Buffalo-Water 1, LLC v. Fidelity Real Estate Company, LLC
111 N.E.3d 266
Mass.2018Background
- In 2004 Fidelity sold a Boston commercial property to Buffalo-Water and leased it back; the option agreement gave Fidelity a buyback option at $16,275,000 or 95% of fair market value, whichever was greater, with fair market value to be set by agreed appraisal procedure.
- If the two party-appointed appraisals differed by more than 5%, the two appraisers would select a third appraiser whose valuation would be final and bounded by the two earlier appraisals.
- In 2016 Fidelity exercised the option; Buffalo-Water’s appraiser valued the property at $36M, Fidelity’s at $17M, so the parties retained Cushman & Wakefield as the third appraiser; Cushman’s appraiser (Skinner) valued the property at $22.9M and certified no bias.
- Buffalo-Water later learned Fidelity had earlier retained Cushman under a national representation contract and alleged this created an appearance of bias; Fidelity declined to reopen the appraisal and Buffalo-Water sued for declaratory relief (invalidate appraisal) and for breach of the covenant of good faith and fair dealing.
- The Superior Court allowed Fidelity’s motion to dismiss under Mass. R. Civ. P. 12(b)(6); the SJC affirmed, holding (1) a properly pleaded declaratory claim may be dismissed under 12(b)(6) and (2) an appearance of bias based on the appraiser’s employer’s relationship (absent allegations that the individual appraiser knew of or was influenced by that relationship, or other fraud/corruption/dishonesty/bad faith) does not invalidate a contractually binding appraisal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a court must issue a declaratory judgment rather than dismiss a properly brought declaratory claim under Rule 12(b)(6) | Lynn: court must declare rights in a properly brought action; dismissal is inappropriate | A judge may dismiss under 12(b)(6) when the complaint fails to state a claim; dismissal implicitly (or explicitly) declares plaintiff not entitled to relief | A judge may dismiss a properly brought declaratory claim under 12(b)(6) if facts fail to state a claim; dismissal implicitly declares plaintiff not entitled to requested relief |
| Whether Cushman’s prior contract with Fidelity required disclosure and invalidated the appraisal | The preexisting Cushman–Fidelity relationship created an appearance of bias and should invalidate the appraisal | The engagement agreement and USPAP obligations apply to the individual appraiser (Skinner); complaint alleges no facts showing Skinner knew of or was influenced by Cushman’s contract | No contractual breach: disclosure obligations under the engagement agreement and USPAP relate to the individual appraiser; complaint lacked facts that Skinner had a personal interest or knew of the contract |
| Whether appearance of bias (employer’s relationship) qualifies as fraud, corruption, dishonesty, or bad faith to invalidate the appraisal under Eliot | Appearance of bias alone should be enough to vacate a binding appraisal to protect fairness | Eliot’s rule limits judicial invalidation to fraud, corruption, dishonesty, or bad faith by the appraiser; appearance of employer-based bias without individual appraiser’s knowledge does not meet that standard | Appearance of bias based on an appraiser’s employer, absent allegations the individual appraiser knew of or acted from that relationship, does not meet Eliot’s grounds and cannot by itself invalidate the appraisal; court declines to expand common law to add an "appearance of bias" ground |
| Whether Fidelity breached implied covenant of good faith and fair dealing by enforcing the appraisal | Fidelity insisted on sale while knowing the valuation process was tainted, undermining Buffalo-Water’s contractual rights | The covenant cannot create rights beyond the contract; option and engagement agreements authorized the appraisal process used and contained no disclosure requirement about employer relationships | No breach: enforcing the appraisal complied with the contracts; implied covenant cannot be used to insert disclosure/neutrality requirements not in the agreements |
Key Cases Cited
- Eliot v. Coulter, 322 Mass. 86 (recognizing courts may invalidate agreed appraisals only for fraud, corruption, dishonesty, or bad faith)
- Nelson v. Maiorana, 395 Mass. 87 (affirming limited judicial review of agreed appraisals)
- Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145 (discussing appearance of bias in arbitral context)
- JCI Communications, Inc. v. Int'l Bhd. of Elec. Workers, Local 103, 324 F.3d 42 (defining "evident partiality" standard for arbitrators)
- T.W. Nickerson, Inc. v. Fleet Nat'l Bank, 456 Mass. 562 (scope of implied covenant of good faith and fair dealing)