K.G.M. Custom Homes, Inc. v. Prosky, 468 Mass. 247

Background

In 1999 the Prosky siblings (Proskys) signed a purchase-and-sale agreement to sell ~45.7 acres to K.G.M. Custom Homes (K.G.M.), with price set by number of approved buildable lots and closing 21 days after final approvals and appeal periods expired.
Agreement included a liquidated-damages clause: if the Proskys breached, they would pay K.G.M. “all charges and fees paid in connection with this transaction, including ... attorney’s fees.”
After a multi-year permitting process, K.G.M. obtained final approval in April 2005; earlier (Aug. 2004) the Proskys’ counsel Clark told K.G.M. that the Proskys had a higher offer and advised K.G.M. to calculate liquidated damages — an anticipatory repudiation.
K.G.M. sued for specific performance; at the scheduled closing (May 20, 2005) Clark behaved in a way (videotaping, withholding and refusing to permit review of note and mortgage) that the trial judge found intentionally sabotaged the closing.
Trial judge found both anticipatory repudiation (Aug. 2004) and an actual breach at the closing (May 2005), allowed K.G.M. to elect specific performance or liquidated damages, and K.G.M. elected liquidated damages; judge awarded permitting costs plus $120,000 in litigation attorney’s fees.
Appeals Court reversed award of money damages and attorney’s fees; Supreme Judicial Court affirmed findings of both anticipatory and actual breach and the remedy election but reversed the award of litigation attorney’s fees as outside the liquidated-damages clause’s scope.

Issues

Issue	Plaintiff's Argument (K.G.M.)	Defendant's Argument (Prosky)	Held
Whether anticipatory repudiation alone restricted remedy to specific performance	K.G.M.: repudiation occurred but Proskys’ counsel’s closing conduct produced an actual breach permitting damages	Proskys: only anticipatory repudiation occurred; specific performance is sole remedy	Held: both anticipatory and subsequent actual breach found; plaintiff could elect remedy
Whether attorney-conduct at closing constituted an actual breach of the implied covenant of good faith and fair dealing	K.G.M.: Clark’s pre-closing silence and sabotaging conduct at closing prevented performance and injured K.G.M.’s contractual expectations	Proskys: closing failed due to contract interpretation/disagreement or would-be unilateral acts of counsel not binding	Held: Clark’s conduct attributed to Proskys and was an actual breach of the implied covenant
Whether K.G.M. must have amended its complaint to seek liquidated damages	K.G.M.: amendment unnecessary because post-filing breach evidence was tried by consent; Rule 15(b) applies	Proskys: failure to amend precludes liquidated damages claim	Held: amendment not required; issues were litigated by consent and Proskys were not prejudiced
Whether liquidated-damages clause authorized recovery of litigation attorney’s fees incurred in suit	K.G.M.: clause includes attorney’s fees and thus covers fees in the lawsuit	Proskys: clause covers transactional fees only, not litigation fees; American Rule applies	Held: clause ambiguous and construed not to cover fees for litigating the breach; award of $120,000 reversed

Key Cases Cited

Tucker v. Connors, 342 Mass. 376 (recognizes limits of anticipatory repudiation in land-sale context; specific performance ordinarily sole remedy)
Anthony’s Pier Four, Inc. v. HBC Assocs., 411 Mass. 451 (implied covenant of good faith and fair dealing prevents actions that deprive other party of contract’s benefits)
Kelly v. Marx, 428 Mass. 877 (enforces liquidated-damages clauses if reasonable forecast and damages hard to determine)
Perroncello v. Donahue, 448 Mass. 199 (remedies for breach of land-sale contract are alternative; plaintiff may elect damages or specific performance)
Cavanagh v. Cavanagh, 33 Mass. App. Ct. 240 (Mass. approach to anticipatory repudiation outside UCC context)
Link v. Wabash R.R., 370 U.S. 626 (clients are responsible for counsel’s actions; attorney conduct attributable to client)
Warner Ins. Co. v. Commissioner of Ins., 406 Mass. 354 (every contract implies good faith and fair dealing)