Danger Records, Inc., Plaintiff, Defendant-Appellant.-Appellee, v. Steven L. Berger,

Statement of the Issue Presented For Review.............................................................................1

Statement of the Case and Facts..................................................................................................2

The Single Justice Erred As A Matter of Law Or Abused His Discretion In Affirming The Trial Judge's Decision To Award Danger, Danner and Collins Their Attorney's Fees And Costs Under G.L.c. 231, Section 6F......................................................................................................20

A. The Finding That Berger's Defenses and Counter- claims Were Wholly Insubstantial And Frivolous......................................................................................................................................22

B. The Finding That Berger's Claims Were Not Advanced In Good Faith............................34

Conclusion....................................................................................................................................43

Addendum.................................................................................................................................Post

Statutory and Rule Addendum..............................................................................Post Addendum

Record Appendix...................................................................Post Statutory and Rule Addendum

Allen v. Batchelder , 17 Mass. App. Ct. 453, 458(1984)...........................................................23

Bartlett v. Greyhound Real Estate Fin. Co., 41 Mass. App. Ct. 282, 291-292(1996)...........................................................................................................................21;34;38

Beckman v. Farmer , 579 A.2d 618, 627(D.C. App. 1990)........................................................30

Ben v. Schultz , 47 Mass. App. Ct. 808, 814(1999)........................................................20;21;39

Berwin v. Cable , 313 Mass. 431,434-435(1943)......................................................................29

Cardulla v. Landau , 329 Mass.5,8(1952)...........................................................................29;30

Compugraphic Corporation v. DiCenso, 11 Mass. App. Ct. 1020, 1021 (1981).....................35

DeCotis v. D'Antona, 350 Mass. 164, 168(1966)......................................................................29

Doiron v. Castonguay , 401 Mass. 705, 707 & n.2(1988).........................................................29

Fall River Whaling Company v. Borden , 64 Mass. 458(1852)...............................................30

Fenton v. Bryan , 33 Mass. App. Ct.688, 690-691(1992)....................................................30-31

Hahn v. Planning Board of Stoughton, 403 Mass. 332, 337(1988)..............................23;34;35

Hull v. Attleboro Savings Bank, 33 Mass. App. Ct. 18, 24(1992)...........................................38

Katz v. Savitsky , 10 Mass. App. Ct. 792, 797(1980)...........................................................23;27

Kravitz v. Pressman, Frohlich & Frost, Inc ., 447 F.Supp. 203, 210(D.Mass.1978)......................................................................................................................29

Mabardy v. McHugh , 202 Mass. 148, 151(1909).....................................................................37

Maker v. Bermingham , 32 Mass. App. Ct. 971, 973 (1992)....................................................25

Massachusetts Adventura Travel, Inc. v. Mason, 27 Mass. App. Ct. 293, 298(1989)..........................................................................................................................27;35;36

Mayflower Seafoods, Inc. v. Integrity Credit Corp., 25 Mass. App. Ct. 453, 459 (1988)..........................................................................................................................................38

Miaskiewicz v. LeTourneau , 12 Mass. App. Ct. 880, 882(1981)............................................20

Mitchell v. Gruener , 251 Mass.113(1925)..........................................................................29;32

Pirie v. First Congregational Church, 43 Mass. App. Ct. 908, 910(1997)........................21;35

Ramirez v. Goldberg , 439 N.Y.S.2d 959, 961(App.Div.1981)..................................................30

Rosenblum v. Springfield Prod. Brokerage Co., 243 Mass. 111,116(1922).............................................................................................................................30

Seemann v. Eneix, 272 Mass. 189, 191(1930)..........................................................................25

Shain Investment Co. Inc. v. Cohen, 15 Mass. App. Ct. 4, 8-9(1982).....................30-31;33;36

Strand v. Herrick & Smith , 396 Mass. 783, 792(1986)...........................................................21

Wasserman v. Tonelli , 343 Mass. 253, 257(1961)...................................................................25

G.L.C.231, Section 6F........................................................................................................ passim

G.L.C.231, Section 6G....................................................................................................... passim

G.L.c. 231, Section 87................................................................................................................25

G.L.c.108A, Section 6(1)............................................................................................................29

A. Bromberg & L. Ribstein, Bromberg & Ribstein on Partnership , Sections 2.02(b)& 2.05(a)(1988)...............................................................................................................................30

Whether the Single Justice abused his discretion or erred as a matter of law in the circumstances of this case by affirming the trial judge's decision to award Danger Record, Inc., Danner and Collins their attorney's fees and costs under G.L.c. 231, Section 6F?

On April 6, 1996, the plaintiff-appellee Danger Records, Inc.(“Danger”) brought this verified complaint against the defendant-appellant Steven L. Berger (“Ber-ger”) seeking a declaratory judgment that Berger is neither a legal nor equitable owner of Danger(A.1;9-19). The gist of the Danger's complaint was that in 1992, Berger and one Frederick G. Danner (“Danner”) agreed to form an unincorporated record company called “South Shore Records” to market music recording services(A.9-10). Danner would use his recording studio to make the product and Berger would promote and market the product, paying these expenses himself by loans to the company(A.10).

According to Danger's complaint, Berger would be compensated based upon the number of clients he generated for the business; and any loans he had made to the company “would be repaid to him if approved and neces-sary”(A.10).In January of 1993, upon Danner's direction,

Berger incorporated the business, naming himself Presi-dent as well as a Director of Danger Records, Inc.; and Danner was named Treasurer and Director(A.10-11). The articles of incorporation did not indicate who were the shareholders but Danger alleged that there was an agreement that Danner was to be the sole shareholder and that Berger would be “an employee with legal connections in the industry”(A.11).

As the business proceeded in 1993, Berger advanced funds to the corporation for the marketing and sales ef-fort and Danner used his recording studio to make the product(A.11). As Danger alleged, no discussions occurred between them about stock ownership in the company since “pursuant to the initial agreement, Mr. Berger was to be exclusively compensated as an employee for his marketing and sales activities and Mr. Danner was to own the busi-ness and produce records in his studio”(A.11).

However, the 1993 federal Subchapter S tax return for Danger showed Berger owning 33.34% of the stock; Danner, 33.33%; and one Levine owning 33.33%(A.12). The state tax filing showed the same ownership as well as $21,175 in loans made by Berger to the corporation(A.12). These filings were eventually rejected since no Subchapter S election had been filed by the corporation(A.12).

In late 1993, Danner decided to consult with one Leonard E. Collins(“Collins”), an expert in the recording promotions field(A.12). Upon Berger's assent, Collins agreed to become an employees and a Director of Danger (A.13). Berger prepared the necessary documents making Collins a Director and, according to Danger, “[n]o shareholder meeting was ever held and Mr. Danner continued to believe that he was the sole shareholder” (A.13).

Danger alleged that by September of 1994, Berger was without funds for sales or marketing and Danner and Collins were forced to advance $10,000 of their own money for this purpose(A.14). It also alleged that Danner and Collins had to pay other bills, unpaid by Berger, to a pressing plant, for rent of the corporate offices and for the business' long distance phone bill(A.15). Danger further claimed that Berger had failed to sign a record-ing artist Danger had promoted even though this was his responsibility(A.15-16).

Danger then alleged that on March 3, 1995, Berger “made claim for the first time to being an equal shareholder with Mr. Danner”(A.16). A meeting of Danger's Directors was held on March 24, 1995, and it was voted to replace Berger with Collins as Danger's President and Clerk(A.16). No action was taken concerning the issuance of stock(A.16). However, Berger remained a Director of Danger together with Danner and Collins(A.16).

Claiming that Berger had made no financial or other contribution to Danger since July of 1994, and that no capital stock in Danger had been issued but should have been issued to Danner alone, Danger alleged that a dispute has arisen between Danger and Berger about: (1) whether Danner as “sole” stockholder can remove Berger as a corporate Director; (2) whether Berger is the legal owner of any capital stock of Danger; and (3) whether the cash advanced by Berger to the corporation “was reported as corporate loans and not capital investment”(A.17). It therefore sought a declaratory judgment establishing that

Berger is neither a legal nor equitable shareholder of any capital stock of the corporation and that he can be removed as a corporate Director by the vote of Danner acting as Danger's sole stockholder(A.18). The complaint was verified by Danner, Danger's Treasurer, and by Collins, now its President and Clerk(A.19).

In an answer prepared and signed by counsel in his behalf, Berger admitted the nature of his initial collaboration with Danner and Danger Records; that he agreed to make loans to the company; and that any such loans to Danger obligated it to repay those loans to him(A.2;20-21). He also admitted that he advanced funds to Danger for marketing and sales(A.22). However, Berger denied that Danner was to be the sole stockholder, claiming that Danner reviewed and acknowledged all of the corporate filings which showed him (Berger) to be a shareholder, Director, President and employee of Danger(A.22-23).

Berger also admitted that Danger's Board of Directors held a meeting on March 24, 1995, in an attempt to remove him as President and Clerk of the corporation; that he nonetheless remained an equal shareholder of Danger together with Danner and Collins; that a dispute exists among them concerning this status; and that “he made loans to Danger Records with the expectation that he would receive full repayment of said loans, and performed services on its behalf...”(A.26). He denied all of the remaining material allegations of the complaint(A.21-27).

In affirmative defenses, Berger asserted , among other things, that the purported actions of Danner and Collins in removing him as an officer and shareholder of the corporation were not only null and void but also ultra vires (A.27-28). He sought the dismissal of Danger's com-plaint and the award of his costs and attorney's fees (A.28).

In a counterclaim prepared and signed by counsel in his behalf, Berger sought damages against Danger as well as Danner and Collins, for breach of contract, breach of fiduciary duty and violation of Chapter 93A(A.2;29-35).

Berger alleged that before Danger was incorporated on January 1, 1993, he and Danner agreed that each would own 50% of the corporation(A.29-30). They both became offi-cers and Directors of Danger; and each of them agreed to provide substantial amounts of their time and money to organize, promote and operate Danger(A.30). Specifically, Berger promised to advance to Danger additional funds to help with marketing and sales(A.30). These additional monies were loans from Berger to Danger which obligated the corporation to repay him these funds(A.30). Berger alleged that from 1992 through 1994, he had loaned Danger in excess of $32,000, and that Danger had failed to make any repayment(A.30).

In the meantime, Berger and Danner were able enlist one Peter Levine (“Levine”)and one Gary Cherone (“Cherone”) to become officers and shareholders of Danger, with each of these four persons owning 25% of the corporation(A.30). In the Fall of 1993, Cherone withdrew from participating in the corporation and Berger, Danner and Levine then agreed to become equal, i.e., one-third, owners of the company(A.30-31). In fact, Danger's corp-orate filings for 1993 confirmed the fact that Berger had a 33.34% ownership interest in Danger while Danner and Levine each owned a 33.33% interest(A.31).

In consideration for Collins' agreement to partici-pate in the business near the end of 1993, he was provided with Levine's 33.33% interest(A.31). The three shareholders since then and continuing to the present are Berger (33.34%); Danner (33.33%); and Collins (33.33%) (A.31). Berger alleged that he and Collins worked hard to promote Danger Records throughout 1994, with Berger making additional financial contributions and providing legal services to the company(A.31).

In the beginning of 1995, however, Danner and Collins attempted unsuccessfully to have Berger resign as President of Danger; and, on Berger's information and be-lief, on March 3, 1995, they attempted to issue stock certificates to Danner so that he could remove Berger as an officer and stockholder of the corporation(A.31). Soon thereafter, Danner and Collins then without authority attempted to vote Berger out as President and to appoint Collins to this office(A.32).

Upon these allegations, Berger claimed in Count I that Danger had breached its contract with him by failing to repay him for the loans which he made to the company from 1992 through 1994 in excess of $32,000(A.32). In Count II, Berger asserted that Danner as a co-founder of the business and Collins as a business partner in Danger breached their agreements with him by inter alia “attempting in bad faith to remove [him] as an officer and shareholder of Danger Records and by forcing Danger Records to issue stock certificates to Danner only...” (A.32-33).

In Count III of his counterclaim, Berger claimed that Danner and Collins breached the fiduciary duty they owed to him as a fellow officer, Director and shareholder in Danger when they attempted in bad faith to remove him as an officer and shareholder and by preventing the company from repaying Berger's loans to the corporation(A.33). A fourth and final count characterized the conduct of Danner and Collins in this regard as violations of Chap-ter 93A(A.33-34). Berger accordingly sought an award of money damages; a trebling of that award under Count IV because of the unfair and deceptive acts willfully carried out by Danner and Collins; and an award of his attorney's fees and costs(A.34-35).

Following some discovery among the parties, including an order preventing Berger's counsel from pursuing answers to written discovery from Danger, Danner and Collins because of its untimeliness(A.2-3), the matter came on for trial in the Superior Court Department in early 1998 before Burnes, J., sitting without a jury(A.2-4). On March 25, 1998, the trial judge issued her find-ings of fact, conclusions of law and order(A.4;36-50). After describing the competing claims of the par-ties, Judge Burnes found that in 1992, Danner and Berger agreed on a joint venture to record and market musical groups, with Danner furnishing the recording studio and Berger providing his legal expertise and money, perhaps as much as $40,000(A.37-38). On January 1, 1993, they incorporated the enterprise as Danger Records, Inc.(A.37-38). In the articles of incorporation, Danner, Berger, Levine and Cherone were all listed as directors; and Levine was identified as Danger's Clerk(A.38).

By late 1993 or early 1994, Collins was enlisted to help with Danger's marketing and promotion(A.39-40). Cherone and Leveine had ceased participating in the business and the arrangement among Danner, Berger and Collins was that Berger would provide legal represen-tation and money; Danner would provide the recording studio and related expertise; and Collins would run the day-to-day business and provide promotional and marketing expertise(A.39-40). According to the trial court's find-ings, no one was to receive a salary or draw and all were to share equally with the others in the company's profits, if any(A.40). In filings with the Secretary of State, Berger changed the directors to reflect this new arrangement, naming himself, Danner and Collins as Di-rectors(A.40). However, it was found that neither Danner nor Collins knew of these changes(A.40).

In 1994, Berger had prepared the 1993 corporate tax returns as if Danger were a qualified Subchapter S corporation, returns which were ultimately rejected because no one had elected Danger for such status(A.41-42). However, those returns showed Berger, Danner and Collins as equal shareholders; that Berger had loaned Danger $21,175; and that there were operating losses of $12,455(A.42). It was found that neither Danner, Collins nor Levine ever signed or saw these returns when they were prepared(A.42).

Some time in 1994, Berger told Danner and Collins that he was “tapped out” financially from his contributions to the enterprise and suggested that the three of them should share expenses equally(A.41). He also told the people at Danger that he was separating from his wife(A.41). He gradually spent less and less time in Danger's office and by early 1995, he had stopped coming into work(A.41). A number of business bills had not been paid by Berger; and Danner and Collins paid these bills for which they have not been reimbursed (A.41).

On March 3, 1995, Berger through his attorney wrote Danger and, as Judge Burnes found, for the first time claimed that he was a stockholder in the company(A.42). Three weeks later, on March 24, 1995, Danger held a meeting of its Directors and removed Berger as President and Clerk but took no action on his status as one the company's Directors or regarding his claim that he was a stockholder of the company(A.42). Berger was subsequently removed as a director after a meeting of Danger's Direct-ors in early 1996(A.42).

It was found that in the interim, incident to his divorce proceedings, Berger had filed a series of Financial Statements beginning in 1994 and continuing through October 7, 1997(A.43). Even though some of the early Financial Statements did not make reference to Berger's interest in Danger, the most recent ones did reference his ownership interest as well as his interest in this litigation begun by Danger in 1996(A.43-44). The Probate Judge eventually found that Berger, in fact, possessed an interest in Danger for purposes of an asset division; and while that interest in Danger was un-certain, any income he derived therefrom in the future would be considered in calculating his future obligations for child support(A.44).

Upon these findings, Judge Burnes concluded that most of Berger's proof in support of his claim that he is a shareholder of Danger just as plausibly supports the inference that he does not enjoy such status(A.45-47). As the lower court saw it, “[a]ll the evidence, except his own testimony, demonstrates that there was no agreement between the parties that Berger be a shareholder of the company”(A.47). As for Berger's financial contributions to the company as well as his working full time for the company as a lawyer, officer and Director, the trial judge characterized it as an “investment” in the hope that he would share in the company's profits, if any (A.48). Because there were and have been no profits, “Berger did not get his money back when he left and is not entitled to it now”(A.48). A judgment therefore issued declaring that Berger is not and never has been a legal or equitable shareholder of any capital stock of Danger; and his counterclaims were dismissed(A.50).

In the wake of this judgment, Danger moved for an award of attorney's fees and costs under G.L.c. 231, Section 6F, claiming that Berger's counterclaim was wholly insubstantial, frivolous and not advanced in good faith(A.4;51-54). Berger opposed the motion(A.4;55-57).

On October 1, 1998, Judge Burnes issued her findings and order on Danger's Section 6F motion(A.4;58-63). She first concluded that Berger was represented by counsel other than himself when his answer was filed and his counterclaim asserted; by other counsel through the pre-trial conference; and then by himself through the trial (A.60). Thus she ruled that Berger, a trial attorney who was entitled to represent himself during the litigation, was “represented by counsel during most or all of the proceeding,” within the meaning of Section 6F(A.59-60).

The trial court then ruled that Berger's defenses to Danger's declaratory action and his counterclaims against Danger, Danner and Collins were “insubstantial and frivo-lous” under Section 6F(A.60-61). Specifically, the lower court relied upon its earlier findings in the underlying case that there was no evidence, except Berger's own testimony, which showed any agreement between the parties that he be a shareholder of the company; no evidence that he had loaned the company money instead of investing in it; and no evidence that Danner and Collins had breached any fiduciary duty to him or had violated Chapter 93A (A.47;60-61). The court found that there was evidence of an agreement among them but only to share in the profits of the company and that ultimately there were no profits to share(A.61).

Relying upon her prior finding in the underlying case that Berger had attempted to “conjure up and paper a relationship to which the parties had never agreed,” Judge Burnes concluded that Berger had “made up” these claims, making them insubstantial and frivolous(A.61). That he had made Danner and Collins respond individually to this litigation as well as defending the corporation was found to be “additionally abusive on Berger's part” (A.61).

Finally, the lower court addressed the question of whether Berger had advanced these claims “not in good faith”(A.61-62). Objectively, it found that there was no basis for Berger's defense to the suit and no basis for his counterclaim(A.62). As for Berger's subjective belief in his claims, the trial judge ruled “[o]n the evidence before this court, there can have been no reason to believe there were substantial, non-frivolous claims here”(A.62). She accordingly found that Berger's defenses and counterclaims were not advanced in good faith(A.62).

Upon these rulings, then, the lower court awarded Danger, Danner and Collins attorney's fees in the amount of $11,370.00 together with $965.70 in costs(A.63). Berger then moved for a reconsideration of the trial judge's ruling(A.4-5;64-74). The thrust of Berger's motion was that there was ample evidence to show that he had a good faith basis for the filing of his defenses and counterclaims(A.64-65). Specifically, the pre-printed incorporating documents introduced into evidence which Levine and Danner signed were not blank, as the court found, but contained sufficiently clear language which alerted these seasoned businessmen to the importance of the instruments they were executing “under the pains and penalties of perjury”(A.65). The evidence of these corporate filings therefore did provide a good faith basis for Berger's belief that he was a shareholder of Danger; and it rebutted the trial court's damning conclusion that he attempted to “conjure up” a rela-tionship to which the parties never agreed(A.65-66).

Second, Berger contended that besides certain ad-missions introduced at trial by Collins that he, Berger and Danner were each one-third partners in Danger, there was other probative evidence, ignored by the trial judge but proof of which she was aware during the trial for impeachment purposes, showing that both Danner and Collins considered Berger an equal partner in Danger's business(A.66). Specifically, both testified under oath during their depositions in Berger's divorce action that he was a one-third owner of Danger and that Danger was a three-person partnership(A.66).

In fact, Collins testified there that “if the label made money, it wouldn't be a salary, it would be we're partners, 33 percent apiece”(A.70). He went on to state that in return for his marketing and promotional exper-tise, he would receive a one-third interest in Danger (A.70). Likewise, Danner testified there that his busi-ness arrangement or joint venture with Berger was that “we were going to bring services equally, before the advent of Mr. Collins as the third partner, both of us as partners with our experience to make the label success-ful”(A.74).

All of this evidence, known to the trial judge, buttressed the good faith of Berger in asserting his defense and counterclaims founded upon his co-ownership of Danger and undermined the lower court's finding that he had no reason to believe that these defenses and claims were valid(A.66-67).

Third, Berger argued that the lower court's undue reliance on the absence of a corporate minute book or seal as “telling” on his claim of shareholder status was unfair to him(A.67). Berger was deprived of his oppor-tunity to obtain any relevant documents which he in good faith believed would support his defenses and counter-claims because of the negligent failure of his former counsel to propound discovery in a timely matter (A.67).

Finally, Berger challenged the method which the lower court employed to measure his good faith in making the defenses and counterclaims which he did(A.67-68). Instead of identifying all of the facts, including but not limited to the admissions of Danner and Collins that Danger encompassed a three-way partnership among them and Berger with each owning a one-third interest, the trial judge simply restated her own disbelief of Berger's trial testimony to conclude that he could not have made these defenses and counterclaims in good faith(A.67).

This truncated analysis, more appropriately employed for adopting one version of events over another in order to reach a result, ignored other probative evidence which went directly to Berger's good faith belief that his claims were viable(A.67). Berger was thereby deprived of a fair consideration of this “good faith” element of the analysis for the award of attorney's fees under Section 6F(A.67-68).

Following Judge Burnes' denial of the motion for re-consideration, a judgment entered reflecting all of the trial court's rulings(A.5;75). Berger noticed his separ-ate appeals not only from the case proper but also from the award of attorney's fees, pursuant to G.L.c. 231, Section 6G(A.5;76). The appeal under Section 6G to a Single Justice of the Appeals Court was stayed pending plenary review of the underlying case by a panel of this Court(A.5;7;77). On July 18, 2002, a panel of this Court (Greenberg, Rapoza & Mason, JJ.) affirmed summarily the judgment in the underlying case(A.78-82).Berger's request for further appellate review of this Court's decision was subsequently denied.

The Section 6G appeal to a Single Justice then pro-ceeded(A.7-8;83-95). On February 13, 2003, the Single Justice, Rapoza, J., affirmed the trial judge's award of attorney's fees and costs “substantially for the reasons stated in the judge's order”(A.8;96). This appeal by Berger to a panel of this Court pursuant to the terms of G.L.c. 231, Section 6G, followed(A.8;97-98).

The Single Justice Erred As Matter Of Law Or Abused His Discretion In Affirming The Trial Judge's Decision To Award Danger , Danner and Collins Their Attorney's Fees And Costs Under G.L.c . 231, Section 6F .

The function of the Single Justice hearing an appeal under G.L.c. 231, Section 6G, is to conduct a de novo “review on the basis of the subsidiary facts as found by the trial judge ,” and only those subsidiary facts. Ben v. Schultz , 47 Mass. App. Ct. 808, 814(1999) quoting Miaskiewicz v. LeTourneau , 12 Mass. App. Ct. 880, 882(1981)(emphasis in original). Because the Section 6F proceeding in the lower court is a sui generis and collateral proceeding, separate from but not entirely independent of the underlying judgment, the facts that are pertinent to a Section 6F determination are not exclusively or necessarily the same as the facts on which the determination of the claims or defenses in the underlying action were based. Id .

Accordingly, the trial judge must issue separate finding of facts to support the Section 6F award. Id . Moreover, Section 6F requires that the trial court include in its order “specific facts and reasons” to support its findings of fact. Bartlett v. Greyhound Real Estate Fin. Co. , 41 Mass. App. Ct. 282, 291-292(1996) quoting Strand v. Herrick & Smith , 396 Mass. 783, 792(1986). Pirie v. First Congregational Church , 43 Mass. App. Ct. 908, 910(1997). A failure by the trial judge to articulate in its order those supporting “specific facts and reasons” warrants reversal of the award. Id .

Upon this appeal by Berger, this Court treats the Single Justice's order affirming the Section 6F determination as incorporating the Superior Court's findings of fact and accord them finality to the effect that the decision of the Single Justice “shall be final.” Pirie v. First Congregational Church , 43 Mass. App. Ct. at 909 quoting Bartlett v. Greyhound Real Estate Fin. Co. , 41 Mass. App. Ct. at 291 & n.12 & G.L.c. 231, Section 6G, as amended by St. 1992, c.133, Section 561. The scope of review for this Court therefore is whether the Single Justice erred as matter of law or otherwise abused his discretion by affirming the award of attorney's fees and costs in light of the findings of fact which the trial judge made on this issue. Pirie, supra. Bartlett, supra. See Ben v. Schultz , supra . Given this standard of review, Berger submits that Judge Burnes's findings of fact under Section 6F supporting her conclusion that Berger's defenses and counterclaims were insubstantial and frivolous are unsupported by specific facts or reasons and are wrong as a matter of law. In addition, her findings of fact in support of her ruling that they were not advanced in good faith are unsupported by specific facts or reasons, are not sufficiently distinct from the underlying action as required by Section 6F, and are wrong as a matter of law.

The Single Justice's order affirming the award of attorney's fees and costs “substantially for the reasons stated in the [trial] judge's order”(A.8;96) is therefore an error of law or an abuse of discretion. This Court should accordingly reverse and vacate the order awarding Danger, Danner and Collins their attorney's fees and costs in this action or provide Berger with such other relief as is fair and just in the circumstances of this case.

A. The Finding That Berger's Defenses and Counter- claims Were Wholly Insubstantial And Frivolous.

Under G.L.c. 231, Section 6F, a court may award counsel fees and costs upon a separate and distinct finding that all or substantially all of the claims or defenses were inter alia “wholly insubstantial [or] frivolous....” The decisional law of this Court has defined “wholly insubstantial and frivolous” claims or defenses as ones which are “groundless,” “false,” or lacking in factual support. Katz v. Savitsky , 10 Mass. App. Ct. 792, 797(1980). They are makeweight claims having no importance or relevance; and they are defenses which fail to controvert the material points of the opposing pleadings. Hahn v. Planning Board of Stoughton , 403 Mass. 332, 337(1988). Paraphrasing this Court in Allen v. Batchelder , 17 Mass. App. Ct. 453, 458(1984), they are claims or defenses made without a reasonable expectation of success. Id .

In ruling that Berger's defenses to Danger's declar-atory action and his counterclaims against Danger, Danner and Collins were “insubstantial and frivolous,” the lower court reverted to its findings in the underlying case that there was no evidence, except Berger's own testi-mony, which showed an agreement between the parties that he be a shareholder of the company; no evidence that he had loaned the company money instead of investing in it; and no evidence that Danner and Collins had breached any fiduciary duty to him or had violated Chapter 93A (A.47; 60-61). The court found that there was evidence of an agreement among them but only to share in the profits of the company and that ultimately there were no profits to share(A.61).

Relying upon her prior finding in the underlying case that Berger had attempted to “conjure up and paper a relationship to which the parties had never agreed,” Judge Burnes concluded that Berger had “made up” these claims, rendering them insubstantial and frivolous(A.61). That he had made Danner and Collins respond individually to this litigation as well as defending the corporation itself was found to be “additionally abusive on Berger's part”(A.61).

Berger first submits that this crucial finding by the trial judge that he “made up” or conjured up a rela-tionship to which the parties had never agreed is wrong as a matter of law and contradicts the binding admissions contained in Danger's own verified complaint. Paragraph 5 of Danger's complaint, verified by both Danner and Collins, alleges that incident to the joint venture between Danner and Berger, it was agreed that as part of Berger's compensation for participating in the venture, “any loans that he would make to the business for operating expenses and other marketing activities would be repaid to him if approved and necessary”(A.10). Berger's answer admitted these allegations(A.21).

These admissions by Danger, Danner and Collins in their verified complaint are decisive. While the exist-ence of a partnership/joint venture relationship is a mixed question of law and fact, Seemann v. Eneix , 272 Mass. 189, 191(1930), for the purpose of applying G.L.c. 231, Section 87(allegations in pleadings “shall bind the party making them”), the admission of a matter con-stituting a mixed question “will conclude the issue.” Maker v. Bermingham , 32 Mass. App. Ct. 971, 973(1992) quoting Wasserman v. Tonelli , 343 Mass. 253, 257(1961).

These binding admissions by Danger, Danner and Collins in the verified complaint that Danger was obligated to repay Berger for the loans he had made to the business for operating expenses and other marketing activities, should have concluded the issue about whether a relationship of partnership/joint venture existed and whether Danger was now obligated to repay Berger for the loans he had made to the company. Maker v. Bermingham , 32 Mass. App. Ct. at 974. As this Court observed in Maker , Danger, Danner and Collins “could not have expected to deny the very facts which they alleged to be true in their [verified complaint].” Id .

After all, the gist of Berger's defenses and counter-claims was that he was a part owner of Danger; that he should be repaid for the loans he had made to the company; and that he had an agreement as well with Danner and Collins to be a one-third owner of Danger. Yet contrary to Danger's own binding admissions contained in the pleadings that it was obligated to repay Berger for the loans he made to the business for operating expenses and other marketing activities, the lower court found that Berger was neither an owner nor a creditor; that, in fact, there was an agreement among the parties only to share in the profits of the company but that ultimately there were no profits to share(A.61).

None of these paper-thin distinctions about the nature of the parties' undertaking squares with the finding of Judge Burnes that Berger somehow “made up” or conjured up a relationship to which the parties had never agreed, a finding crucial to her conclusion that Berger's defenses and counterclaims were insubstantial and friv-olous. The competing claims of the parties about the nature and scope of their relationship reflected legitimate differences of opinion. That the trial court allowed Danger to contradict its own binding admissions contained in the verified complaint and then chose to believe its completely different trial testimony over Berger's proof should not mean that Berger “made up” a relationship where there was none. Indeed, if Berger was “in the card game,” as the trial judge found(A.41), then he was either entitled to shareholder status or the repayment of the loans which he had made to Danger.

While the lack of credibility of a party about an important issue can furnish the basis for a finding that a claim or defense is insubstantial and frivolous, see, e.g., Massachusetts Adventura Travel, Inc. v. Mason , 27 Mass. App. Ct. 293, 298(1989); Katz v. Savitsky , 10 Mass. App. Ct. at 793 n.2, it should not be used as a hammer to punish a disbelieved party, especially on a close ques-tion such as this which turns on the legitimate intentions and expectations of the parties to the undertaking.

For these reasons, the trial judge's findings in the underlying case as well as those determining her Section 6F ruling fail to harmonize these crucial admissions by Danger, Danner and Collins in their pleadings with her ultimate ruling that Berger's defenses and counterclaims were insubstantial and frivolous. The Section 6F deter-mination on its face therefore presents errors of law warranting reversal of the order below.

Second, Judge Burnes' findings fail to articulate specific facts or reasons for her conclusion that Berger's claim of part ownership of the company, his claim for repayment of the loans he made to the enterprise, and his defenses raising the same claims were “groundless,” “false,” or makeweight claims lacking in factual support.

The nature and scope of the business relationship between Berger and Danner and thereafter among Berger, Danner and Collins was fairly raised by the parties' pleadings and all the evidence adduced by Berger. Even if disbelieved, the evidence put forth by Berger was enough to provide him with a reasonable expectation of success on his claim that he was a shareholder of the company; or that he had loaned the company money instead of investing in it; and that Danner and Collins had breached their fiduciary duty to him as his partners/co-adventurers; or that they had violated Chapter 93A by failing to acknowledge his part ownership in Danger and/or by fail-ing to repay the funds he had loaned the company.

A joint venture or partnership existed between Danner and Berger as early as 1992. As in Doiron v. Castonguay , 401 Mass. 705, 707 & n.2(1988), nothing turns on the distinction between a joint venture or a partnership because the same standards of intent apply for determining the existence of either entity and both partners and co-adventurers owe each other the utmost good faith and loyalty. DeCotis v. D'Antona, 350 Mass. 164, 168(1966). Cardulla v. Landau , 329 Mass. 5,8(1952).

In Massachusetts, “[a] partnership is an association of two or more persons to carry on as co-owners a business for profit.” Kravitz v. Pressman, Frohlich & Frost, Inc ., 447 F.Supp. 203, 210(D.Mass.1978) citing G.L.c.108A, Section 6(1). Mitchell v. Gruener , 251 Mass. 113, 123(1925). A joint venture is a kind of partnership but instead of carrying on a general business, the joint venture is ordinarily, although not necessarily, limited to a single enterprise. Cardullo v. Landau, supra . See Shinberg v. Garfinkle , 361 Mass. 109, 114(1972); Berwin v. Cable , 313 Mass. 431,434-435(1943).

As between the parties themselves, the relationship is consensual; it is the product of agreement. Cardullo v. Landau, supra. Mitchell v. Gruener , 251 Mass. at 123(“There must be a voluntary contract of associa-tion...”). Beckman v. Farmer , 579 A.2d 618, 627 (D.C.App. 1990). A. Bromberg & L. Ribstein, Bromberg & Ribstein on Partnership , Sections 2.02(b) (1988). While the manner in which the parties themselves characterize the rela-tionship is probative, the question for the lower court was ultimately an objective one: did the parties intend to do the acts that in law constitute a partnership or joint venture so that Berger would have a colorable claim of part ownership in Danger? Cardullo , 329 Mass. at 8-9. Rosenblum v. Springfield Prod. Brokerage Co. , 243 Mass. 111,116(1922). A. Bromberg & L. Ribstein, supra , Section 2.05(a)(citations omitted).

In order to justify his claim of part ownership of Danger, Berger's burden was to prove the existence of a partnership or joint venture and to give Judge Burnes a sufficient foundation of proof for making subsidiary findings establishing that fact. Fall River Whaling Com-pany v. Borden , 64 Mass. 458, 462(1852). Ramirez v. Gold-berg , 439 N.Y.S.2d 959, 961(App.Div.1981).

The decisional law of this Court has identified the factors important in deciding whether a joint venture/ partnership exists. See Shain Investment Co. Inc. v. Cohen , 15 Mass. App. Ct. 4, 8-9 (1982). See also Fenton v. Bryan , 33 Mass. App. Ct.688, 690-691(1992). They are: (1) whether there is an agreement by the parties manifesting their intention to associate for joint profit; (2) whether there is a contribution of money, property, effort, knowledge, skill, or other assets to a common undertaking(s); (3) whether there is a joint property interest in all or parts of the subject matter of the venture; (4) whether there is a right to participate in the control or management of the enterprise; (5) whether there is an expectation of profit; (6) whether there is a right to share in profits; (7) whether there is an express or implied duty to share in losses; and (8) whether the enterprise is defined by a single undertaking or multiple undertakings. Shain, supra .

Berger submits that when these legal criteria are applied to his proof, only one factor was reasonably open to question , i.e., whether there was a joint property interest in all or parts of the subject matter of the venture (i.e.,Danger) by each of the partners/co-adventurers. Specifically, all the parties admitted both in their pleadings and in their proof to an agreement manifesting their mutual intention to associate for joint profit. See Cardullo v. Landau, supra. Mitchell v. Grue-ner , 251 Mass. at 123 . Secondly, as the parties agreed in both their pleadings and proof, Berger, Danner and Collins each promised to contribute their respective expertise to the joint endeavor; and besides his legal skills and connections in the recording industry, Berger promised to contribute money, as much as $40,000, toward Danger's operating and marketing expenses.

Third, as a co-adventurer with Danner in the record-ing business and thereafter as a partner with Danner and Collins in Danger, Berger possessed the legal right to participate in the control and management of the company and he, in fact, did so as Danger's President, one of its Directors and its legal counsel.

Fourth, as the trial judge expressly found, Berger as well as Danner and Collins had an expectation of profit from their enterprise known as Danger Records, Inc.; and fifth, each had a right to share in those profits, if any(A.46;48). Mitchell v. Gruener, 251 Mass. at 123.

Sixth, as Danger's President, Director, legal counsel and principal cash resource for the company, Berger had an express or implied duty to share in its losses as a partner/co-adventurer or, if not, he had the right to the repayment of his loans to the company. Finally, the enterprise was defined by multiple undertakings. Shain, supra .

Berger accordingly submits that except for the third Shain factor, i.e., a joint property interest in all or parts of the subject matter of the venture (i.e.,Danger), the trial judge's findings on their face show that the legal criteria for the existence of a joint venture or partnership were satisfied. Yet because she disbelieved Berger on this lone, remaining factor, his defenses and counterclaims were labeled fabrications of fact deserving of the most severe sanctions of Section 6F.

While the lower court could have rejected Berger's proof on this lone, remaining issue based on his credi-bility, there was no reasonable basis on this record to rule that his version of the relevant events was somehow contrived or concocted and that he had somehow “made up” or conjured up his claims about ownership of the business in an effort to forestall relief to Danger, Danner and Collins. Having met seven of the eight criteria under Shain for proving an ownership interest in Danger, the right to repayment of the loans which he had made to the company, or for breach of contract against Danner and Collins, this was a close case.

As Judge Burnes found, Berger was “in the card game”(A.41). That Berger's understanding of his partici-pation in Danger differed from the trial court's final view of the evidence does not mean that his claims were in hindsight “groundless,” “false,” or makeweight claims lacking in factual support. The trial judge was there-fore wrong as a matter of law to conclude that Berger's failure of proof on this lone, remaining issue rendered his defenses and counterclaims claims insubstantial and frivolous under Section 6F.

An award of attorney's fees and costs under Section 6F, also requires both an evidentiary showing and an explicit judicial finding that Berger's claims were not advanced in good faith. Bartlett v. Greyhound Real Estate Fin. Co. , 41 Mass. App. Ct. at 292 citing Hahn v. Plan-ning Board of Stoughton , 403 Mass. at 336-338. Good faith implies an absence of malice, ill will, insincerity, a design to defraud or to seek an unconscionable advantage. Hahn , 403 Mass. at 337-338. A lack of good faith does not include poor judgment. Id . at 338.

In measuring Berger's good faith in defending against Danger's claims and in prosecuting his own counterclaims against Danger, Danner and Collins, this Court engages in a two-step analysis: (1) whether his claims were warrant-ed by the evidence; and (2) whether Berger had reason to believe that he had a legal or equitable interest in Danger. Massachusetts Adventura Travel, Inc. v. Mason , 27 Mass. App. Ct. at 298-299. See Hahn, 403 Mass. at 335-337; Pirie , 43 Mass. App. Ct. at 911; Compugraphic Corp-oration v. DiCenso , 11 Mass. App. Ct. 1020, 1021 (1981). The absence of good faith may be inferred reasonably from the circumstances found by the trial judge, such as the claimant's experience and training, his knowledge of relevant circumstances as found by the trial judge, the extent to which advice and participation of counsel was available to him, the quality and significance of the claimant's grounds advanced for opposing an award under Section 6F and 6G, and similar criteria. Massachusetts Adventura Travel, Inc. v. Mason , 27 Mass. App. Ct. at 299.

Here the trial court found that objectively there was no basis for Berger's defense to the suit and no basis for his counterclaim(A.62). As for Berger's subjective belief in his claims, i.e., whether he had reason to believe that his defenses and counterclaims were viable, the trial judge ruled that “[o]n the evidence before this court, there can have been no reason to believe there were substantial, non-frivolous claims here”(A.62). She accordingly found that Berger's defenses and counter-claims were not advanced in good faith(A.62).

Berger submits that these spare findings by the trial judge meet neither of the two criteria required by Massachusetts Adventura Travel, Inc. v. Mason , 27 Mass. App. Ct. at 298-299, for a finding that his claims were made in the absence of good faith, i.e., that his claims were not warranted by the evidence and that he had no reason to believe that he had a legal or equitable interest in Danger. Id.

In the first place, for the reasons already iden-tified in Part A ., supra, Berger's defenses and counter-claims were warranted by the pleadings and proof. Having met seven of the eight criteria under Shain for proving an ownership interest in Danger, the right to repayment of the loans which he had made to the company, or for breach of contract, breach of fiduciary duty and for violation of Chapter 93A against Danner and Collins, the evidence adduced by Berger was enough objectively to provide him with a reasonable expectation of success on these claims.

Second, Berger had good reason to believe that these claims would be successful. Specifically, the pre-printed incorporating documents introduced into evidence which Levine and Danner signed were not blank, as the court found, but contained sufficiently clear language which alerted these seasoned businessmen to the importance of the instruments they were executing “under the pains and penalties of perjury”(A.65). The evidence of these corporate filings therefore did provide a good faith basis for Berger's belief that he was a shareholder of Danger; and it rebutted the trial court's damning con-clusion that he attempted to “conjure up” a relationship to which the parties had never agreed(A.65-66).

Especially where the execution of legal documents is concerned, the principles of self reliance and self pro-tection expressed in Mabardy v. McHugh , 202 Mass. 148, 151(1909)(Rugg, J.) apply with full force. That is, an experienced businessman who signs a writing designed to serve as a legal document is presumed to know of its contents and is held to the further presumption that the execution of this document was his free and voluntary act . Barletta v. New York, New Haven and Hartford RR Co. , 297 Mass. 275, 277(1937). Hull v. Attleboro Savings Bank , 33 Mass. App. Ct. 18, 24(1992). Mayflower Seafoods, Inc. v. Integrity Credit Corp. , 25 Mass. App. Ct. 453, 459 (1988).

Moreover, Berger contended that besides certain ad-missions introduced at trial by Collins that he, Berger and Danner were each one-third partners in Danger, there was other probative evidence, ignored by the trial judge but proof of which she was aware during the trial for impeachment purposes, showing that both Danner and Collins considered Berger an equal partner in Danger's business(A.66) Specifically, both testified under oath during their depositions in Berger's divorce action that he was a one-third owner of Danger and that Danger was a three-person partnership(A.66).

In fact, Collins testified there that “if the label made money, it wouldn't be a salary, it would be we're partners, 33 percent apiece”(A.70). He went on to state that in return for his marketing and promotional exper-tise, he would receive a one-third interest in Danger (A.70). Likewise, Danner testified there that his busi-ness arrangement with Berger was that “we were going to bring services equally, before the advent of Mr. Collins as the third partner, both of us as partners with our experience to make the label successful”(A.74).

All of this evidence, known to the trial judge, buttressed the good faith belief of Berger in asserting his defenses and counterclaims founded upon his co-ownership of Danger and, at the same time, undermined the lower court's finding that he had no reason to believe that his defenses and counterclaims were valid.

In addition, while the trial judge blamed Berger for his lack of documentary proof in support of his claims and then used this failure of proof against him for purposes of impugning his good faith, no accommodation was given Berger for the fact that he was deprived of an opportunity to obtain any relevant documents which he in good faith believed would support his defenses and counterclaims because of the negligent failure of his former counsel to propound discovery in a timely matter (A.67).

Furthermore, in Ben v. Schultz , 47 Mass. App. Ct. at 814, this Court recognized that since a Section 6F pro-ceeding is a sui generis and collateral one, separate from but not entirely independent of the underlying judgment, the facts that are pertinent to a Section 6F determination are not exclusively or necessarily the same as the facts on which the determination of the claims or defenses in the underlying action were based. Id . However, instead of identifying all of the facts relevant to Berger's good faith, including but not limited to the admissions of Danner and Collins that Danger encompassed a three-way partnership between them and Berger with each owning a one-third interest, the trial judge simply restated her own disbelief of Berger's trial testimony to conclude that he could not have made these defenses and counterclaims in good faith(A.67).

This abbreviated reasoning by the trial court was legal error because the mere disbelief of a party's evidence does not establish the contrary proposition. Moreover, this truncated analysis ignored other probative evidence which went directly to Berger's good faith belief that his claims were viable, including but not limited to the incorporating documents, the admissions by both Danner and Collins in their deposition testimony that a three-way partnership existed, and Berger's own inability to discover documentary proof of his claims because of his former counsel's untimely discovery requests. Berger was thereby deprived of a fair consid-eration of this “good faith” element for the award of attorney's fees under Section 6F.

Finally, there is a separate dynamic at work which goes to Berger's good faith prosecution of his defenses and counterclaims in this action. Before Danger's declaratory action had even begun, both Danner and Collins had already testified on behalf of Berger's wife in Berger's divorce proceeding that, contrary to their claims here, Berger was a one-third partner in Danger (A.70;72-74). This deposition testimony obligated the Probate Judge to find that Berger's part ownership of Danger was an asset of the marital estate and that it should be considered for purposes of any child support order(A.83-84).

Accordingly, when Danger subsequently brought this action against Berger seeking to establish via a declaratory judgment that Berger actually owned no part of this company, Danner and Collins, both friends of Berger's ex-wife, were seeking to cause a contempt by Berger of the divorce judgment. That is, Berger's acqui-escence to these allegations could have been construed by the Probate Judge as a contumacious act in direct disre-gard of her earlier finding that Berger did indeed own a part of Danger and that it was an asset of the marital estate which the Probate Judge could consider for purposes of a child support order.

In order to avoid such a contempt proceeding, it was incumbent upon Berger to defend against Danger's suit by asserting every viable defense; by counterclaiming against Danger, Danner and Collins for their repre-hensible actions; and by seeking multiple damages under Chapter 93A for their deceptive and unfair conduct.

None of these pleadings were framed by Berger in bad faith. All of them were drafted by Berger's counsel, a member of Gadsby Hannah LLP, who possessed an independent and dispassionate view of the circumstances. Berger rea-sonably relied upon their advice and opinion in approving of his defenses and counterclaims; and those pleadings, when viewed in the light of the facts known to Berger and his attorney at the time, were enough to provide him with a reasonable expectation of success on these claims.

For all of these reasons, then, the Single Justice erred as matter of law or otherwise abused his discretion by affirming the award of attorney's fees and costs in light of the findings of fact which the trial judge had made on this issue.

For all of the reasons identified herein, Berger respectfully requests this Honorable Court to reverse and vacate in all respects the order awarding Danger, Danner and Collins their attorney's fees and costs; or provide him with such other relief as is fair and just in the circumstances of this case.