Suffolk Construction Co., Inc. v. Benchmark Mechanical Systems, Inc. , 475 Mass. 150 ( 2016 )

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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.