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Spinazola v. Mass. Environmental Associates, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

May 9, 2017

Rosemary Spinazola, as Executrix of the Estate of Clarence Spinazola and as Co-Trustee of the Clarence Spinazola 1994 Revocable Trust
v.
Mass. Environmental Associates, Inc. et al

          Filed May 11, 2017

          MEMORANDUM OF DECISION AND ORDER ON MOTION TO SUBSTITUTE ASSIGNEE, KING ROOT CAPITAL LLC, AS PLAINTIFF AND REQUEST FOR EXECUTION

          Mitchell H. Kaplan, Justice of the Superior Court.

         This case was filed on March 6, 2006. On March 8, 2007, a Final Judgment by Default Upon Assessment of Damages by the Court entered in favor of the plaintiff, Rosemary Spinazola, as Executrix of the Estate of Clarence Spinazola and as Co-Trustee of the Clarence Spinazola 1994 Revocable Trust (the Judgment), [1] in the amount of $982, 316, with interest from the date of filing. On August 20, 2007, the defendants filed a " Motion to Vacate Judgment by Default for Failure to Produce Discovery and for Failure to Comply with Court Orders." On September 18, 2007, that motion was denied. Then, nearly ten years later, the motion now before the court was filed. It is styled: " Motion to Substitute Assignee, King Root Capital, LLC, as Plaintiff and Request for Execution" (the Motion). In that motion, King Root Capital, LLC (King Root) alleges that: (1) Spinazola assigned her interest in the Judgment to ABCD Holdings, LLC (ABCD Holdings or, simply, ABCD); (2) ABCD, thereafter, assigned its interest to King Root; (3) after accounting for payments by the defendants and the further accrual of postjudgment interest, as of October 18, 2016 the Judgment balance is $2, 055, 540.59, with interest accruing from that date; and (4) the court should " substitute it as the plaintiff in this case and issue an execution in its name [in that amount]."

         The defendants appeared by counsel and opposed the motion. The principal grounds for their opposition was that the sole member of ABCD is attorney George A. McLaughlin, III, whose brother is the sole member of King Root. McLaughlin represented defendant Hannon for a number of years, and, in particular, in connection with the negotiation and execution of a Settlement Agreement between the plaintiff and Hannon pursuant to which the Judgment would be satisfied in full by payment to plaintiff of $400, 000 according to a payment schedule (the Agreement).[2] The defendants also alleged that McLaughlin diverted funds available to pay the balance of the $400, 000 due under the Settlement Agreement to other entities.[3] Based on these allegations, the defendants assert that the assignments " are void against public policy, fatally infected by McLaughlin's misuse of confidential client information and self-dealing." [4]

         At an initial hearing on the Motion, the court ruled that an evidentiary hearing was necessary to consider the defendants' public policy arguments and scheduled an evidentiary hearing for May 1, 2017. A hearing was convened on that day. Three witnesses testified: the plaintiff's lawyer, McLaughlin, and his brother; 23 exhibits were entered in evidence.

         FINDINGS OF FACT

         Based on the testimony of the witnesses, the exhibits, decisions entered in other cases, and reasonable inferences drawn therefrom, the court makes the following findings of fact, by a preponderance of the evidence.

         McLaughlin has been a member of the bar of the Massachusetts Supreme Judicial Court since 1985. He is a principal in the firm, McLaughlin Brothers, P.C. He represented Hannon and various businesses that Hannon controlled on a variety of matters from 2006 until 2012, but did not represent the defendants in this case (Hannon and Mass. Environmental Associates, Inc. (MEA)) prior to the time judgment entered against them. However, he did represent them in the negotiation of the Settlement Agreement with the plaintiff's counsel, Peter Sutton, a partner in the Boston firm, Reimer & Braunstein. The Agreement was executed on November 16, 2007. As relevant to this case, it provided that if Hannon made periodic payments (in the aggregate $400, 000) according to a schedule set out in the Agreement (the last of which was due on November 1, 2008), he and MEA would be released from any claims under the Judgment. If he breached the Agreement, the plaintiff would be entitled to enforce the Judgment, and the defendants would be credited with any payments made pursuant the Agreement.

         McLaughlin also represented Hannon in connection with another substantial judgment that had been entered against him. He was similarly able to negotiate with that judgment creditor an arrangement in which the total amount of the judgment would be reduced if periodic payments were made on an agreed schedule. Apparently, for reasons not explained at the hearing, Hannon was due payments from an entity called: Casella Waste Systems (Casella). This judgment creditor required that these Casella payments be made to McLaughlin, who would then be responsible for paying the creditor. McLaughlin described the arrangement, pursuant to which he received all payments due Hannon from Casella and then made distributions to creditors, Hannon and McLaughlin's own law firm for legal fees, as an escrow agreement. There is, however, no evidence that a written escrow agreement was ever prepared. A schedule showing receipts from Casella and payments made to various payees, over the period January 21, 2010 to March 20, 2012, was offered in evidence. It reflects approximately $572, 000 in receipts from Casella and $570, 500 of payments made to various payees (of which $146, 502 went to Hannon) over that period. Hannon did not challenge the accuracy of the schedule at the hearing. The court credits McLaughlin's testimony that he only made payments out of the Casella account after clearing them with Hannon, at least to the point that McLaughlin received notice of Hannon's bankruptcy petition.

         Hannon defaulted on his payments under the Agreement. At some point, McLaughlin negotiated a reinstatement of the Agreement in return for a $25, 000 payment, not to be counted toward the $400, 000 settlement amount. In an email from Sutton to McLaughlin dated June 14, 2011, Sutton confirmed that Agreement was " reinstated, " but if Hannon failed to make monthly payments of $5, 000 " the full amount of the judgment will become due." According to the email, $140, 500 then remained outstanding. The Casella account suggests that Hannon stopped making payments to Reimer & Braunstein, for the benefit of the plaintiff, in January 2012. The court credits McLaughlin's testimony that he never redirected payments from this account to other creditors that Hannon had instructed him to pay to Reimer & Braunstein.

         In July 2011, through an entity controlled by him (Bright Horizon Finance, LLC), McLaughlin loaned Hannon $219, 759 to purchase an interest in a company called ABC& D Recycling. The details surrounding the loan and Hannon's default on it are described in the Loan and Warrants Case. See n.4, supra .

         In May 2012, Hannon and his wife filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code (later converted to a Chapter 7 petition). McLaughlin and ABCD Holdings filed proofs of claim in the bankruptcy proceeding, as did the plaintiff. Sutton, as attorney for the plaintiff, examined Hannon concerning the Judgment, Agreement and his assets in the course of those proceeding. McLaughlin caused ABCD Holdings and other companies he then controlled to file an adversary complaint challenging Hannon's right to a discharge in the bankruptcy proceeding based upon allegedly false income statements filed with the Bankruptcy Court. The Bankruptcy Court found for ABCD Holdings and dismissed the petition, denying Hannon a discharge. This ruling was affirmed by the District Court and by the First Circuit Court of Appeals in the Bankruptcy Case.

         On June 10, 2016, McLaughlin caused ABCD Holdings, Inc. and another entity he controlled to file the Collection Case in the Suffolk Superior Court against Hannon and a number of other individuals and entities (some of which were reach and apply defendants); it was assigned to BLS 2. ABCD Holdings moved for a preliminary injunction against Hannon enjoining him from encumbering or disposing of any of his assets or income, except to satisfy ordinary living or business expenses. In a written opinion dated June 24, 2016, the court (Salinger, J.) denied ABCD Holdings' motion finding that: " Since Plaintiffs are not yet judgment creditors of Hannon, the Court may not exercise its general equity jurisdiction to temporarily grant injunctive relief in the nature of a creditors' bill attachment."

         Sutton read an article describing the June 24th decision in the July 8, 2016 edition of Lawyers Weekly. He telephoned McLaughlin offering to sell him the Judgment entered in this case. On July 11, 2016, McLaughlin emailed Sutton: " Hi Peter-Please send me the Assignment of the Spinazola matter for collection or whatever you were going to send, as I want to spend some time this summer trying to get some money out of Mr. Hannon." Thereafter, Sutton and McLaughlin negotiated over the terms of the assignment of the Judgment. Sutton demanded $10, 000 plus 50% of whatever McLaughlin recovered, after McLaughlin was reimbursed the $10, 000 and costs of collection, and McLaughlin agreed. McLaughlin sent Sutton drafts of the documents to memorialize their agreement. Dissatisfied with his draft, Sutton had a member of his firm prepare the transactional documents. They consisted of an " Agreement Pursuant to a Non-Recourse Assignment of Judgment and Indemnification Dated as of the 14th Day of September 2016" and a " Non-Recourse Assignment of Judgment and Indemnification Agreement" also dated ...


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