Jack W. Rizika1 v. John J. Donovan

Excerpt: Jack W. Rizika1 v. John J. Donovan

  • Before KASS, SMITH and FLANNERY, JJ. Ian Crawford, Boston, for plaintiff. Thomas J. Dougherty, Boston, for defendants.
  • On the ground that the contract between the parties lacked an essential term, a judge of the Superior Court, acting on a motion for judgment notwithstanding the verdict, set aside a $4,844,912 jury verdict in favor of the plaintiff Rizika. The missing piece, the judge thought, was that Rizika, at the time he contracted with the defendants, did not own the real property he had agreed to lease to the defendants. We conclude that a party may bind itself to lease property that it does not own, taking the risk of liability for damages to the tenant should it not acquire ownership of the leased premises by the time of the commencement date of the lease. Accordingly, we reverse the judgment for the defendants.
  • Facts. During the relevant period, John J. Donovan was the controlling officer of Cambridge Technology Group, Inc. (CTG).  Donovan’s business connections with Rizika dated back to 1980, when Donovan, on behalf of his company-it was then called Advanced Information Systems and Services, Inc.-leased 219 Vassar Street, Cambridge, from Rizika. Donovan rented additional space from Rizika in 1982 at 301 Vassar Street.   Under the Vassar Street leases, Donovan had highly favorable options to buy the underlying fee-simple interest in the leased premises. By 1993, CTG needed more space. Rizika and Donovan met at Donovan’s office on July 12, 1993. They identified a building numbered 600 Memorial Drive, Cambridge, as just the right fit for CTG. That property was owned by Gunwyn/600 Memorial Drive Limited Partnership and was thought to be for sale.
  • On the strength of the July 12th meeting, Rizika sounded out Massachusetts Institute of Technology (MIT) about the prospect of MIT acquiring 600 Memorial Drive and exchanging it with Rizika for the Vassar Street properties. The Vassar Street properties were well located for MIT’s campus expansion plans, hence MIT’s interest in a transaction that would wind up with it owning the Vassar Street properties. Rizika’s interest in this circuitous method of acquiring 600 Memorial Drive was the income tax advantages to him from an exchange of property of like kind. MIT’s response was encouraging.
  • Rizika got back to Donovan and from July 23, 1993, to July 27, 1993, there were negotiations between Rizika, on one side, and on the other side, Donovan, Donovan’s son (John J. Donovan, Jr.), and Charles Stefanidakis, CTG’s chief financial officer. On July 27, 1998, Donovan, Jr., and Stefanidakis, on behalf of the Donovan interests, and Rizika signed a document, written by Rizika, that bore the title, “Basic Terms of the Lease Agreement Between JJD and JWR” (the basic terms agreement). That  document lays out, with conciseness and precision, agreement on the major economic issues, although the document lacks much of the peripheral detail that a lawyer would write into a lease. There was evidence, however, which the jury could have believed, that the parties proposed to write the business points they had agreed upon into a lease identical in form to the lease they had employed in the renting of the Vassar Street properties. See Goren v. Royal Investments Inc., 25 Mass.App.Ct. 137, 141-142, 516 N.E.2d 173 (1987).
  • Included in the basic terms agreement is a statement of the rent to be paid, $750,000 per year on triple net basis, with a rent escalator formula that begins to operate in the sixth lease year. Rizika was to retain 5,000 square feet on five floors, subject to an option by Donovan, which he might exercise after one and one-half years, to take over that space for an additional rent of $75,000 per year. Donovan was to have six months’ occupancy rent free while he renovated the building. Rizika was to contribute $1,000,000 to the cost of renovation. Donovan would cause the trust he controlled to surrender its leases of 219 and 301 Vassar Street. That provision was crucial to Rizika’s exchange of those properties with MIT.
  • As we view them in the light of the circumstances, the written and signed basic terms agreement and Rizika’s understanding with MIT (not reduced to writing) were separate contracts and, therefore, the basic terms agreement is not unenforceable because of noncompliance with the Statute of Frauds.
  • Damages. The jury, it will be recalled, returned a damages award of $4,844,912. Rizika had testified to damages of $9,054,636.7 He arrived at that figure by adding up the rent specified for each of the first five years ($750,000) and the rent for the second five years of the initial ten-year term, adjusted by the agreed upon consumer price index escalator. The rent was net of taxes, insurance, and operating expenses. Rizika could, therefore, with a straight face, say that the $9,054,636 was actually cash in his pocket.

Source: Findlaw