Neponset Landing Corporation v. The Northwestern Mutual Life Insurance Company

Filing 142

Magistrate Judge Judith G. Dein: ORDER entered. MEMORANDUM AND ORDER allowing 136 Motion to Preclude Issuance of Execution Against Terence Conroy, Sr. (Dambrosio, Jolyne)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

NEPONSET LANDING CORPORATION,

)
)
Plaintiff/Defendant-in-Counterclaim,
)
)
v.
)
)
THE NORTHWESTERN MUTUAL LIFE
)
INSURANCE COMPANY,
)
)
Defendant/Plaintiff-in-Counterclaim,
)
)
v.
)
)
TERENCE CONROY, SR.,
)
)
Additional Defendant-in-Counterclaim. )

CIVIL ACTION
NO. 10-11963-JGD

MEMORANDUM OF DECISION AND ORDER ON
MOTION TO PRECLUDE ISSUANCE OF
EXECUTION AGAINST TERENCE CONROY, SR.
October 3, 2013
DEIN, U.S.M.J.
I. INTRODUCTION
This matter is before the court on the motion of the defendant-in-counterclaim,
Terence Conroy, Sr. (“Conroy”), to preclude the issuance of an execution against him.
(Docket No. 136). On August 13, 2013, following a jury trial and several post-judgment
motions, this court entered the Second Amended Judgment in this case. (Docket No.
134). Pursuant to the judgment, Conroy and the plaintiff, Neponset Landing Corporation
(“Neponset”), are jointly liable to the defendant/plaintiff-in-counterclaim, The

Northwestern Mutual Life Insurance Company (“NML”), in the amount of $138,466.89.
In addition, Conroy is liable to NML for $3,200.50 in legal fees and no expenses, and
Neponset is liable to NML for $284,792.50 in legal fees and $148,405.83 in expenses.
(Id.).
Conroy has tendered to NML the full amount of attorneys’ fees and expenses for
which he was responsible. At issue is how to apply funds belonging to Neponset which
are being held in escrow. Neponset has requested that these funds be applied to that part
of the judgment for which Neponset and Conroy are jointly and severally liable. Such an
allocation will result in Conroy having fulfilled his obligations under his personal
guarantee. NML, however, argues that the escrow funds should be applied first to the
unsecured award of attorneys’ fees and costs ordered by this court against Neponset.
Such an award would result in Conroy being liable under his personal guarantee for the
full amount of the joint judgment.
For the reasons detailed herein, this court finds that NML must honor Neponset’s
designation of the escrow funds and apply such funds to Neponset’s and Conroy’s joint
and several liability. Therefore, with Conroy’s payment of his obligation for legal fees,
the judgment against him will be satisfied. The “Motion to Preclude the Issuance of an
Execution Against Terence Conroy, Sr.” is ALLOWED.

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II. STATEMENT OF FACTS
Neponset commenced this action in November 2010, seeking to recover amounts it
claimed were due under the parties’ Real Estate Purchase Agreement. NML denied
liability and filed a counterclaim on March 21, 2011 seeking payment from Neponset for
numerous pre-closing expenses and real estate taxes that it claimed were due. Conroy
personally guaranteed Neponset’s obligations to pay such expenses and taxes, and NML
named Conroy as a defendant-in-counterclaim.
A jury trial was held in May 2013. Shortly before the evidence closed, NML
dropped its claim for pre-closing expenses, and limited its counterclaim to amounts it
claimed were due for real estate taxes. The jury returned a verdict for NML against
Neponset and Conroy in the amount of $84,205.12, the amount due for real estate taxes.
(Docket No. 105). Interest at the rate of 12% was entered by the court. Since NML had
not requested that the jury find the date when the taxes were due, and did not propose an
alternative date, interest was originally calculated by the court from the date the counterclaim was filed and totaled $22,171.68. (Docket No. 106). NML then moved to amend
the judgment, seeking to have interest computed from the date of its January 16, 2008
demand for payment of real estate taxes (trial exhibit 33) instead of from the date on
which it filed its counterclaim seeking payment, i.e., March 21, 2011. (Docket No. 116).
The motion was allowed, and an Amended Judgment was entered, thereby increasing the
amount of pre-judgment interest to $54,261.77. (Docket No. 130). As a result, Neponset

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and Conroy became jointly and severally liable for a total judgment in the amount of
$138,466.89.
Thereafter, the court ruled on NML’s motion for attorneys’ fees and disbursements, which had been filed pursuant to “mandatory fee-shifting provisions of the parties’
contracts.” (Docket No. 108). Specifically, Article 14.5 of the Real Estate Purchase
Agreement between NML and Neponset (Trial Ex. 4) provides:
In the event of any litigation between Buyer and Seller concerning
this Agreement or the transactions contemplated hereby, the
prevailing party shall be entitled to recover from the other party
reasonable attorneys’ fees and disbursements incurred by the
prevailing party in connection with such litigation.
Paragraph 9 of Conroy’s Guarantee (Trial Ex. 21) provides:
If it becomes necessary to enforce the obligations of the Guarantor
hereunder, Guarantor agrees to pay the reasonable attorneys’ fees
and expenses in connection therewith; provided, however, that only
in the event that Buyer is the prevailing party shall Buyer also be
entitled to recover from Guarantor reasonable attorneys’ fees and
disbursements incurred by Buyer in connection with pursuing
Buyer’s rights hereunder.
(See Docket No. 108). Therefore, in its motion NML sought $345,733.00 in attorneys’
fees and $148,836.02 in disbursements against Neponset, and $3,200.50 in attorneys’
fees, and no disbursements, against Conroy. (Id.). The court awarded NML $3,200.50 in
attorneys’ fees and no expenses against Conroy, and $433,198.33 ($284,792.50 in
attorneys’ fees and $148,405.83 in expenses) against Neponset. (Docket No. 133).
Conroy has tendered the $3,200.50 to NML, which NML has refused to accept.

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Neponset is no longer in business, and the only assets it has available to satisfy the
judgment against it is $287,353.48, which is currently being held in an escrow account by
First American Title Insurance Company. It is undisputed that these escrow funds belong
to Neponset. It is further undisputed that these funds could not be released from escrow
under the terms of the parties’ agreement without NML’s consent, and that NML refused
to consent while the litigation was pending.
Following the jury verdict, but prior to the award of attorneys’ fees and expenses,
the parties entered into a stipulation regarding the distribution of the escrow funds.
Specifically, the parties agreed in relevant part as follows:
2. In the event that Neponset and/or Conroy file any appeals from
the Judgment entered against them in this case, they agree to post the
appropriate bond, or other mutually acceptable form of security, for
the Judgment amount (as amended by post-verdict motions, such as
the motion for award of attorneys’ fees and disbursements that NM
will be filing) in excess of the escrowed funds in the amount of
$287,353.48 currently held by First American Title Insurance
Company;
3. NM, Neponset and Conroy agree to consent to the distribution of
the escrowed funds once any appeals that Neponset and/or Conroy
may file are exhausted[.]
(Docket No. 107).
Neither Neponset nor Controy filed any appeals in this action. On August 28,
2013, Neponset and Conroy sent a proposed stipulation to NML regarding the
distribution of the escrow funds pursuant to which the escrow funds would first be
applied to the joint liability of $138,466.89 and the balance would then be applied to the
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attorneys’ fees and costs owed by Neponset to NML. (Docket 138-1). In addition,
Conroy tendered a check for payment of the full amount of attorneys’ fees assessed
against him. (Id.). NML objected and demanded that the escrow funds be applied first to
Neponset’s obligation for attorneys’ fees and costs. (Docket 138-2). NML filed its
request for a First Execution on September 5, 2013. (Docket No. 135). The instant
motion to preclude the issuance of an execution against Terence Conroy, Sr. (Docket No.
136) followed.
Additional facts will be provided below where appropriate.
III. DISCUSSION
The Parties’ Agreement
As an initial matter, Neponset argues that the parties’ stipulation regarding the
escrow funds quoted above (Docket No. 107) mandates that the funds be distributed first
to satisfy the joint and several liability. Since the parties entered into the stipulation
before the court had assessed the amount of legal fees and expenses due from the parties,
Neponset argues that the distribution agreement should relate only to the joint obligation
awarded by the jury. This argument is not persuasive. The stipulation referenced the fact
that NML would be seeking an award of attorneys’ fees and expenses, but did not make it
clear whether the escrowed funds would be applied to the joint liability or the individual
liabilities. Therefore, this court finds that the language of the stipulation regarding the
escrowed funds is not controlling.

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Neponset’s Allocation
This court finds that NML is bound by Neponset’s first-in-time allocation of the
escrow funds to that portion of the judgment for which Neponset and Conroy were jointly
and severally liable. As the Massachusetts Appeals Court explained in Warren Bros. Co.
v. Sentry, Ins., 13 Mass. App. Ct. 431, 433 N.E.2d 1253 (1982):
It is an established rule that where there are several outstanding
debts a debtor has the primary power to direct the application of a
payment. If he fails to exercise this right before or at the time of the
payment, the creditor is then free to appropriate the money to any of
the debts, as he chooses and without concern for the debtor’s
interests. When both parties fail to exercise their respective rights
and the court is thereby required to direct application, it does so on
the basis of all of the circumstances of the transaction. Where the
equities of the situation do not require a contrary result, the rule is
that the payments are applied by law to the liabilities of earliest date.
Id. at 433-34, 433 N.E.2d at 1255 (internal citations, footnote and quotations omitted). In
the instant case, the debtor, Neponset, directed the application of the payment of the
escrow funds “right before or at the time of the payment,” i.e., when it was time to
release the funds from escrow. Therefore, its selection of the debt to which it should be
applied is controlling.
NML contends that this rule should not apply in the case of a judgment debt,
especially because it is well established that a judgment creditor may collect a joint
judgment “against one or all of the joint tortfeasors.” (See Def. Opp. (Docket No. 139) at
4 (citing Cooper v. Firestone Tire & Rubber Co., 599 F. Supp. 172, 174 (S.D. Ga. 1984)
(discussing effect of settlement with one of several tortfeasors))). However, the principle
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on which NML relies relates to collection efforts which a creditor may undertake to
collect an unsatisfied debt. It is inapplicable here, where a debtor is voluntarily paying
part of a judgment. Thus, it does not negate the debtor’s allocation of payment.
NML’s contention that a judgment debtor has no say in how to apply its payment
of a debt is precluded by City Coal Co. of Springfield, Inc. v. Noonan, 424 Mass. 693,
677 N.E.2d 1141 (1997). In Noonan, the issue arose as to whether a payment on a
judgment debt should be applied to a joint obligation or not. In language which is
directly applicable to the instant case, the court ruled:
It is well established that, when a debtor pays money to a creditor,
absent any express agreement to the contrary, the payment is first
applied to the outstanding interest obligation and then to principal.
When, however, money is owed under two separate sections of a
judgment, one of which applies to the debtor and the other which
applies to the debtor and another, and two separate executions are
issued, the situation is different. The general rule is that a debtor
may select which debt the payment should be applied toward and, if
the debtor makes no explicit allocation, the creditor can make the
choice.
Id. at 696, 677 N.E.2d at 1143 (internal citations omitted). This is precisely the situation
before this court. There are two separate sections of a judgment, one of which applies
solely to Neponset and one of which applies to Neponset and Conroy. There is no reason
not to follow the general rule allowing the debtor to select the debt toward which the
payment should be applied.

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Allocation of “Involuntary” Payment
NML argues further that Neponset cannot designate the debt toward which
payment can be directed because the general rule that a debtor’s choice governs “does not
apply to involuntary payments in judicial proceedings[.]” (Def. Opp. (Docket No. 139) at
2 (citing 28 Williston on Contracts, § 72.5 (4th ed. 2003))). It is impossible to reconcile
this principle with the Noonan court’s holding, discussed above, which involved payment
of a judgment debt. In any event, the same results would be reached in the instant case
even if the escrow payment is deemed to be an involuntary payment made in the course
of judicial proceedings.
The principle described by NML derives from a body of case law in which courts
have recognized that “[a] debtor and a creditor cannot affect the application of a payment
enforced by judicial proceedings.” Warren Bros. Co., 13 Mass. App. Ct. at 434-35, 433
N.E.2d at 1256. In such cases, courts have held that the allocation must be left to the
court to make “as justice between the parties may require.” Id., at 435, 433 N.E.2d at
1256 (quotations and citations omitted). See also New Terminal Stevedoring Inc. v. M/V
Belnor, 728 F. Supp. 62, 66 (D. Mass. 1989) (“Where a creditor does not have a ‘right’ to
allocate payments, the court may direct ‘as justice between the parties may require.’”)
(citations omitted)). In the instant case, although the question is a close one, this court
concludes that “justice” requires that the payment be applied to the joint obligation of
Neponset and Conroy.

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The general rule in the United States is that all parties bear their own legal fees
and expenses, regardless whether they prevail at litigation or not. In the instant case,
NML has the right to collect attorneys’ fees and expenses from Neponset only as a result
of the terms of its contract with Neponset. Although NML entered into a contractual
guarantee with Conroy, it did not seek to have Conroy guarantee Neponset’s liability for
attorneys’ fees and expenses. Thus, NML bore the risk that Neponset would not have
sufficient assets to pay its obligations for fees and expenses, and elected not to have that
obligation secured by Conroy’s guarantee. Therefore, it is not unfair to leave NML
responsible for a portion of its own legal fees and expenses.
Moreover, Conroy’s liability to NML is for real estate taxes that NML made
virtually no effort to collect from either Neponset or Conroy. The facts relating to
Neponset’s obligation for the unpaid real estate bill were straightforward and could have
been resolved years ago. If NML had pursued payment of the real estate bill in a timely
manner, there would have been sufficient funds in the escrow account to pay those taxes,
and Conroy’s liability under his guarantee would have been satisfied. The fact that
Neponset later sought to pursue unrelated claims in an expensive and time-consuming
litigation would not have involved Conroy at all.
This court is not unmindful of the fact that NML prevailed at every stage of this
litigation, and that it had undertaken significant efforts to halt the litigation without
incurring the significant legal fees it eventually incurred. Thus, to some extent, it is
“unfair” that NML is left with legal fees and expenses despite its contract with Neponset.
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However, even under the allocation ordered herein, NML will be paid approximately
$150,000.00 toward its legal fees and expenses, which is not an insignificant amount.
Furthermore, the “unfairness” is a result of Neponset not having sufficient assets to pay
its judgment, a risk that NML is contractually obligated to bear.
Based on the particular circumstances presented here, this court concludes that
justice requires that the escrow funds be applied first to the joint obligation of Neponset
and Conroy.
IV. CONCLUSION
For all the reasons detailed herein, the Motion to Preclude the Issuance of an
Execution Against Terence Conroy, Sr. (Docket No. 136) is ALLOWED.
/ s / Judith Gail Dein
Judith Gail Dein
U.S. Magistrate Judge

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