Arena et al v. Quissett Partners Nominee Trust et al

Filing 139

Magistrate Judge Donald L. Cabell: ORDER entered 95 Memorandum for the Proposed Distribution of Monies Held in Escrow and Rationale filed by John A. Arena and 96 MOTION for Summary Judgment , Simultaneous Execution on and Remittance of Escrowed Funds filed by Robert Driscoll, Quissett Partners Nominee Trust, Laina C. Driscoll. (Russo, Noreen)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
JOHN A. ARENA and THOMAS ARENA,
Plaintiffs,
v.
ROBERT W. DRISCOLL, LAINA C. DRISCOLL,
Individually and as Trustees of
QUISSETT PARTNERS NOMINEE TRUST,

No. 16-cv-11562-DLC

Defendants.

ORDER RE: PLAINTIFFS’ MEMORANDUM FOR THE PROPOSED DISTRIBUTION
OF MONIES HELD IN ESCROW AND RATIONALE (DKT. NO. 95) AND
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT, SIMULTANEOUS EXECUTION
ON AND REMITTANCE OF ESCROWED FUNDS (DKT. NO. 96)
CABELL, U.S.M.J.
I.

INTRODUCTION
Plaintiffs John A. Arena and Thomas Arena sued the defendants

in 2016 seeking a constructive trust and an order declaring them
to have a 50% ownership in certain property then held by the
defendants

through

the

Quissett

Partners

Nominee

Trust.

Defendants Robert W. Driscoll and Laina C. Driscoll, the sole
trustees and beneficiaries of the Quissett Partners Nominee Trust,
now concede that the plaintiffs may be entitled to a 50% interest
in proceeds from the now sold property, but counterclaim that any
such interest is overshadowed by a debt that the state courts of
Pennsylvania have adjudged as being owed by the plaintiffs to the

defendants.

The

issue

before

the

court

is

whether

these

Pennsylvania judgments, which upheld three promissory notes (“the
notes”) between the plaintiffs and defendants totaling at least
$708,306.83 (including accrued interest), should be applied to the
parties’

long-standing

Massachusetts

litigation

and

the

distribution of the property sale proceeds.
Following several motions and rounds of briefing, the court
asked the parties to submit their proposed distributions through
a submission akin to summary judgment.

For the reasons set forth

below, the court finds the Pennsylvania judgments are enforceable
and applicable to this action, and that the defendants’ proposed
distribution is proper.

Therefore, the defendants’ Motion for

Summary Judgment, Simultaneous Execution on and Remittance of
Escrowed Funds (Dkt. No. 96) is ALLOWED.
II.

BACKGROUND
In 2004, plaintiffs John and Thomas Arena joined with the

defendants, Robert and Laina Driscoll, to purchase a house and
three cottages (“the property”) in Nantucket, MA.
p. 3).

(Dkt. No. 98,

The defendants estimate the total cost of acquiring the

property was $1.45 million.

(Id. at p. 4, n.4).

To purchase the

property, the plaintiffs initially put down $5,000 each in mid2004.

(Dkt. No. 95, p. 4, ¶ 9; Dkt. No. 98, p. 4).

On January 31, 2005, the plaintiffs gave $100,000.00 more
($50,000.00 each) to the defendants.
2

(Dkt. No. 95, p. 6, ¶ 26;

Dkt. No. 98, p. 4).

On March 24, 2005, each plaintiff executed a

promissory note to defendant Robert Driscoll in the amount of
$183,861.00.
No. 98-L).

(Dkt. No. 95, p. 7, ¶¶ 29-30; Dkt. No. 98-K; Dkt.

On October 27, 2009, John Arena executed an additional

promissory note to Robert Driscoll in the amount of $17,500.00.
(Dkt. No. 95, p. 9, ¶ 50; Dkt. No. 98-M).
At present, neither party appears to contest that the down
payments and promissory notes were undertaken by the plaintiffs to
become partners in purchasing the property.

The promissory notes

themselves state that payment of the notes became due “the earlier
of i) sale of any properties in which [John or Thomas] Arena has
an ownership stake, or ii) September 1, 2005.”
Dkt. No. 98-L).
combined

50%

(Dkt. No. 98-K;

The plaintiffs’ complaint also avers that their
interest

stemmed

from

“their

earnest

money

contributions, the promissory notes . . . and the words and actions
of Defendants Robert and Laina Driscoll.”

(Dkt. No. 1, ¶ 23).

On May 25, 2016, after the plaintiffs had allegedly disavowed
the promissory notes, the defendants filed a suit in Pennsylvania
(where the Driscolls reside) seeking recognition of the validity
of the notes.

They invoked a confessed judgment clause 1 in the

Confessed judgment clauses “constitute ‘written authority of a debtor and a
direction by him for the entry of a judgment against him if the obligation set
forth in the note is not paid” and basically provide for an expedited method of
collecting a judgment based on an unpaid debt. C.F. Trust, Inc. v. Peterson,
No. 96-1375H, 6 Mass. L. Rptr. 505, at *1 (Mass. Super. Mar. 6, 1997). Judgments
by confession exist as a legal concept in some states, such as Pennsylvania but
not Massachusetts, as discussed infra.
1

3

promissory note and subsequently received a judgment holding the
promissory notes valid and enforceable.
98-B; Dkt. No. 98-C).

(Dkt. No. 98-A; Dkt. No.

The plaintiffs challenged the validity of

the promissory notes by moving to strike or open the confessed
judgments.

The Philadelphia Court of Common Pleas allowed this

motion, but the Pennsylvania Superior Court, sitting en banc,
reversed.

See Driscoll v. Arena, 213 A.3d 253 (2019).

Since the

plaintiffs did not seek further appellate review, those judgments
have become final.
Defendants, in their amended counterclaims, allege that the
plaintiffs have still not paid the balance due on these notes,
which includes the principal and significant interest.
94, p. 11, ¶ 11). 2

The defendants filed an action to collect on

the promissory notes in Massachusetts state court.
H).

(Dkt. No.

The state court has since dismissed that action.

(Dkt. No. 98See Judgment

of Dismissal, Driscoll v. Arena, (Mass. Super. Aug. 16, 2021) (No.
1675CV00016).
After the parties resolved an issue regarding a notice of lis
pendens placed on the property, the property was sold.
No. 91).

See (Dkt.

By agreement of the parties, the court is holding the

proceeds of that sale, totaling $1,003,799.11, in escrow.

(Dkt.

No. 88; Dkt. No. 92).

The parties agree that John Arena has since satisfied the judgment against
him as to the $17,500 promissory note. (Dkt. No. 103; Dkt. No. 104, p. 2).

2

4

The court asked each party to provide a proposed distribution
of proceeds in a filing similar to summary judgment. (Dkt. No.
88).

The plaintiffs propose that $360,000.00 be paid to the

defendants

to

reimburse

them

for

family-based

capital

contributions, $10,000.00 be paid to themselves to reimburse them
for their earnest money deposit, and the remaining $633,799.11 be
split in half with one half going to the defendants and one half
going

to

ownership

the

plaintiffs,

interests

in

representing

their

respective

50%

Property.

(Dkt.

No.

The

the

95).

defendants propose that they would concede that the plaintiffs
have a 50% ownership interest in the property, conditioned on the
court accepting and applying the money due to them under the
Pennsylvania judgments.

(Dkt. No. 98).

Therefore, the defendants

state that the proceeds should be simply split fifty-fifty to
represent each party’s ownership interest, and then the amounts
owed by the plaintiffs be taken out of their half and given to the
defendants.

(Id.).

III. DISCUSSION
A. The Parties’ Respective Ownership Interest in the
Proceeds
As a threshold matter, the relief the plaintiffs seek in this
action

is

properties.

recognition

of

a

50%

(Dkt. No. 95, p. 12).

ownership

interest

in

the

The defendants presently do

not challenge the plaintiffs’ right to 50% of the proceeds from
5

the sale of the property.

(Dkt. No. 98, p. 21) (“[A]ccepting Mr.

Driscoll’s concession that each of the Arenas are due 25% on the
Escrowed Funds . . .”).

The attendant evidence of the parties’

own understanding of their arrangement supports the notion that
the Arenas and the Driscolls intended to become equal partners in
their land-purchasing venture.

The court finds no reason to

disturb the parties’ agreed-to sentiment with respect to the
ownership interests, which leaves the issue of the promissory notes
the plaintiffs signed in order to join the venture.
B. Pennsylvania Judgments on Promissory Notes
The defendants suggest that the division of the sale proceeds
is just the first part of a more complicated calculus.

Their

counterclaim asks the court to recognize and enforce the promissory
notes, which the plaintiffs do not contest they signed.

More

specifically, the defendants seek this court’s recognition of the
confessed judgments that they secured in Pennsylvania state court
after a separate lengthy legal battle with the plaintiffs.

The

history of the Pennsylvania litigation is detailed in Driscoll v.
Arena, 213 A.3d 253 (2019), but for present purposes, the ultimate
outcome can be fairly stated thus: the Pennsylvania state court
rejected the plaintiffs’ argument that the promissory notes and
their confessed judgment clauses are unenforceable.
Despite the Pennsylvania decision, the plaintiffs continue to
argue

here

that

the

notes

are
6

unenforceable

by

citing

to

Massachusetts General Law Chapter 231, Section 13A, which the
plaintiffs claim “renders void any judgment obtained in the manner
in which Defendant Driscoll secured the ex parte judgments on the
promissory notes.”

(Dkt. No. 95, p. 15).

The statute reads, in

relevant part,
Any stipulation in a contract, promissory note or other
instrument, or in any memorandum or writing relating
thereto, whereby a party thereto agrees to confess
judgment in any action which may be brought thereon or
authorizes or agrees to authorize another person to
confess judgment as aforesaid shall be void and any
judgment by confession taken in pursuance of such a
stipulation shall be set aside or vacated on motion of
the defendant.
M.G.L. ch. 231, § 13A.

The plaintiffs’ reliance on the statute is

misplaced, however, in light of case law from the Massachusetts
Supreme Judicial Court (“SJC”) holding that the statute does not
apply to judgments rendered by courts of another state, and that
those judgments are “valid and entitled to full faith and credit.”
McDade v. Moynihan, 115 N.E.2d 372, 375 (Mass. 1953).

In McDade,

a case also about confessed judgments from Pennsylvania, the SJC
made clear that one state accepting the judgments of another state
is a federal Constitutional imperative.

Id. (“[The statute] does

not empower the courts of this Commonwealth, because of our policy,
to refuse full faith and credit according to the Constitution of
the United States to the judgments of other States which are valid
under the laws of those States.”).

Where a Massachusetts state

court would not reject a Pennsylvania judgment obtained through a
7

confessed judgment clause, neither will this federal court.

See,

e.g., Commercial Union Ins. Co. v. Walbrook Ins. Co., 41 F.3d 764,
772 (1st Cir. 1994) (under Erie doctrine, federal courts sitting
in diversity jurisdiction are generally obligated to apply state
law).
C. Distribution of Proceeds
Having decided that the parties have an equal claim to the
escrowed funds and that the promissory notes are enforceable and
will be recognized in this action, the remaining issue concerns
how a limited set of funds ought to be equitably distributed.

The

plaintiffs essentially propose that all parties should receive
back the earnest money contributions they initially made, that
various loans should be paid back, that the notes should be
disregarded, and that the funds be dispersed in the amounts of
$163,449.77

to

Thomas

Arena,

$163,449.77

$676,889.57 to Robert Driscoll.
130).

to

John

Arena,

and

(Dkt. No. 95, p. 16; Dkt. No.

The defendants essentially propose that the escrowed funds

be split in half, and then the promissory notes be applied as a
set-off.

In that scenario, the escrowed $1,003,799.11 would be

split such that $501,899.55 would immediately go to the defendants,
and then the $501,899.55 due to the plaintiffs would be applied
against the present value of the promissory notes as set out in

8

the Pennsylvania judgments (which exceeds $501,899.55). 3

In this

scenario, the defendants would take the entirety of the escrowed
funds and the plaintiffs would still owe the defendants the balance
of the two outstanding judgments.
In

determining

whether

to

adopt

the

plaintiffs’

or

defendants’ methodology, and because the decision is essentially
an equitable one with little in the way of controlling precedent,
this

court

has

reviewed

many

analogous

legal

and

equitable

principles to conclude that the defendants’ proposed methodology
should apply here.

The most compelling consideration is the

equitable principle of setoff (or recoupment) 4, which would work
to apply the money separately owed to the defendants by virtue of
the promissory notes to the money that would otherwise be awarded
to the plaintiffs:
A court has inherent equitable power to allow or compel
a setoff whenever equity and justice so demand.
The
right of setoff itself is essentially an equitable
right, which courts may enforce at their discretion.
Given the equitable nature of setoff, in permitting a
setoff, the court may calculate the setoff in the way it
deems most equitable.

3 This is true even after deducting the amount of the one judgment that John
Arena has already satisfied. See (Dkt. No. 98-A; Dkt. No. 98-B).

The common law sometimes distinguishes between setoff and recoupment, the
former dealing with debts unrelated to the complaint and the latter dealing
with those related to the transactions or occurrences in the complaint. See,
e.g., United Structures of Am., Inc. v. G.R.G. Eng'g, S.E., 9 F.3d 996, 998
(1st Cir. 1993). Because both are equitable remedies that would allow the
court to apply the debt owed against the division of the escrowed funds, this
opinion only discusses setoff for simplicity.
4

9

20 Am. Jur. 2d Counterclaim, Recoupment, Etc. § 11 (2022) (internal
citations omitted).
Courts sometimes use setoffs of countervailing damages when
finalizing awards in cases like the present one where there are
counterclaims.

Such application of the setoff power is well

established within the decisions of this court as well as the SJC.
See, e.g., Merigan v. Liberty Life Assur. Co. of Bos., 839 F. Supp.
2d 445, 448 (D. Mass. 2012) (internal quotations omitted) (“The
right of setoff . . . allows parties that owe each other money to
apply their mutual debts against each other thereby avoiding the
absurdity of making A pay B when B owes A.”); Mass. Motor Vehicle
Reinsurance Facility v. Comm'r of Ins., 400 N.E.2d 221, 227 (Mass.
1980) (quoting Perry v. Pye, 102 N.E. 653, 657 (Mass. 1913)) (“In
the absence of a statute, there is power in equity to ‘compel a
set-off of cross demands or of judgments . . . whenever necessary
for

the

proper

administration

of

justice.’”).

Setoffs

are

appropriate when they are “likely to anticipate and resolve more
contingencies and leave less possibility of uncertainty about what
the judgment means.”

Sign-A-Way, Inc. v. Mechtronics Corp., 12 F.

Supp. 2d 132, 161 (D. Mass. 1998), rev’d in part on other grounds,
232 F.3d 911 (Fed. Cir. 2000)).

This rationale is particularly

forceful here where this case has suffered a lengthy litigation
process with much uncertainty over several years.

10

The only salient argument that the plaintiffs make for not
applying the notes as a setoff against their half of the proceeds,
is that the court
should strongly consider the context in which defendant
Driscoll secured the judgments in the Pennsylvania state
[c]ourt . . . and the court ought to value the amount of
those judgments as merely the artifice of the ex-parte
process and strike so much of those two[] (2) judgments
that reflect[] accrued interest. The basis for this is
quite simply the principles of equity and the
expectations of the parties when they entered into the
partnership . . . .
(Dkt. No. 95, p. 15).

The plaintiffs’ appeal to the equitable

nature of their claim is well taken, but because this court must
respect

the

Pennsylvania

judgments,

the

plaintiffs’

proposed

distribution cannot be endorsed. The plaintiffs should have raised
any arguments about the parties’ expectations or any fraud, duress,
or other infirmity with the promissory notes in the Pennsylvania
litigation.

Further, the promissory notes themselves specifically

reference the lender’s right of setoff against the borrower.

See

(Dkt. No. 98-K; Dkt. No. 98-L; Dkt. No. 98-M) (“Upon the occurrence
of a default, the Lender shall have all the rights and remedies .
. . including the right of set-off against any and all accounts,
which

right

of

set-off

shall

be

in

addition

to

and

not

in

derogation of any right of set-off the Lender may otherwise have
by reason of law or agreement.”).

Accordingly, the court will set

off the plaintiffs’ 50% share of the property’s sale proceeds
($501,899.55) with their promissory note debts due to Defendants
11

($674,385.20) 5,

in

accordance

with

the

defendants’

proposed

distribution of the escrowed funds.
IV. CONCLUSION
For the reasons set forth above, the court recognizes the
equal ownership interests in the property by the parties as well
as the validity of the judgments secured by the defendants in
Pennsylvania.

As such, the court orders that the funds held in

escrow by the court be disbursed to the defendants as proposed in
Defendants’ Motion for Summary Judgment, Simultaneous Execution on
and Remittance of Escrowed Funds (Dkt. No. 96), which is ALLOWED.

So Ordered.
DATED:

/s/ Donald L. Cabell
DONALD L. CABELL, U.S.M.J.

November 25, 2022

This amount is exclusive of any post-judgment interest that may have
accrued.
5

12