NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
COMMONWEALTH OF MASSACHUSETTS
APPEALS COURT
22-P-1078
STAG INDUSTRIAL HOLDINGS, LLC
vs.
BLACK SWAN HOLDINGS, LLC.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The defendant, Black Swan Holdings, LLC (Black Swan),
appeals from a Superior Court judgment awarding the plaintiff,
Stag Industrial Holdings, LLC (Stag Industrial), damages in an
action on a guaranty executed by Black Swan. Black Swan
disputes the award of liquidated damages and the award of
posttermination damages stemming from a tenant's obligations
under a lease. We affirm.
Background. Stag Industrial, here the commercial landlord,
brought this action in the Superior Court against Black Swan to
enforce an unconditional guaranty by Black Swan of the
obligations of RADG Holdings, LLC (RADG), the tenant under a
commercial lease of premises 1 in Gaffney, South Carolina
1 The leased premises included a parcel of land and a large warehouse of about 227,000 square feet. 2
(premises). RADG stopped paying the rent due under the lease in
July 2020. Stag Industrial then sued RADG in South Carolina to
recover past-due rent and unpaid taxes.
On March 21, 2021, a default judgment entered against RADG
in the South Carolina action in an amount equal to the unpaid
rent through March 2021 and unpaid property taxes for 2020.
Stag Industrial then terminated RADG's lease on March 25, 2021.
On April 20, 2021, Stag Industrial filed a complaint in the
Suffolk Superior Court against Black Swan, pursuant to the
guaranty. 2 On June 23, 2021, Black Swan was defaulted. It is
undisputed that Black Swan was properly served, did not answer
the complaint, and did not attempt to remove the default or
contest liability. Instead, Black Swan's sole challenge was to
the damages claimed by Stag Industrial.
While Stag Industrial terminated RADG's lease in March
2021, RADG did not vacate the premises until November 2021. Due
to deferred maintenance and damage, Stag Industrial had to make
extensive repairs to the premises, at a significant cost, to be
able to market and relet the premises to another potential
tenant.
2 Stag Industrial is a Massachusetts limited liability company with its principal place of business in Boston. The guaranty states that the "Guarantor [Black Swan] consents to and agrees that the courts of The Commonwealth of Massachusetts shall have personal jurisdiction over the Guarantor for any action brought on this Guaranty."
2 3
On March 9, 2022, Stag Industrial elected to invoke the
liquidated damages remedy under sections 9.2(c)(i) and (iii) of
the lease. 3 This provision required RADG's payment of "all sums
provided for in th[e] Lease" plus "an amount equal to the sum of
all of the Rent and other sums due hereunder and payable with
respect to the twelve . . . month period next following the date
of termination." 4
3 The liquidated damages clause of the lease stated in relevant part:
"If this Lease is terminated due to an Event of Default, then Tenant covenants, as an additional cumulative obligation after termination, to pay forthwith to Landlord at Landlord's election made by notice to Tenant at any time after termination, as liquidated damages a single lump sum payment equal to the sum of (i) all sums provided for in this Lease to be paid by Tenant and not then paid at the time of such election, plus either (ii) the present value . . . of the excess of all of the Rent reserved for the residue of the Term over all of the fair market rent reasonably projected by Landlord to be received on account of the Premises during such period, which Rent from reletting shall be reduced by reasonable projections of vacancies and by Landlord's Reletting Expenses described above to the extent not theretofore paid to Landlord, or (iii) an amount equal to the sum of all of the Rent and other sums due hereunder and payable with respect to the twelve . . . month period next following the date of termination. Because Landlord's damages resulting from Tenant's default and subsequent termination are difficult to ascertain as of the Date of this Lease, the parties agree that the foregoing agreed-to sum represents a reasonable forecast of Landlord's expected damages as a result of Tenant's breach and early termination." 4 At oral argument, counsel for Stag Industrial confirmed that
the twelve-month period ran from March 25, 2021, to March 24, 2022. Black Swan does not contest this time frame.
3 4
On May 24, 2022, and June 2, 2022, a Superior Court judge
held an evidentiary hearing on Stag Industrial's request for an
assessment of damages. 5 As noted supra, Black Swan did not
challenge the default or otherwise raise any liability defenses
under its guaranty. 6 Accordingly, the judge found that Black
Swan, by virtue of the default, was "liable under the
Unconditional Guaranty to pay all of RADG's obligations under or
related to the Lease, including past due rent, other monies due
under the Lease due to RADG's default, liquidated damages, and
[Stag Industrial's] reasonable attorneys' fees and litigation
expenses."
The judge determined that Stag Industrial was entitled to
recover the sum awarded in the South Carolina action in the
amount of $578,793.75 plus interest. 7 He also found that Stag
Industrial was entitled to the cost of removing debris and
refuse left inside the premises by RADG, which amounted to
$149,700. Furthermore, the judge found that RADG failed to make
5 For a period of "more than six months," Stag Industrial moved for extensions of time to file its motion for an assessment of damages. 6 The Superior Court judge did not make any factual findings
regarding Black Swan's liability under the guaranty. See Marshall v. Stratus Pharms., Inc., 51 Mass. App. Ct. 667, 670- 671 (2001) ("Upon default . . . the factual allegations of a complaint are accepted as true for purposes of establishing liability" [citation omitted]). 7 This sum is equal to the unpaid rent through March 2021 and
unpaid property taxes for 2020 and bears interest from the date of judgment at a rate of 7.25 percent per year.
4 5
repairs 8 to the premises as required under the lease 9 and,
therefore, Stag Industrial was entitled to the costs of
maintenance and repair work, recoverable under the lease and the
unconditional guaranty, in the amount of $554,990.46. Finally,
the judge found that between April 2021 and March 2022, RADG
failed to pay rent totaling $656,718.72, utility costs totaling
$76,952.81, and property taxes totaling $127,435. The lease
called for a late fee of 5 percent and interest of 1.5 percent
per month on all rent and additional rent, which totaled
$43,055.33 and $63,321.59, respectively.
In finding that Stag Industrial was entitled to damages
pursuant to the lease's liquidated damages remedy, the judge
found that Stag Industrial acted within a reasonable timeframe
in making its election of the remedy. 10 More importantly, he
found that the liquidated damages clause was reasonable and did
not constitute a penalty. 11 The judge found this amount to total
$656,718.72.
8 These repairs included repainting the exterior of the building, repairing and repaving concrete and parking areas, repairing broken dock doors, and repairing the HVAC and sprinkler systems, as well as repairing plumbing, roofing, and electrical systems. 9 RADG was required to make these repairs pursuant to section
9.2(a) and (b) of the lease. 10 The lease stated that Stag Industrial could elect to enforce
the liquidated damages clause "at any time after termination." 11 The judge noted that Stag Industrial would have been entitled
to recover more had it elected the alternative remedy under section 9.2(c)(ii) of the liquidated damages clause, pursuant to which the tenant would have to pay all sums provided for in the
5 6
In sum, the judge ordered Black Swan to pay Stag Industrial
"$578,793.75, plus interest thereon from March 12, 2021[,] at
the rate of 7.25 percent; plus $2,328,892.63, with no
prejudgment interest to be calculated thereon; plus reasonable
attorneys' fees and costs of $76,737.92" for both the South
Carolina action and the present action. Black Swan filed a
timely appeal challenging the damages award, asserting that the
liquidated damages clause is "disproportionate" to Stag
Industrial's actual damages and that the award under the clause
otherwise constitutes an impermissible penalty.
Discussion. 1. Standard of review. We accept the judge's
findings of fact unless they are clearly erroneous. See Kendall
v. Selvaggio, 413 Mass. 619, 620 (1992). "On the other hand, to
ensure that the ultimate findings and conclusions are consistent
with the law, we scrutinize without deference the legal standard
which the judge applied to the facts." Id. at 621. "Whether a
liquidated damages provision in a contract is an unenforceable
lease not yet paid, plus rent for the remainder of the lease term reduced by the present value and the fair market value of the premises. Had Stag Industrial elected the liquidated damages remedy under section 9.2(c)(ii), Black Swan could have faced the potential cost of ten years of rent as a liquidated damages remedy. Like the Superior Court judge, we express no view whether that clause would have been reasonable and enforceable.
6 7
penalty is a question of law." NPS, LLC v. Minihane, 451 Mass.
417, 419 (2008). See Manganaro Drywall, Inc. v. Penn-Simon
Constr. Co., 357 Mass. 653, 656 (1970).
2. Analysis. Neither party disputes that Massachusetts is
a proper venue to hear this case under the guaranty. Moreover,
neither party disputes that South Carolina Law governs this
case. 12 However, Black Swan argues that optional liquidated
damages clauses are unenforceable under both Massachusetts law
and South Carolina law, despite conceding that South Carolina
law alone governs the contract, and does not cite any South
Carolina law in its brief to support this proposition. 13 As
Black Swan does not cite to any relevant case law to support the
proposition that optional liquidated damages are unenforceable
under South Carolina law, which governs the lease, this issue is
waived. 14 Stating a claim "in a cursory and conclusory fashion"
12 Section 12.4 of the lease stated that it "shall be governed and construed . . . in accordance with the laws of the State of South Carolina." However, while Black Swan states that South Carolina law controls the lease in its opposition to Stag Industrial's request for the assessment of damages and default judgment, Black Swan does not cite any South Carolina law to challenge the enforceability of the liquidated damages clause. 13 Black Swan also concedes that there is no binding precedent in
Massachusetts on the issue of optional liquidated damages clauses. 14 Although Black Swan cited South Carolina cases in its reply
brief, those cases do not offer support for the proposition that optional liquidated damages clauses are unenforceable under South Carolina law. In any event, South Carolina law appears to contradict Black Swan's claim. See Richman Enters. vs. Pamplin, U.S. Ct. App., Nos. 95-1142 & 95-1216, slip op. at 11 n.8 (4th
7 8
and citing "no legal authority to support the[] claim"
constitutes "an insufficient appellate argument" (citations
omitted). McCone v. New England Tel. & Tel. Co., 393 Mass. 231,
236 (1984). See Mass. R. A. P. 16 (a) (9), as appearing in 481
Mass. 1628.
Even if we were to consider this argument, we discern no
basis for reversing the judgment. It is well settled that "a
contract provision that clearly and reasonably establishes
liquidated damages should be enforced, so long as it is not so
disproportionate to anticipated damages as to constitute a
penalty." TAL Fin. Corp. v. CSC Consulting, Inc., 446 Mass.
422, 431 (2006). "A liquidated damages provision will usually
be enforced provided two criteria are satisfied: first, that at
the time of contracting the actual damages flowing from a breach
were difficult to ascertain; and second, that the sum agreed on
as liquidated damages represents a 'reasonable forecast of
damages expected to occur in the event of a breach.'" NPS, LLC,
451 Mass. at 420, quoting Cummings Props., LLC v. National
Communications Corp., 449 Mass 490, 494 (2007). "Where damages
Cir. Mar. 19, 1996) (applying South Carolina law to liquidated damages clause and noting, in relevant part, "[o]ften, the language of the liquidated damages clause is flexibly designed to preserve the option of the non-breaching party to use the liquidated damages remedy or to seek one of the normal remedies for breach" [citation omitted]).
8 9
are easily ascertainable, and the amount provided for is grossly
disproportionate to actual damages, or unconscionably excessive,
the court will award the aggrieved party no more than its actual
damages." NPS, LLC, supra. As there is "'no bright line
separating an agreement to pay a reasonable measure of damages
from an unenforceable penalty clause' . . . the reasonableness
of the measure of anticipated damages depends on the
circumstances of each case." Id., quoting TAL Fin. Corp.,
supra. In determining whether the liquidated damages provision
is reasonable, "we look to the circumstances at the time of
contract formation." 15 NPS, LLC, supra. The burden of showing
that a liquidated damages provision is unenforceable lies with
the party challenging enforcement of the provision. See id.
See also TAL Fin. Corp., supra at 423.
In the present case, Black Swan argues that the liquidated
damages clause in the lease is unenforceable because anticipated
damages were ascertainable at the creation of the lease, and
15A recent Supreme Judicial Court opinion, Cummings Props., LLC v. Hines, 492 Mass. 867, 873 (2023), reaffirms that liquidated damages clauses must be assessed by looking at the circumstances at the time of contract formation:
"We remain convinced that where a contract is unambiguous and freely entered into, it is preferable for parties to bargain with one another as they see fit, rather than to have courts step in to decide whether and how to restructure a contract because certain contingencies were not accounted for by one of the parties."
9 10
that "the damages sought pursuant to the liquidated damages
clause were excessive so as to amount to double recovery." Stag
Industrial contends that Black Swan "did not put forth any
evidence that the parties to the Lease intended the Liquidated
Damages to serve as a penalty."
We agree with Stag Industrial that Black Swan has not met
its burden to show that the liquidated damages clause is
unenforceable and that the liquidated damages amount is
excessive. First, Black Swan has not shown that the liquidated
damages clause was so unreasonable as to constitute a penalty.
Black Swan provided no evidence to suggest that at the time of
contract formation, potential damages were easily ascertainable,
or that the clause was not a reasonable forecast of damages
expected to occur in the event of a breach. To the contrary,
the lease stated: "Because Landlord's damages resulting from
Tenant's default and subsequent termination are difficult to
ascertain as of the Date of this Lease, the parties agree that
the foregoing agreed-to sum represents a reasonable forecast of
Landlord's expected damages as a result of Tenant's breach and
early termination."
Second, the sum provided for in the Lease is not "grossly
disproportionate to actual damages," nor is it "unconscionably
excessive." NPS, LLC, 451 Mass. at 420. To the extent that the
sum represented the amount due under the lease as of the date of
10 11
election and a sum equal to at least one year of rent that would
have been due over the twelve months following termination of
the lease, it appears to be a reasonable anticipation of damages
that might accrue from the nonpayment of rent. See Cummings
Props., LLC v. Hines, 492 Mass. 867, 873 (2023) (liquidated
damages clause requiring of payment of entire balance of rent
due was reasonable under circumstances presented); NPS, LLC,
supra at 422 (liquidated damages clause requiring payment of
balance of all years remaining on contract was reasonable).
Here, damages were difficult to estimate at the outset, and
Black Swan is required to pay less than the total amount it
would have paid had RADG complied with the lease obligations.
"The sum provided for therefore bears a reasonable relationship
to the anticipated actual damages resulting from a breach."
NPS, LLC, supra.
Further, the liquidated damages clause anticipated a
scenario that occurred in the present circumstances –- Stag
Industrial's inability to relet the premises following
termination of the lease. Indeed, at the evidentiary hearing,
Stag Industrial's representative testified that the premises was
still vacant, and that even if Stag Industrial was successful in
leasing the premises, "rent would not be paid until . . . some
point in 2023." Given this fact, actual damages would far
exceed the liquidated damages amount. As the judge highlighted
11 12
in his findings, Stag Industrial's election of section
9.2(c)(iii) under the liquidated damages clause, requiring
payment of twelve months rent in addition to payment of all sums
provided for in the lease under section 9.2(c)(i), constituted
an amount significantly lower than Stag Industrial's projected
actual damages. 16
Finally, Black Swan contends that the judge erred in
awarding Stag Industrial posttermination damages resulting from
Stag Industrial's demand that RADG remove warehouse racking from
the premises and Stag Industrial's deferred maintenance and
repairs. Black Swan argues that the racking removal and
deferred maintenance were not supported by the lease; that the
expense of the racking removal and deferred maintenance was
excessive; and that Stag Industrial failed to mitigate its
damages. 17
In terms of the racking removal and deferred maintenance,
section 6.9 of the lease required RADG, upon vacating the
premises, to "remove . . . fixtures and personal property," and
to "repair[] damage to the Premises which results in the course
of such removal and restoring the Premises to a fully functional
16 As discussed supra, had Stag Industrial elected to enforce section 9.2(c)(ii), the liquidated damages amount could have been significantly larger. See note 11, supra. 17 Black Swan again failed to cite any relevant South Carolina
law, which controls the lease, in support of this claim.
12 13
and tenantable condition." If RADG failed to remove such
property, section 6.9 of the lease required RADG to "pay to
[Stag Industrial] the reasonable cost and expense incurred by
[Stag Industrial] in effecting such removal and . . . in making
any required prepares to the Premises." The lease thus
established RADG's responsibilities and consequent damages if
those responsibilities were not fulfilled. The language of the
lease was clear, and the judge did not err in concluding that
the expenses of the racking removal and deferred maintenance
were not excessive. See, e.g., Balles v. Babcock Power Inc.,
476 Mass. 565, 571 (2017) ("when the language of a contract is
clear, it alone determines the contract's meaning").
We also disagree with Black Swan's claim that Stag
Industrial presented no evidence of any effort to mitigate
damages. Initially, this argument fails because "the burden of
proving that losses could have been avoided by reasonable
efforts rests with the party in breach," American Mechanical
Corp. v. Union Mach. Co. of Lynn, 21 Mass. App. Ct. 97, 103
(1985), here Black Swan as the guarantor for RADG. Moreover,
Black Swan presented no evidence to demonstrate that Stag
Industrial failed to mitigate damages. Black Swan's claim, in
this regard, is thus conclusory and speculative. By contrast,
there was evidence that Stag Industrial terminated the lease in
March 2021, but RADG did not vacate the premises until November
13 14
2021. As a result, Stag Industrial was forced to "clean up and
repair the building to get [it] in a condition to be relet and
marketed" and thus was unable to advertise the premises for the
purpose of reletting or selling it until 2022. In view of these
facts, and without contrary evidence adduced by Black Swan, the
failure to mitigate claim fails on the record before us. 18
Judgment affirmed.
By the Court (Neyman, Henry & Ditkoff, JJ. 19),
Assistant Clerk
Entered: January 31, 2024.
18 Stag Industrial is entitled to an award of attorney's fees pursuant to the guaranty. It may submit an application for fees and costs, with supporting documentation, to this court within fourteen days of the date of rescript. See Fabre v. Walton, 441 Mass. 9, 10-11 (2004). Black Swan shall have fourteen days thereafter to respond. Black Swan's request for attorney's fees and costs is denied. 19 The panelists are listed in order of seniority.