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12/13/13: G&R Obtains Across the Board Win

In a case tried to Judge Christine Roach of the Massachusetts Superior Court's Business Litigation Session in April 2012, the Court entered findings and rulings in Gilbert & Renton's clients' favor, including an award of double damages and attorney's fees, in May 2013.  The case was described as follows in Massachusetts Lawyers Weekly:

Michael G. Furlong's dream of owning a business turned into a nightmare when he left the practice of law to purchase a Chelsea plumbing company in 2005.

Eight years later, Furlong may soon plunge some damages from a transaction that quickly went down the pipes. And, if nothing else, he has some interesting caselaw to show for his troubles.

In the Suffolk Superior Court's Business Litigation Session, Judge Christine M. Roach recently issued a Chapter 93A decision in favor of Furlong and his wife. The suit was brought against Andrew Donarumo, who sold Drew's Plumbing & Heating, Inc. to the Furlongs for $1 million.

Donarumo's wrongdoing, according to Roach's rulings, included misrepresentations before and after the sale, and his soliciting and accepting jobs from the Furlongs' customers while he continued to work full time as a plumber in Boston and on the North Shore after the sale.

The Furlongs' attorney, Jeffrey B. Renton of Gilbert & Renton in Andover, says the decision is creative due to the breadth of protection Roach gave to the Furlongs' purchase of business goodwill over and above any protections that might also be provided in a noncompetition agreement, and because Roach ordered rescissory damages as the principal remedy for the Furlongs as an alternative to traditional benefit-of-the-bargain damages.

Roach ruled that damages normally awarded in the type of business dispute at issue just weren't practical in the case of Drew's Plumbing & Heating. Rescinding the purchase is not appropriate, because far too much has occurred in the eight and one-half years since the sale, Roach wrote.

Benefit-of-the-bargain, or expectation, damages also weren't appropriate, Roach ruled, since it was impossible to make a determination of how much money the Furlongs would have made absent Donarumo's wrongdoing, due to the fact that they made a number of mistakes and poor judgment calls themselves that contributed to the business collapse.

"There's a third path here, and that path is not well known," Renton says. "I don't think it's ever been applied in this context before."

Renton is referring to Roach's decision to award the Furlongs' rescissory damages or as Roach ex̬plained, "the Furlongs are entitled to recoup the amount of their lost investment."

"Plaintiffs are entitled to return of the consideration they paid to Donarumo to acquire the unfettered business opportunity, which they then failed to receive as a proximate result of Donarumo's misrepresentation and other wrongful actions in connection with the sale," the judge wrote.

The decision is novel because rescissory damages are most often awarded in securities litigation in which, as in the 1986 case Coggins v. New England Patriots Football Club Inc., et al., prevailing parties receive damages based on the amount their stock would be worth today. Another example: the directors of a company are disgorged of the compensation they received while they were grossly negligent.

"Those are very simple contexts. This is the sale of a business where a lot of water passed under the bridge," Renton says. "When you buy a business, most of the purchase price is for the opportunity."

Specifically, $573,000 of the $1 million price tag was allocated for business goodwill. In addition to influencing the amount of rescissory damages that will be awarded, the parties are still haggling over the precise amount and how to allocate it. The business goodwill Donarumo sold to the Furlongs also is related to the other aspect of Roach's ruling that Renton suggests is potentially useful to other lawyers.

While Donarumo argued that, after selling his business to the Furlongs, he continued to perform plumbing work only outside of the territories enumerated in a noncompetition agreement that accompanied the sale, Roach ruled that Donarumo owed the Furlongs an overriding common law duty not to interfere with the good will of the business by undermining the business opportunity he sold to them.

Roach did not credit Donarumo's testimony that he thought he could compete with his former business, even over its current customers, as long as it was outside of the towns listed in the noncompetition agreement.

"The judge rejected the notion that the sale of goodwill was limited to certain counties and towns like the noncompete," Renton says. "They're two independent concepts. You sell all the goodwill, and that means something. You can do new business outside of the noncompete, but you can't poach your former customers no matter where they're located. She gave independent meaning to both provisions. That's the right solution. It's just not talked about a lot."

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