the judge erred in awarding K.G.M. attorney's fees incurred in litigating this suit where the liquidated damages clause of the agreement only contemplated attorney's fees incurred in connection with the underlying transaction. Therefore, we affirm the judge's decision except as to the awarding of attorney's fees.

1. Background. We summarize the relevant facts as found by the trial judge in his order for judgment.

The Proskys are three siblings who, together, own a sizeable plot of land on the north side of South Worcester Street in Norton.⁴ In 1999, the Proskys discussed the prospect of selling their land with David Joyce, their real estate broker, who suggested that the land could be developed for affordable housing. In facilitation of that end, Joyce put the Proskys in touch with K.G.M., a real estate development company located in North Easton and owned by Gregory Mills and his wife.⁵

On or about October 12, 1999, the parties executed a purchase and sale agreement, in which the Proskys agreed to sell lots 103, 103–02, and 103–03 to K.G.M.⁶ at a purchase price that was to be determined based on the number of “approved and permitted buildable house lot[s],” after K.G.M. received the necessary permits and approval to develop residential housing. ⁷ The closing date was to be twenty-one days “after all final approvals are granted and the expiration of any and all appeal periods.”

The agreement also contained a liquidated damages provision that specified that in the event of a breach by the Proskys, “the [Proskys] shall pay [K.G.M.], as liquidated damages, a sum of money equal to all charges and fees paid by [K.G.M.] in connection with this transaction, including but not limited to, attorney's fees.”

After the execution of the agreement, K.G.M. began planning for its residential development, and spent several years acquiring the necessary permits. Although the zoning board of appeals of Norton (town) issued a decision in 2003 allowing sixty residential units, K.G.M. was forced to litigate an opposition to the project by the town's board of selectmen.

In May, 2004, while K.G.M. was discussing settlement options in the civil suit with the board of selectmen, Clark took over as counsel for the Proskys. In August, 2004, Clark informed K.G.M.'s counsel in the civil suit that the Proskys had another offer to purchase the property at a substantially higher price. He stated his belief that the property was worth $75,000 per residential unit and attempted to renegotiate the price. He also told K.G.M.'s counsel to advise K.G.M. that it should calculate its damages pursuant to the liquidated damages clause in the agreement, because the Proskys no longer intended to sell the property to K.G.M.

Despite Clark's statements, K.G.M. still sought to close the transaction and executed a settlement agreement with the board of selectmen.⁸ On December 3, 2004, after Joyce had attempted to contact Steven Prosky on behalf of K.G.M., Clark left a voice mail message for Joyce and instructed him not to have any further contact with the Proskys and that he had “a new offer on the table from another purchaser for that property.”

It is undisputed that Clark never had a formal offer from any other party to purchase the property. The Proskys testified that they did not know of any other offer, and that they had no intention of backing out of the deal.

On December 21, 2004, K.G.M. filed suit against the Proskys alleging in its complaint that they had committed a breach of the implied covenant of good faith and fair dealing, and seeking specific performance of the agreed-on conveyance of the property for the price of $720,000.⁹

During the pendency of that suit, on April 29, 2005, K.G.M. received final approval for its proposed development plan. K.G.M.'s attorney informed the Proskys that K.G.M. was “ready, willing and able to close on the purchase,” and that K.G.M. would appear for the closing on May 20, 2005, at Sousa's office.

In preparation for the closing, Clark prepared, and the Proskys signed, several legal documents necessary for the transaction.¹⁰ However, Clark did not forward drafts of those documents to Sousa, or otherwise contact him, in the days leading up to the closing date. As a result, Sousa did not prepare any documents on behalf of K.G.M. for the closing, but was prepared to do so at his office during the closing.

On May 20, 2005, K.G.M. (Mills), Joyce, Stephen Prosky, and Clark all arrived at Sousa's office to attempt to close the transaction. Mills brought and produced a check from a $250,000 line of credit to pay his expenses, made payable to the Proskys.

Clark testified at his deposition that, at the time of the closing, he did not believe that the parties had a valid contract. At the closing, Clark, apparently acting on his own, brought a videographer with him to record the closing as a “defense strategy.” Sousa objected to the recording, and the two engaged in a heated argument over the presence of the videographer.¹¹ When the parties finally attempted to complete the closing, Sousa asked Clark to show him the note and mortgage that Clark had prepared.

Clark refused to give the documents to Sousa, and instead held them up at a distance. When Sousa tried to take them, Clark again refused to turn them over for analysis. Instead, he held them up and asked Sousa if he could read them from two feet away.¹² Believing that the Proskys had no intention of agreeing to the closing, Sousa informed Clark that the proffered closing documents were unacceptable. As a result, Sousa and Clark could not agree on the purchase price and the parties never closed the sale.

2. The trial. In November, 2009, a jury-waived trial was held on K.G.M.'s complaint. K.G.M. had not amended...