Court Opinion

ID: 9928287
Source: CourtListenerOpinion
Date Created: 2024-01-31 15:06:04.432939+00
Date Added: 2024-06-11T09:52:32.468072
License: Public Domain

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.

                                14