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Phillips & Angley Win Summary Judgment on Judicial Estoppel, Recoupment, and Quantum Meruit in Land Court

On November 14, 2016, the Land Court, Foster J., issued a Memorandum and Order Allowing Plaintiff's Motion for Summary Judgment in Fitchburg Capital, LLC, v. Bourque, Land Court Docket No. 12 MISC 464577 (RBF) in which the Court granted summary judgment for P&A's client, Plaintiff, Fitchburg Capital, LLC. The Memorandum and Order dismissed the Defendant's counterclaims for recovery of rental income pursuant to theories of conversion and accounting. In doing so, the Court agreed with Fitchburg that the Defendant's counterclaims were barred by all of three asserted bases: judicial estoppel, recoupment, and quantum meruit (unjust enrichment). Fitchburg's motion was successfully argued by Robert K. Hopkins, Esq.

Fitchburg was formed with the sole purpose of holding debts owed by the Defendant, which debts were incurred through a serious of loans given for the purpose of purchasing and/or improving three multi-family properties in Fitchburg. In April 2011, the Defendant filed for Chapter 13 Bankruptcy. One of the Defendants properties, secured by a mortgage held by Fitchburg was foreclosed upon during the bankruptcy proceedings. During its time in possession, Fitchburg incurred expenses in upkeep, maintenance, and rehabilitation in excess of the rental income it collected. The bankruptcy action was not finally closed until August 2014.

Fitchburg filed this action on May 21, 2012, to clear any cloud on the title attributable to Fitchburg's 2012 foreclosure of the property without having first obtained judgment under the Soldiers and Sailor Civil Relief Act. On November 19, 2012, the Defendant filed counterclaims for improper accounting and conversion of rental income during Fitchburg's possession and control of the multi-family property.

On July 2, 2012, Deutsche Bank initiated a related lawsuit in the Land Court against Fitchburg. The Land Court, and ultimately the Supreme Judicial Court, ruled that the mortgages held by Fitchburg were discharged by the Obsolete Mortgage Statute prior to foreclosure, because five years had passed following the maturity dates of the promissory notes, which were stated in Fitchburg's mortgages. Ultimately, the Courts concluded that Fitchburg lacked any legal interest in the property. See Deutsche Bank Nat'l Trust Co. v. Fitchburg Capital, LLC, 471 Mass. 248 (2015). Following the SJC's decision, the Court dismissed Fitchburg's complaint, leaving only the Defendant's counterclaims for accounting and conversion.

Agreeing with all of Fitchburg's defenses, the Court first held that the Defendant's counterclaims must dismissed under the doctrine of judicial estoppel. According to the Bankruptcy Code, bankruptcy petitioners have the obligation to disclose all interests and property rights, including any legal and potential claims to the court. 11 U.S.C. §§ 521(a)(1), 541(a)(1); Payless Wholesale Dists., Inc. v. Alberto Culber (P.R.), Inc., 989 F.2d 570, 571 (1st Cir. 1993). The failure to identify a claim as an asset in a bankruptcy proceeding serves as a basis for application of judicial estoppel barring the debtor from pursuing the claim in later proceedings. Guay v. Burack, 677 F.3d 10, 17 (1st Cir. 2012). The Court stated that "[the Defendant] had a duty to make known all of his claims and assets to the Bankruptcy Court." The Defendant had the opportunity to amend his schedules after Fitchburg had conducted its foreclosure and filed this action, but he never listed any rights relating to improper foreclosure and possession of the property, accounting, or conversion in the bankruptcy action. The bankruptcy action did not close until August 29, 2014, which gave the Defendant "ample time to make the necessary amendment to his schedule" to assert his rights relating to improper foreclosure and possession of the property in the current Land Court, case which was filed in 2012. "Because [the Defendant] failed to disclose these claims ... in the Bankruptcy Action ... he cannot in the present matter take the opposite position and come forward with claims seeking recovery for rental from Fitchburg."

In addition, the Court went onto hold that the Defendant's counterclaims must also dismissed under the common-law concept of recoupment. Recoupment serves to reduce or extinguish an asserted monetary claim if the opposing party also has a countervailing monetary claim arising out of the same transaction. Bose Corp. v. Consumers Union of U.S., Inc., 367 Mass. 424, 427-428 (1975). The Court found that there is a "clear and distinct nexus between [the Defendant's] contractual debts ... and [the Defendant's] counterclaim for accounting and conversion." Since Fitchburg was entitled to debts and expenses that were discharged in the Defendant's bankruptcy action that far exceeded the Defendant's accounting and conversion claims, the Court held that the recoupment doctrine barred any recovery by the Defendant.

Finally, the Court also dismissed the Defendant's counterclaims under the doctrine of quantum meruit (unjust enrichment). The theory of recovery under quantum meruit holds that "a person who is unjustly enriched at the expense and unjust detriment of another is required to make restitution to the other." Salamon v. Terra, 394 Mass. 857, 859 (1985). The Court found that Fitchburg is entitled to restitution for the reasonable expenses incurred in rehabilitating, maintaining and managing the multi-family property, during its time in possession. Those expenses exceeded the rental income generated during the same time. Therefore, allowing the Defendant's claim for any award of rental income would result in unjust enrichment - getting both the benefit of the improved property, and the rental income.

P&A provides a full range of legal services to individuals and businesses throughout Massachusetts. We are a firm of experienced trial and appellate attorneys who have the knowledge, experience and drive to help you solve your problems and achieve your goals.

Written by Robert Linnoila, Candidate for Juris Doctor, May 2017, Boston College Law School

Copyright (c) 2017 by Jeffrey T. Angley, P.C. All rights reserved.

Disclaimer: The information contained in this post is general in nature and for educational purposes only. No personal legal advice is being provided. If you have an actual legal issue that needs to be addressed, you should seek the advice of competent legal counsel. This post does not create an attorney-client relationship between the reader and Jeffrey T. Angley, P.C., Phillips & Angley or their attorneys.