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16-P-420 Appeals Court
PATRIOT POWER, LLC1 vs. NEW ROUNDER, LLC, & another.2
No. 16-P-420.
Middlesex. December 8, 2016. - March 13, 2017.
Present: Kafker, C.J., Grainger, & Sullivan, JJ.
Declaratory Relief. Practice, Civil, Declaratory proceeding,
Burden of proof, Instructions to jury. Contract, Lease of
real estate, Condition, Termination. Landlord and Tenant,
Termination of lease. Real Property, Lease. Notice.
Civil action commenced in the Superior Court Department on
March 24, 2014.
The case was tried before Bruce R. Henry, J.
Mark C. O'Connor (Douglas S. Denny-Brown also present) for
the plaintiff.
Robert F. Feeney for the defendants.
KAFKER, C.J. The issue presented in this declaratory
judgment and breach of contract action is which party bears the
burden of proof at trial regarding the exercise of a termination
1
Doing business as MandaShan Enterprises.
2
Concord Music Group, Inc.
2
option in a lease. The plaintiff, Patriot Power, LLC, doing
business as MandaShan Enterprises, was the landlord in a
commercial lease; the defendant New Rounder, LLC, was the
tenant, and the defendant Concord Music Group, Inc., was the
guarantor (we refer to the defendants collectively as tenant).
The lease provided that it would automatically renew each year
unless either party timely notified the other that it wished to
exercise a termination option in the lease. In the instant
case, the landlord filed a complaint seeking a declaratory
judgment that the tenant had not effectively terminated the
lease, and asking for one year's rent plus consequential
damages. The tenant answered and counterclaimed, seeking a
declaratory judgment that it had properly notified the landlord
of its intention to terminate. The landlord sought a pretrial
ruling that the tenant had the burden of proof at trial on the
issue of whether it sent a lease termination letter before the
nonrenewal deadline. A judge denied the motion, ruling that as
the "moving party," the landlord bore the burden to prove it did
not receive the termination letter on time. At trial, a
different judge instructed the jury in accordance with the
pretrial ruling. The landlord objected to this instruction.
The jury returned a verdict in favor of the tenant.
3
On appeal, the landlord contends that the trial judge's
burden of proof instruction was erroneous and prejudicial.3 We
conclude that the tenant had the burden to prove it fulfilled
the termination option requirements outlined in the lease, as
this was a condition imposed on the party seeking to end the
contractual obligation. Because the jury instruction regarding
the burden of proof was erroneous and prejudicial, we reverse.
Background. The following facts are undisputed. On April
1, 2010, the tenant executed a lease with the landlord's
predecessor in interest for commercial office and warehouse
space in Burlington. On December 31, 2012, the parties executed
an amendment to the original lease (first amendment). Section
1.4 of the first amendment states:
"This Lease, including all covenants, terms, conditions
contained herein, shall be automatically extended for
additional successive Renewal Terms of one (1) year each
unless Tenant or Landlord serves written notice, either
party to the other, of either party's option not to so
extend the Lease. The time for service of such written
notice shall not be more than twelve (12) months or less
than six (6) months prior to the expiration of then-current
lease period. Time is of the essence."
The original lease also included a provision stating that
any notices to either the landlord or the tenant "shall be in
3
Specifically, the landlord argues that the tenant bears
the burden of proof because (1) the language of the lease places
the burden on the party attempting to terminate, and (2) in an
option contract dispute, the party seeking to specifically
enforce the option (in this case, the option to terminate the
lease) has the burden to prove it effectively exercised the
option.
4
writing and shall be sent by registered or certified mail or by
a recognized overnight courier who maintains delivery records,
postage prepaid," and that "[a]ll such notices shall be
effective when received or, if delivery is refused, upon first
refusal." As the lease was set to renew automatically on March
31, 2014, either party would have had to notify the other by
September 30, 2013, if it intended to terminate.
On September 17, 2013, the tenant sent a postage prepaid
package via Federal Express (package or Federal Express package)
to the landlord's address. The landlord received the package on
September 18, 2013. Both parties agree that the package
contained a "Subordination Non-Disturbance and Attachment
Agreement" and a "Tenant Estoppel Certificate" (collectively
referred to as the refinancing documents), as well as a
transmittal letter referencing the refinancing documents
(transmittal letter). However, the parties dispute whether the
package also contained a signed letter, dated September 16,
2013, from the tenant to the landlord, expressing the tenant's
intent to terminate the lease (termination notice). It stated
in relevant part:
"Pursuant to paragraph 1.4 of the Commercial Lease
Agreement dated as of April 1, 2010, as amended ('Lease'),
between New Rounder LLC ('Tenant') and Patriot Power, LLC
(successor-in-interest to Lost Exit Partnership)
('Landlord'), this letter is written notice to the Landlord
that Tenant will not be exercising its option to extend the
5
Lease. Therefore, the term of the Lease shall expire at
noon on March 31, 2014."
Trial. At trial, the tenant's executive assistant, Alma
Jimenez, testified that on September 16, 2013, the tenant's
senior director of business and legal affairs, Pollyanna Kwok,
handed Jimenez the refinancing documents and transmittal letter,
with instructions to send them to the landlord via Federal
Express. Later that same day, Kwok gave Jimenez the termination
notice, also to be sent to the landlord. Jimenez asked Kwok if
she could send the termination notice and the refinancing
documents in the same envelope, and Kwok answered yes. Jimenez
testified that she had "no doubt at all" that she placed the
termination notice in the Federal Express package along with the
refinancing documents and the transmittal letter. Finally,
Jimenez testified that it was her custom to place a copy of any
outgoing correspondence in a file after forwarding the original,
and that after sending the Federal Express package containing
the termination notice, refinancing documents, and transmittal
letter, she had placed copies of them in a file labeled "Concord
Music Group Lease -- Rounder (Mass) (Volume II)." The file and
its contents, including the termination notice, were admitted as
an exhibit at trial.
In response, the landlord called its own executive
assistant, Melissa Ehrenthal, to testify. Ehrenthal testified
6
that she had forwarded the refinancing documents to Kwok via
electronic mail message (e-mail) on September 16, 2013, and was
subsequently home sick for three days. When Ehrenthal returned
to work on September 20, 2013, she found an e-mail in her inbox
from Kwok, and a Federal Express package from the tenant on her
desk. The e-mail from Kwok was dated September 16, and stated
in relevant part:
"Would you please confirm as to whether any notices that we
send should be sent to your attention. As you may be aware
our lease term ends as of March 31, 2014, and under the
lease we need to provide notice as to whether we intend to
exercise our option to extend the lease or not by September
30, 2013. Please let me know at your earliest
convenience."
Ehrenthal responded to the e-mail by advising Kwok to
forward the notice of nonrenewal to Matthew Kinney, one of the
landlord's attorneys. She then opened the Federal Express
package. Ehrenthal testified that the package only contained
the executed refinancing documents and a transmittal letter, and
that she was "absolutely certain" there were no other documents
inside.
After the close of evidence, the judge gave the jury
charge, which included the following instruction regarding the
burden of proof:
"[T]he [landlord] must persuade you that it is more
probable than not that what it is claiming with regard to
the lease renewal is true. If you find that it is more
likely or equally likely that the [landlord's] claim is not
true, the [landlord] has failed to sustain its burden of
7
proof . . . . It is the burden of the [landlord] to prove
by a preponderance of the evidence that the notice of
intent to terminate the lease was not contained in the
FedEx package when it was received."
The landlord objected to the instruction, arguing that the
tenant was "required to show [by] a fair preponderance of the
evidence that it effectively exercised the option." Following
deliberations, the jury answered "No" to the special question,
"Did the [landlord] prove by a preponderance of the evidence
that it did not receive the termination notice from the [tenant]
in the FedEx package delivered to it on September 18, 2013?" and
returned a verdict in favor of the tenant.
Discussion. "In a declaratory judgment action, the
determination concerning which party has the burden of proof
depends on the nature of the underlying action." Haskell v.
Versyss Liquidating Trust, 75 Mass. App. Ct. 120, 126 (2009).
See Stop & Shop, Inc. v. Ganem, 347 Mass. 697, 703 (1964) ("Had
the lessors brought an action for damages for breach of an
implied covenant to continue operations they would, of course,
have had the burden of showing the covenant. That the lessee
initiated the proceeding for declaratory relief does not shift
the burden to the lessee"); Foley v. McGonigle, 3 Mass. App. Ct.
746 (1975) (in easement dispute, "[t]he fact that the plaintiff
initiated this proceeding for declaratory relief does not shift
th[e] burden to him").
8
In the instant breach of contract and declaratory judgment
action, the existence of the lease and its automatic renewal
provision were undisputed. See Restatement (Second) of
Property: Landlord & Tenant § 1.5 comment f, at 24 (1977) ("The
lease may specify the time before the end of the designated
period that notice must be given by either party to terminate
the lease as of the end of the period. If no such notice of
termination is given, the lease will continue for another
period"). The only issue at trial was whether the lease
termination option was properly exercised by the party seeking
to discontinue the lease. In these circumstances we conclude
that the nature of the underlying action, and therefore who has
the burden of proof, is best defined by a line of cases in which
"one relying on a condition to avoid a contractual obligation
has the burden to prove the occurrence of the condition."
Haskell, 75 Mass. App. Ct. at 126. The rationale for such an
allocation of the burden of proof is particularly strong where
the condition for avoiding the contractual obligation actually
requires an affirmative act by the party seeking to end the
obligation, as it does here. Cf. Restatement (Second) of
Property: Landlord & Tenant § 1.5 comment f, at 25 ("The lease
may specify that the notice of termination must be in writing
. . . . If [notice of termination] is mailed the notice is not
effective until it is received by the addressee and the burden
9
of proof is on the one giving the notice to prove when it was
received"); 13 Corbin on Contracts § 68.9(1), at 255-256 (2003)
("To establish a discharge because of the exercise of a
conditional power to terminate or to cancel, the party with the
privilege must establish the fulfillment of the condition -- the
existence or occurrence of the fact or event constituting the
condition").
The seminal case is Gray v. Gardner, 17 Mass. 188 (1821).
In Gray, "[t]he very words of the contract show that there was a
promise to pay, which was to be defeated by the happening of an
event, . . . the arrival of a certain quantity of [sperm whale]
oil, at the specified places [in Nantucket and New Bedford], in
a given time." Id. at 189. The contract was considered to be
"like a bond with a condition; if the obligor would avoid the
bond, he must show performance of the condition." Ibid. The
court held that the burden to prove that the designated quantity
of sperm whale oil had arrived at Nantucket and New Bedford
during the specified dates was on the defendants, not the
plaintiffs bringing suit to enforce the promise to pay: "[t]he
defendants, in this case, promise to pay a certain sum of money,
on condition that the promise shall be void on the happening of
an event. It is plain that the burden of proof is upon them;
and if they fail to show that the event has happened, the
promise remains good." Ibid.
10
The instant case likewise involves a contractual
obligation, and a condition that would void the obligation.
Indeed, the condition imposes a requirement in the form of an
affirmative act by the party seeking to terminate the ongoing
obligation. More specifically, the contract between the
landlord and the tenant provided that the lease would
automatically renew each year, unless one of the parties timely
and properly notified the other that it intended to terminate
the lease. Cf. Restatement (Second) of Property: Landlord &
Tenant § 1.5 comment f. To end its contractual obligation, the
tenant therefore had to exercise the option by serving written
notice that it was terminating the lease. The burden of proof
of the satisfaction of that condition should therefore have been
placed on the tenant in this declaratory judgment action. See
Gray, supra; Thayer v. Conner, 5 Allen 25, 26-27 (1862) (where
defendant's promise to pay plaintiff thirty dollars for sale and
delivery of goods to be used in store was to be voided if
defendant was deprived by third party of use of store, defendant
bore burden to prove he had indeed been removed from store);
Haskell, 75 Mass. App. Ct. at 126-127 (party required to return
shares of stock unless per share price reached $1.50 had burden
of proving stock price reached $1.50). See also Restatement
(Second) of Property: Landlord & Tenant § 1.5 comment f; 13
Corbin on Contracts § 68.9(1).
11
As the instruction here erroneously placed the burden of
proof on the landlord, and the landlord objected, we next
consider whether the error was prejudicial. "An error in jury
instructions is not grounds for setting aside a verdict unless
the error was prejudicial -- that is, unless the result might
have differed absent the error." Blackstone v. Cashman, 448
Mass. 255, 270 (2007). Both the landlord's and the tenant's
cases rested primarily on the testimony of their respective
executive assistants, who directly contradicted each other.
Such credibility questions must be resolved by the fact finder,
not an appellate court. See Commonwealth v. Randolph, 438 Mass.
290, 300 (2002) ("As an appellate court we do not sit as a
second jury, but we must accept the fact finders' evaluation of
witness credibility, as evidenced by their findings" [citation
omitted]). The judge here instructed the jury to find for the
tenant if it was "more likely or equally likely that the
[landlord's] claim [was] not true" (emphasis added). This was
incorrect, as a jury that could not resolve the credibility
question should have decided in favor of the landlord, not the
tenant, as the tenant (the party exercising the termination
option) had the burden of proof. As we do not know whether the
jury decided the credibility question in favor of the tenant or
found both executive assistants equally credible or incredible,
12
we conclude the result might have differed absent the error. We
therefore reverse.
Judgment reversed.
Verdict set aside.