Brennan v. Ferreira

• Court: Massachusetts Appeals Court
• Decided: February 17, 2023
• Docket: AC 22-P-9
• Status: Published

Opinion

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22-P-9 Appeals Court

LINDA BRENNAN vs. THOMAS F. FERREIRA & others.1

No. 22-P-9.

Bristol. November 14, 2022. – February 17, 2023.

Present: Green, C.J., Vuono, & Brennan, JJ.

Damages, Interest. Interest. Practice, Civil, Interest. Corporation, Stockholder's derivative suit.

Civil action commenced in the Superior Court Department on April 25, 2013.

The case was heard by Thomas F. Maguire, Jr., J.

Samuel M. Pollack for the plaintiff. Richard M. Bennett for the defendants.

GREEN, C.J. In this appeal from a judgment of the Superior

Court, the plaintiff, Linda Brennan, contends that the trial

judge erred in refusing her request for statutory prejudgment

interest on damages awarded to her. We agree that the judge

1 Barbara J. Ferreira, Land Locker, Inc., and F & B Rubberized, Inc. 2

should have awarded statutory prejudgment interest, and vacate

the judgment.2

Background. We summarize the facts found by the trial

judge following a jury-waived trial (which the parties do not

dispute on appeal), together with certain other undisputed

background facts appearing in the record.

Beginning in the early 1970s, Brennan and her then husband

were in business with the defendants Thomas F. Ferreira and

Barbara J. Ferreira. Each couple owned fifty percent of the

stock of two corporations: (1) F & B Enterprises, Inc. (F & B

Enterprises), and (2) Land Locker, Inc. (Land Locker), which

owned the property on which F & B Enterprises operated. As time

went on, the couples decided to separate their business

interests. In 1995, the Brennans transferred their stock in

both F & B Enterprises and Land Locker to each corporation in

exchange for an agreement (stock purchase agreement) by each

corporation to make future payments.3

In 2000, F & B Enterprises filed for bankruptcy and was

liquidated and dissolved, without fully compensating Brennan.

Land Locker also failed to pay Brennan as agreed. Meanwhile,

2 We also agree with Brennan that the judge made a computational error in determining the amount of damages.

3 Sometime thereafter, Brennan acquired her husband's interest in the stock purchase agreements through the couple's divorce. 3

following the bankruptcy of F & B Enterprises, the Ferreiras

formed a new corporation, the defendant F & B Rubberized, Inc.

(Rubberized), which began to operate its business on Land

Locker's property without paying rent.

In 2006, Brennan brought an action against the Ferreiras

and Land Locker, claiming that they were in breach of the stock

purchase agreements. A judgment entered in favor of Brennan,

who was given the choice either to receive money damages or to

reclaim fifty percent of the stock of Land Locker. Brennan

opted for the latter choice, and reclaimed her share of Land

Locker stock in March 2009. However, the Ferreiras remained in

control of Land Locker, continued to operate Rubberized on Land

Locker's property without paying rent, and failed to make any

distributions to Brennan.4

In 2013, Brennan commenced the present action, which

included a derivative claim on behalf of Land Locker.5 At

Brennan's request, a receiver was appointed to liquidate Land

4 Land Locker also owned some residential rental properties, and the Ferreiras collected rents from those tenants without depositing the money into a Land Locker bank account.

5 In addition to the derivative claim, Brennan asserted eight other claims. Only two of Brennan's claims went to trial: her derivative claim and a claim for breach of fiduciary duty. Brennan's appeal focuses on her derivative claim. While she argues that she was also entitled to statutory prejudgment interest on the damages awarded on her breach of fiduciary duty claim, those damages were not distinct from the damages on her derivative claim, and we need not reach the question. 4

Locker's assets. In May 2017, the receiver issued his final

accounting. After payment of certain tax liabilities, Land

Locker had a liquidation account balance of $427,782.50. The

receiver disbursed an advance of $200,000 from the liquidation

account to Brennan, and deposited the remainder with the court

pending the outcome of the case. Also in May 2017, the

derivative claim was tried before a Superior Court judge, who

ruled in Brennan's favor. The judge found that the Ferreiras

owed Land Locker $523,831.50, derived from $628,831.50 in unpaid

rent, less two credits totaling $105,000.6 The judge accordingly

awarded Brennan fifty percent of $523,831.50, reflecting her

fifty percent interest in Land Locker, but then applied against

that amount the $200,000 previously distributed to Brennan from

the liquidation account.7

Discussion. 1. Prejudgment interest. We first consider

Brennan's claim that she was entitled to statutory prejudgment

interest on the damages awarded on her derivative claim.8 Citing

6 One credit, for $80,000, reflected the amount the Ferreiras spent maintaining and repairing Land Locker's property. The other credit, for $25,000, reflected the amount the court ordered the Ferreiras to pay in back rent to fund the receivership.

7 The judge also awarded Brennan $121,205.16 in attorney's fees and receiver's fees, and that award is not in dispute.

8 Prejudgment interest is authorized at the rate of twelve percent per annum (i) for tort claims, see G. L. c. 231, § 6B; (ii) for contract claims where the contract rate has not been 5

International Bhd. of Elec. Workers Local No. 129 Benefit Fund

v. Tucci, 476 Mass. 553, 557 (2017), and Merola v. Exergen

Corp., 423 Mass. 461, 464 (1996), the judge declined to award

statutory prejudgment interest on the basis that a derivative

suit is based in equity and that, therefore, the litigation did

not result in damages.9

At the outset, we observe that damages provide

"compensation for loss." Governo Law Firm LLC v. Bergeron, 487

Mass. 188, 199 (2021), quoting 3 D.B. Dobbs, Law of Remedies

§ 12.1(1), at 9 (2d ed. 1993). Not all forms of monetary relief

are compensatory and, accordingly, not all monetary awards are

considered damages. Governo Law Firm LLC, supra. "A monetary

award based on disgorgement of profits, for example, is measured

by the defendant's gain, rather than by the plaintiff's loss,"

and would not be considered damages. Id.

established, see G. L. c. 231, § 6C; and (iii) "[i]n any other action in which damages are awarded, but in which interest on said damages is not otherwise provided by law," G. L. c. 231, § 6H.

9 The judge also stated that the Ferreiras paid $80,000 in repairs that was credited against the unpaid rent, see note 4, supra, and that because "[t]he evidence before the court [did] not allow the court to determine when the [Ferreiras] paid that money . . . the court was unable to compute a fair amount of interest on rents that should have been, but were not, paid to Land Locker." At oral argument, counsel for Brennan represented that the full $80,000 credit could be applied at the commencement of the running of the statutory prejudgment interest. On remand, that is how the credit shall be applied. 6

The question concerning Brennan's monetary award, and

whether it constituted damages, arises from the fact that, prior

to the merger of law and equity, "distinct complaints at law and

in equity were required depending on the relief sought."

Aggregate Indus.-Northeast Region, Inc. v. Hugo Key & Sons,

Inc., 90 Mass. App. Ct. 146, 151 n.7 (2016). In general terms,

a plaintiff could obtain damages through an action at law or

could obtain other relief through an action in equity, but only

if the recovery of damages was inadequate. See H.J. Alperin,

Summary of Basic Law § 10:11 (5th ed. 2017). See also J.R.

Nolan & L.J. Sartorio, Equitable Remedies § 1.3 (3d ed. 2007).

In this historical context, shareholder derivative actions were

devised in equity so shareholders could obtain an array of

remedies to protect against "the misfeasance and malfeasance of

'faithless directors and managers.'" International Bhd. of

Elec. Workers Local No. 129 Benefit Fund, 476 Mass. at 557,

quoting Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 95

(1991).

However, the procedures for bringing actions at law and in

equity have long since merged, and a plaintiff may now "seek

legal and equitable relief simultaneously." Reporter's Notes to

Mass. R. Civ. P. 2, Massachusetts Rules of Court, at 3 (Thomson

Reuters 2022). In light of the merger of law and equity, 7

nothing prevented Brennan from seeking damages through a

derivative claim; indeed, that is precisely what she did.

In substance, Brennan alleged that Rubberized owed rent to

Land Locker that the Ferreiras improperly withheld. Whether

viewed as a quasi contract claim based on Rubberized's receipt

of a benefit or as a tort claim based on the Ferreiras' breach

of a fiduciary duty, the relief that Brennan requested was

compensation for lost income in the form of unpaid rent. See,

e.g., HRPT Advisors, Inc. v. MacDonald, Levine, Jenkins & Co.,

43 Mass. App. Ct. 613, 627-628 (1997) (damages may include

amounts for unpaid rent). Moreover, the form of the action as a

derivative suit derived solely from the fact that, due to her

partial, noncontrolling interest in Land Locker, Brennan was

required to assert her claim for unpaid rent by means of that

procedural vehicle; had Brennan held control of Land Locker,

Land Locker could have pursued the claim for unpaid rent

directly as a garden variety contract (or quasi contract) claim.

The mere fact that the vehicle to pursue an award of damages is

based in equity, rather than law, does not mean that the

resulting loss recovery does not constitute damages, to which

statutory prejudgment applies; indeed, it is settled that claims

for damages based in quantum meruit or unjust enrichment, both

based in equity, are eligible for statutory prejudgment

interest. See Zabin v. Picciotto, 73 Mass. App. Ct. 141, 155- 8

156 (2008) (quantum meruit). See also, e.g., Suominen v.

Goodman Indus. Equities Mgt. Group, LLC, 78 Mass. App. Ct. 723,

728 n.5 (2011) (unjust enrichment). Accordingly, the monetary

relief awarded to Brennan through her derivative claim

constituted damages, and she was entitled to statutory

prejudgment interest on those damages, running from the

commencement of the action.10

2. Calculation of damages. We likewise agree with Brennan

that the judge made a mathematical error in his calculation of

damages. Through this action, Brennan sought her share of two

pools of money: (1) Land Locker's liquidated assets and (2)

Land Locker's net damages on Brennan's derivative claim for

unpaid rent. The claim for unpaid rent was not included within

the receiver's final accounting of Land Locker's liquidated

assets. However, instead of awarding Brennan her share of both

pools of money, the judge awarded Brennan her fifty percent

share of Land Locker's damages on the claim for unpaid rent

10Under G. L. c. 231, §§ 6B and 6H, the interest begins to run from the commencement of the action. Under G. L. c. 231, § 6C, the interest begins to run from the breach or demand or, if the date of the breach or demand has not been established, from the commencement of the action. As Brennan does not argue that G. L. c. 231, § 6C, specifically, applies, the interest shall begin to run from the commencement of the action. We also note that statutory prejudgment interest applies only to that portion of the award that is based on Brennan's derivative claim for unpaid rent, and not on her share of the Land Locker liquidation proceeds. 9

only, and then subtracted from that amount Brennan's $200,000

advance from the liquidation account.11 We conclude that Brennan

was entitled to fifty percent of Land Locker's liquidated assets

(i.e., $427,782.50), and fifty percent of Land Locker's net

damages on Brennan's derivative claim for unpaid rent (i.e.,

$523,831.50), less the $200,000 previously advanced from the

liquidation account.12

Conclusion. The judgment is vacated, and the matter is

remanded for the recalculation of damages and entry of a new

judgment consistent with this opinion.

So ordered.

11The Ferreiras argue, generally, that the judge had broad equitable powers to determine damages, but the Ferreiras do not offer any reasoned basis why Brennan was not entitled to her share of both pools of money.

12As noted earlier, Brennan is also entitled to $121,205.16 in attorney's fees and receiver's fees that are not in dispute. See note 7, supra.