Massachusetts Appeals Court Allows G.L. c. 93A Claim while Finding No Contract Breach

GIUFFRIDA vs. HIGH COUNTRY INVESTOR, INC.
No. 07-P-751. November 24, 2008.

The Massachusetts Appeals Court has ruled that a family who had “shopping and dining privileges for life”, as part of the the sale of their Saugus, Massachusetts steak restaurant, could maintain an action for unfair business practices in violation of G.L. c. 93A when a subsequent buyer terminated those rights. This was so, even though the Court also upheld the dismissal of breach of contract and other related claims against the buyer, finding that the termination was justified because the buyer had exercised an option to purchase the real property where the restaurant was located.

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The Plaintiffs were the wife and two daughters of Frank Giuffrida, founder of the Hilltop Steak House restaurant, who died in December, 2003 at the age of 86. Giuffrida had negotiated the privileges as part of the sale of the restaurant in the late 1980s. The defendant, High Country Investor, Inc., acquired Hilltop in 1994 by means of an asset purchase from the original buyer. In September, 2004, High Country ceased to provide the privileges, claiming that the plaintiffs’ rights had terminated. The plaintiffs then filed suit.

The initial sale had not included the land and building where Hilltop operated. Rather, there was a lease, which included provisions also contained in the purchase and sale agreement, in which the new tenant agreed to provide Giuffrida and and his immediate family dining and shopping privileges at Hilltop during their lives. The Lease also contained an option for the tenant to buy the premises after Giuffrida’s death. In 1994, the initial buyer sold certain assets, including Hilltop, to High Country, which also received an assignment of the Lease, and assumed the tenant’s obligations therein. Following Giuffrida’s death, High Country gave written notice of its intent to exercise the option to purchase the property.

Difficult negotiations ensued, during which the Plaintiffs alleged that High Country had advised them that they would create problems with respect to the privileges if they did not agree to sell the optioned premises. The Plaintiffs claimed that they elected to accept High Country’s reduced offer in order to avoid any interference with the continuation of their privileges. The sale took place in March, 2004. The plaintiffs did nothing to formally preserve the privileges prior to the closing, because they believed they were “etched in stone”. Five months later, High Country gave notice that it was terminating the free privileges.

The Appeals Court considered Plaintiffs’ various counts, which included breach of contract (two counts), breach of the duty of good faith and fair dealing, estoppel, intentional interference with advantageous contractual relations, intentional infliction of emotional distress and violation of G.L. c. 93A. It upheld the lower Court’s granting of summary judgment on all counts with the exception of the G.L. c. 93A claim.

With respect to the contract based claims, the Court found that High Country’s covenant to provide the privileges terminated along with the Lease, which terminated based on the Notice of Termination by the seller and by operation of law, because High Country’s acquisition of Ranch’s title to the land effected “a union of the greater and the lesser estate in the same person and in the same right”.

With respect to the purchase and sale agreement, because High Country acquired Hilltop by means of an asset purchase, it did not automatically succeed to the obligations of the original buyer. “[T]he liabilities of a selling predecessor corporation are not imposed on the successor corporation which purchases its assets unless (1) the successor expressly or impliedly assumes liability of the predecessor, (2) the transaction is a de facto merger or consolidation, (3) the successor is a mere continuation of the predecessor, or (4) the transaction is a fraudulent effort to avoid liabilities of the predecessor.” The Court found that none of these exceptions applied.

Of particular interest, the Court reversed the lower court decision granting summary judgment of the G.L. c. 93A claim. It found that the negotiations concerning the exercise of High Country’s option and the eventual termination of the Lease and sale were acts undertaken by the plaintiffs primarily to further business objectives., i.e., to resolve the Seller’s obligations under the Lease and to sell its commercial real estate. Thus, because the plaintiffs were motivated by business considerations, their claim was one under § 11 rather than § 9, even though their personal interests in the privileges also were implicated. The Court rationalized that the Plaintiffs were persons who suffered a loss of money or property–the termination of their privileges as third-party beneficiaries of High Country’s covenant with the seller, as a result of the alleged unfair or deceptive acts of High Country.

The Court concluded that it was “open to a trier of fact to find that High Country violated c. 93A by representing to the plaintiffs that the privileges would remain undisturbed if they proceeded to close, while actually intending that the privileges terminate after the deal concluded”. The Appeals Court remanded the case to the Superior Court for further consideration of the remaining claims.
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