Court Opinion

ID: 4023830
Source: CourtListenerOpinion
Date Created: 2016-08-12 14:06:15.390482+00
Date Added: 2024-06-11T09:17:01.547939
License: Public Domain

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SJC-12020

          SUFFOLK CONSTRUCTION COMPANY, INC. vs. BENCHMARK
                 MECHANICAL SYSTEMS, INC., & another. 1

             Suffolk.      May 2, 2016. - August 12, 2016.

         Present:   Gants, C.J., Spina, Botsford, Duffly, Lenk,
                              & Hines, JJ. 2

Uniform Commercial Code, Secured creditor. Practice, Civil,
     Motion to dismiss, Summary judgment, Statute of
     limitations. Subrogation. Indemnity. Unjust
     Enrichment. Restitution. Limitations, Statute of.

     Civil action commenced in the Superior Court Department on
April 22, 2013.

     A motion to dismiss was heard by Christine M. Roach, J.; a
motion for judgment on the pleadings was heard by her; cross
motions for summary judgment were heard by Janet L. Sanders, J.;
and entry of separate and final judgment was ordered
by Sanders, J.

     The Supreme Judicial Court granted an application for
direct appellate review.

     1
         Reading Co-Operative Bank.
     2
       Justice Duffly participated in the deliberation on this
case prior to her retirement.
                                                                     2

     R. Robert Popeo (Paul J. Ricotta with him) for the
plaintiff.
     Mark W. Corner (Peter H. Sutton with him) for Benchmark
Mechanical Systems, Inc.
     Eric P. Magnuson (Nelson G. Apjohn with him) for Reading
Co-Operative Bank.

     SPINA, J.    In Reading Co-Operative Bank v. Suffolk Constr.

Co., 464 Mass. 543, 551 (2013) (Suffolk I), we held that "G. L.

c. 106, §§    9-405, 9-607, and 9-608, provide a comprehensive

scheme" that allowed Reading Co-Operative Bank (bank) to require

Suffolk Construction Company, Inc. (Suffolk), to fully perform

its obligations under a collateral assignment of payments under

a subcontract between Suffolk and Benchmark Mechanical Systems,

Inc. (Benchmark), to secure a debt owed by Benchmark to the bank

even if the value of the collateral exceeded the amount owed to

the bank.    After that decision, Suffolk commenced this action to

recover the surplus that resulted after the bank applied that

collateral to satisfy Benchmark's debt, plus costs of

collection, pursuant to G. L. c. 106, §    9-608. 3   Suffolk's

     3
         General Laws c. 106, § 9-608 (a) (1), (4), states:

          "(a) Application of proceeds, surplus, and deficiency
     if obligation secured. If a security interest . . .
     secures payment . . . of an obligation, the following rules
     apply:

                 "(1) A secured party shall apply or pay over for
            application the cash proceeds of collection . . . in
            the following order to:
                                                                      3

equitable claims for implied subrogation and implied

indemnification were dismissed under Mass. R. Civ. P. 12 (b) (6)

and 12 (c), 365 Mass. 754 (1974).    Its common-law claims were

dismissed as time-barred under Mass. R. Civ. P. 56, 365 Mass.

824 (1974).   Suffolk appealed, and we granted its application

for direct appellate review.    We now hold that Suffolk's common-

law claims are time barred, but it has stated equitable claims

to prevent unjust enrichment and a windfall for which relief can

be granted.

     1.   Background.    The following facts, taken mostly

from Suffolk I, are undisputed.     Benchmark assigned to the bank,

as collateral for a loan it had with the bank, payments owed to

Benchmark by Suffolk pursuant to a subcontract.    Suffolk agreed

                     "(A) the reasonable expenses of collection
                . . . and, to the extent provided for by
                agreement and not prohibited by law, reasonable
                attorney's fees and legal expenses incurred by
                the secured party;

                     "(B) the satisfaction of obligations secured
                by the security interest . . . under which the
                collection . . . is made; and

                     "(C) the satisfaction of obligations secured
                by any subordinate security interest in or other
                lien on the collateral subject to the security
                interest . . .

                ". . .

                "(4) A secured party shall account to and pay a
           debtor for any surplus, and the obligor is liable for
           any deficiency."
                                                                     4

to send the payments to the bank, but mistakenly sent them to

Benchmark.    Suffolk sent twelve checks totaling $3,822,500.49 to

Benchmark between June 14, 2004, and December 30, 2004.

Benchmark deposited the checks to its account and never

forwarded the monies to the bank.    The last deposit was made on

January 3, 2005.    Benchmark ceased operations in July, 2005, and

turned over its assets to the bank for liquidation.      Benchmark

was dissolved as a corporation on May 31, 2007.      At that time

Benchmark was indebted to the bank on its loan in the amount of

$1,499,149.42.    As a result of the liquidation of Benchmark's

assets, the bank applied $430,402.38 to Benchmark's

indebtedness.    The bank then commenced an action against Suffolk

under G. L. c. 106, § 9-405, for the full amount of the payments

Suffolk should have sent to the bank pursuant to the payment

assignment.    On appeal, we held that § 9-405 displaced the

common law, that the bank was entitled to recover the full value

of the assigned collateral ($3,822,500.49) under § 9-405 rather

than its actual damages, and that the common-law doctrine of

mitigation did not apply.    Id. at 546, 522, 555.

     Suffolk paid the judgment ordered by this court, which,

with interest and costs, amounted to $7,640,907.45 (judgment

payment).    Suffolk then filed a multicount complaint, as

amended, in the Superior Court against the bank and Benchmark,

asserting common-law claims to establish itself as a judgment
                                                                   5

lien creditor of Benchmark under G. L. c. 106, § 9-608 (a)

(1) (C), or alternatively, as a "debtor" under § 9-608 (a) (4),

to recover any surplus remaining after the bank applied

Suffolk's judgment payment to Benchmark's outstanding debt to

the bank and the bank's collection costs. 4,5   It also asserted

equitable claims of implied subrogation and implied

indemnification.    By agreement of the parties, a preliminary

injunction issued, enjoining the bank from transferring to

Benchmark any portion of the surplus from Suffolk's judgment

payment.

     A judge in the Superior Court (rule 12 judge) allowed in

part the bank's motion to dismiss under rule 12 (b) (6), and

Benchmark's motion for judgment on the pleadings under rule

12 (c). 6   She dismissed the counts alleging theories of

subrogation and indemnification on grounds that these claims

sought to recover funds for which Suffolk had been primarily,

rather than secondarily, responsible, such that Suffolk was not

entitled to the equitable relief sought.

     4
       The National Labor Relations Board later intervened to
assert claims against Benchmark totaling $27,770.25.
     5
       The reasonableness of the bank's collection costs is in
dispute.
     6
       The judge treated the motion under rule 12 (c) as a motion
under rule 12 (b) (6), 365 Mass. 754 (1974).
                                                                   6

     Subsequently, on cross motions for summary judgment under

rule 56, a different judge (rule 56 judge) allowed Benchmark's

motion as to the counts of Suffolk's complaint alleging theories

of restitution for unjust enrichment, reimbursement, money had

and received, and restitution for money paid by mistake, on

grounds that they were barred by the six-year statute of

limitations applicable to contracts.   See G. L. c. 260, § 2.

She also dismissed the count seeking a determination that

Suffolk was entitled to the surplus because it was the "debtor"

for purposes of G. L. c. 106, § 9-608 (a) (4). 7

     2.   Implied subrogation and indemnification.   The rule 12

judge dismissed the counts alleging implied subrogation and

indemnification.   She reasoned that because Suffolk was

"primarily" liable to the bank under the payment assignment, it

was not entitled to implied subrogation or implied

indemnification.

     Implied "[s]ubrogation is an equitable adjustment of rights

that operates when a creditor . . . is entitled to recover from

     7
       The parties stipulated to entry of separate and final
judgment as to the eight counts that were dismissed under rules
12 and 56, 365 Mass. 824 (1974). See Mass. R. Civ. P. 54 (b),
365 Mass. 820 (1974). They further stipulated that the three
remaining counts for (1) reach and apply, (2) remedies under
G. L. c. 106, § 9-625, and (3) constructive trust, would be
dismissed with prejudice, and Suffolk waived any right of appeal
with respect to such dismissal, on condition that the separate
and final judgment dismissing all eight counts is affirmed in
its entirety on appeal.
                                                                     7

two sources, one of which bears a primary legal responsibility.

If the secondary source (the subrogee) pays the obligation, it

succeeds to the rights of the party it has paid (the creditor,

. . . called the subrogor) against the third, primarily

responsible party."   (Emphases added.)    Frost v. Porter Leasing

Corp., 386 Mass. 425, 426-427 (1982).     The underlying principle

of implied subrogation is to prevent an unwarranted windfall,

something disfavored in the law.   Id. at 428.

     Implied indemnification is an equitable principle that

creates an obligation for reasons of justice, akin to a duty to

make restitution (quotations and citations omitted).    See Mike

Glynn & Co. v. Hy-Brasil Restaurants, Inc., 75 Mass. App. Ct.

322, 326 (2009).   "A person who, in whole or in part, has

discharged a duty which is owed by him but which as between

himself and another should have been discharged by the other, is

entitled to indemnity from the other, unless the payor is barred

by the wrongful nature of his conduct."     Santagate v. Tower, 64

Mass. App. Ct. 324, 330 (2005), quoting Restatement of

Restitution § 76 (1937).   Both implied subrogation and implied

indemnification are viable claims in the circumstances of this

case.

     The rule 12 judge focused on the words "primary legal

responsibility" in Frost and concluded that because Suffolk was

"primarily" liable to the bank under the payment assignment by
                                                                    8

Benchmark, it was not entitled to equitable subrogation or

equitable indemnification.    Because we are concerned with the

equities of the over-all situation, however, it is appropriate

to examine the bigger picture, not just the specific obligations

of Suffolk.    Suffolk certainly was directly liable to the bank,

as we held in Suffolk I, but the primary obligor in the

transaction was Benchmark.    Payments owed by Suffolk to

Benchmark were merely partial collateral for Benchmark's debt to

the bank.    The bank could have proceeded against either

Benchmark or Suffolk, or both.    For obvious reasons it chose

Suffolk.    Had that collateral been insufficient to satisfy

Benchmark's debt, the bank's only remaining recourse would have

been to sue Benchmark.

     When determining whether receipt or retention of a benefit

is unjust we look to the reasonable expectations of the parties.

See The Community Bldrs., Inc. v. Indian Motocycle Assocs., 44

Mass. App. Ct. 537, 560 (1998).    Benchmark had no reasonable

expectation of receiving and retaining the payments mistakenly

made by Suffolk.    Having retained those payments, it has even

less reason to expect to receive the surplus derived from

Suffolk's judgment payment to the bank after the bank satisfied

Benchmark's indebtedness.    Basic fairness requires that

Benchmark not enjoy any of the surplus derived from Suffolk's
                                                                     9

judgment payment to the bank, where Benchmark had wrongfully

retained the monies mistakenly sent by Suffolk.

     The application of equitable principles to the distribution

of surplus, although not expressly appearing in G. L. c. 106,

§ 9-608 (a), is not inconsistent with that section.    Indeed,

G. L. c. 106, § 1-103 (b), contemplates precisely such

application.   Section 1-103 (b) states:   "Unless displaced by

the particular provisions of this chapter, the principles of law

and equity . . . supplement its provisions."    See The French

Lumber Co. v. Commercial Realty & Fin. Co., 346 Mass. 716, 719

(1964) (Uniform Commercial Code [UCC] does not bar equitable

subrogation claim); Summers, General Equitable Principles Under

Section 1-103 of the Uniform Commercial Code, 72 Nw. U. L. Rev.

906, 920-921 (1978) (antiwindfall principle and unjust

enrichment should be applied to art. 9 of the UCC in light of

§ 1-103).

     Suffolk's subrogation and indemnification claims did not

ripen until a surplus materialized from the bank's application

of Suffolk's judgment payment to Benchmark's indebtedness.    At

that point, when Benchmark stood to receive a windfall that in

all good conscience it should not have accepted, Suffolk's

subrogation and indemnification claims accrued.    Suffolk's civil

action as to those claims was timely.   "Occasionally, a claimant

will be able to point to different grounds of unjust enrichment
                                                                   10

occurring at different stages of the parties' dealings with each

other.   "Although restitution on one theory may be time-barred,

restitution on another theory may yield a viable claim."

Restatement (Third) of Restitution and Unjust Enrichment (2011),

§ 70 comment f.      Such are the circumstances here.

     Suffolk's subrogation and indemnification claims are

inherently different from its other claims.     They also developed

at different times.     Indeed, Suffolk emphasizes that under these

theories, it stands in the shoes of Benchmark as to the surplus

flowing from its judgment payment.     Suffolk acknowledges that

because it stands in Benchmark's shoes under these claims it is

not, at least as to them, a subordinate lien creditor, and

stands behind subordinate lien creditors for purposes of G. L.

c. 106, § 9-608 (a) (4), as to which Suffolk argues that it

qualifies as the "debtor."     In this regard Suffolk contends that

summary judgment dismissing the count seeking a determination

that it is the "debtor" for purposes of § 9-608 (a) (4) is

error.   We agree.    Suffolk's equitable claims of subrogation and

indemnification allow it to stand in Benchmark's shoes as to the

surplus flowing from its judgment payment, which is the source

of Benchmark's potential windfall and unjust enrichment.     In the

event of a surplus from some other source, Suffolk is neither a

subordinate lien creditor nor the debtor.     The result in this
                                                                  11

case is determined by principles of equity applied to the unique

circumstances presented.

     Finally, Suffolk argues that because our review is de novo,

see Champa v. Weston Pub. Schs., 473 Mass. 86, 90 (2015) (rule

12 [c]), and Pinti v. Emigrant Mtge. Co., 472 Mass. 226, 231

(2015) (summary judgment), we should direct entry of judgment in

its favor.   Where the rule 12 judge did not consider matters

outside the pleadings and expressly treated the rule 12 (c)

motion as a motion to dismiss under rule 12 (b) (6), and where

Suffolk did not request entry of judgment in its favor in its

opposition to the rule 12 (c) motion, we decline to order entry

of judgment for Suffolk on its claims for subrogation and

indemnification.

     3.   Summary Judgment.   Summary judgment was granted against

Suffolk as to the three counts alleging (1) reimbursement for

money mistakenly paid and fraudulently retained, (2) money had

and received, and (3) restitution for money paid by mistake.

The basis for dismissal of these counts was that they were time

barred.   These claims have origins in the common law, and they

are similar in nature.   See New Bedford v. Lloyd Inv. Assocs.,

363 Mass. 112, 118 (1973).    See also Mass. R. Civ. P. 84,

Appendix of Forms, forms 7 and 8, Mass. Ann. Laws Court Rules,

at 1312-1313 (LexisNexis 2015-2016).    The best known of the

counts here pleaded, money had and received, "is broad and
                                                                      12

includes all money received by the defendant which in equity and

good conscience belongs to the plaintiff."       G.E. Lothrop

Theatres v. The Edison Elec. Illuminating Co. of Boston, 290

Mass. 189, 192 (1935).      The claims are quasicontractual, and are

subject to the six-year statute of limitations applicable to

contracts.     New Bedford, supra at 118, 119.   A cause of action

under these claims accrues upon "receipt of payment without

regard to when the mistake is discovered," id. at 119, and it is

immaterial that the cause of action is presented as a claim at

law or in equity.     Id.   The last mistaken payment was deposited

on January 3, 2005.    The statute of limitations ran on January

3, 2011, as to these three counts.     The instant action commenced

on April 22, 2013, well beyond the six-year statute of

limitations.

     Suffolk maintains that these claims are not time barred

because in Suffolk I we said, after acknowledging the harsh

result occasioned by our holding, that "Suffolk nonetheless has

recourse to mitigate the excessive loss occasioned by double

payment.   It may bring suit against [Benchmark] . . . to recover

the misdirected payments, and thereby establish itself as a

subordinate creditor in line for disbursement of excess funds

recovered by the bank."      Suffolk I, 464 Mass. at 554.   The

quoted language is dictum, and we were describing the remedy

available to Suffolk in the ordinary course to recover the
                                                                   13

payments mistakenly made to Benchmark.    The statute of

limitations was not an issue in Suffolk I, and we were not

addressing the potential loss of that remedy if the action had

not been commenced within the applicable statute of limitations.

Moreover, the reference to a "subordinate creditor" in G. L.

c. 106, § 9-608, as applied to the circumstances of this case,

was to a judgment creditor.   Suffolk necessarily would have to

have had its claim for payments mistakenly made to Benchmark

reduced to a judgment.   Here, the claims to recover judgment

against Benchmark for the amount of payments mistakenly made

were time barred.   Summary judgment correctly was granted.

     Summary judgment against Suffolk also was granted on the

count for restitution for unjust enrichment, also on the ground

that it was time barred.   This count is based on theories of

implied subrogation and indemnification, and seeks only to

prevent Benchmark from receiving a windfall.   Suffolk does not

seek a judgment on this count against Benchmark for the moneys

paid by mistake, and it does not seek to establish itself as a

judgment creditor for purposes of G. L. c. 106, § 9-608.     For

reasons previously discussed with respect to the counts based on

theories of subrogation and indemnification, this claim is not

barred by the statute of limitations.    It did not accrue until a

surplus arose.   The claim is viable, and judgment must be

reversed as to this count.
                                                                   14

     Summary judgment against Suffolk was granted on its count

seeking a determination that it is the "debtor" for purposes of

G. L. c. 106, § 9-608 (a) (4), and as such is entitled to the

surplus.    The rule 56 judge reasoned that a "debtor," as defined

in G. L. c. 106, § 9-102 (28) (A), and illuminated in a comment

to that section of the statute, is a person who has "a stake in

the proper enforcement of a security interest by virtue of [that

person's] non-lien property interest (typically, an ownership

interest) in the collateral."    See, 9A W.D. Hawkland & F.H.

Miller, UCC Series, § 9-102, comment 2(a) (2001).    She concluded

that Suffolk is not such a person.    In most cases she would have

been correct, but Suffolk's claim has a further dimension.

Suffolk alleged in its complaint that it is the debtor by virtue

of being Benchmark's subrogee.    For reasons described in the

previous section of this opinion, this claim, based on the

theory of implied subrogation, is viable.    Summary judgment on

this count must be reversed.

     In conclusion, so much of the judgment that dismisses the

subrogation and indemnification counts (counts 3, 6, and 7), the

count alleging restitution for unjust enrichment (count 1), and

the count seeking a determination that Suffolk is the debtor for

purposes of G. L. c. 106, § 9-608 (a) (4) (count 11), is

reversed.   So much of the judgment that dismisses the common-law
                                                                  15

counts (counts 2, 4, and 5) is affirmed.   The case is remanded

for further proceedings consistent with this opinion.

                                   So ordered.