Buffalo-Water 1, LLC v. Fidelity Real Estate Company, LLC , 481 Mass. 13 ( 2018 )

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SJC-12487
BUFFALO-WATER 1, LLC vs. FIDELITY REAL ESTATE COMPANY, LLC.
Suffolk. October 4, 2018. - November 26, 2018.
Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, &
Kafker, JJ.
Appraisal. Declaratory Relief. Practice, Civil, Declaratory
proceeding, Motion to dismiss. Contract, Implied covenant
of good faith and fair dealing.
Civil action commenced in the Superior Court Department on
May 23, 2017.
A motion to dismiss was heard by Janet L. Sanders, J.
The Supreme Judicial Court on its own initiative
transferred the case from the Appeals Court.
Richard E. Briansky for the plaintiff.
David J. Apfel for the defendant.
Timothy P. Burke & Nathaniel P. Bruhn, for Greater Boston
Real Estate Board, amicus curiae, submitted a brief.
Dawn Mertineit & Katherine E. Perrelli, for Appraisal
Institute & another, amici curiae, submitted a brief.
GANTS, C.J. In Eliot v. Coulter, 322 Mass. 86, 91 (1947),
this court held that, where parties agree that the fair value of
2
a property shall be determined by an appraiser, "the correctness
of the principles and methods of valuation adopted by [an]
appraiser[] cannot be inquired into by the courts, in the
absence of fraud, corruption, dishonesty or bad faith." Under
this common-law rule, a judge may not invalidate "the
determination of appraisers selected by agreement to resolve a
dispute" unless the appraisal process or decision was tainted on
one of these four grounds. Nelson v. Maiorana, 395 Mass. 87, 89
(1985). The issue on appeal is whether we should modify this
common-law rule and allow a judge to invalidate an appraisal
intended by the parties to provide a final, binding valuation of
a property where there is the appearance of bias, not on the
part of the individual who conducted the appraisal, but on the
part of the entity that employed the individual appraiser. We
conclude that the common-law rule established in Eliot properly
balances the need for fair valuations with the need for finality
in the appraisal process, and that an appearance of bias alone
is insufficient to invalidate an appraisal. Because the
allegations in the complaint, if proved, do not warrant a
finding of any violation of the agreements setting forth the
terms of the appraisal, or a finding of fraud, corruption,
dishonesty, or bad faith by the individual appraiser, or a
finding of breach of the implied covenant of good faith and fair
3
dealing by the defendant, we affirm the Superior Court judge's
order allowing the defendant's motion to dismiss.1
Background. When reviewing a motion to dismiss, we accept
as true all facts alleged in the plaintiff's verified complaint
and accompanying exhibits. See Revere v. Massachusetts Gaming
Comm'n, 476 Mass. 591, 595 (2017). The following facts are
drawn from that complaint and those documents.
In October 2004, the defendant, Fidelity Real Estate
Company, LLC (Fidelity), sold the Winthrop Building, a
commercial property located in Boston (property), to the
plaintiff, Buffalo-Water 1, LLC (Buffalo-Water), a subsidiary of
a national real estate company. Buffalo-Water then leased the
property back to Fidelity, and the parties entered into an
option to purchase agreement (option agreement) granting
Fidelity the option to buy the building back in the final year
of its lease. The option agreement stated that, if Fidelity
chose to exercise its option, the purchase price would be
$16,275,000 or ninety-five percent of the property's fair market
value, whichever is greater. The fair market value would be
determined by agreement of the parties, or by the following
appraisal process outlined in the option agreement: (1) each
1 We acknowledge the amicus briefs submitted by the
Appraisal Institute and Massachusetts Board of Real Estate
Appraisers, and by the Greater Boston Real Estate Board.
4
party appoints an appraiser who has at least ten years of
experience appraising Greater Boston property and is an MAI-
designated member of the Appraisal Institute2 or a member of the
American Society of Real Estate Counselors3 (or their successor
organizations); (2) if the two appointed appraisers cannot agree
on the fair market value but their appraisals fall within five
percent of one another, the fair market value shall be deemed to
be the average of the two appraisals; (3) if the difference
between the appraisals is greater than five percent, the two
appraisers shall appoint a third appraiser to decide the fair
market value. The option agreement provides that this final
valuation may not be greater than the higher or less than the
lower of the two previous appraisals.
In August 2016, Fidelity exercised its right under the
option agreement to purchase the property. Fidelity and
2 The Appraisal Institute, a professional association of
real estate appraisers, designates certain qualified
professionals as MAI-designated members. "MAI" is not
technically an acronym, but one of several designations used to
identify certain professionals as members of the Appraisal
Institute. To become an MAI-designated member, an appraiser
must have good moral character, receive credit for specialized
experience, pass an examination, and meet various other
requirements.
3 The Counselors of Real Estate is an international
organization of property professionals. It was formerly known
as the American Society of Real Estate Counselors. An
individual may become a member by invitation, or may apply for
membership after meeting certain experience requirements.
5
Buffalo-Water were unable to agree upon the property's fair
market value, and each retained an independent appraiser to
determine the appropriate purchase price. Buffalo-Water's
appraiser valued the property at $36 million; Fidelity's
appraiser valued it at $17 million.4 Because the two appraisals
differed by more than five percent, the parties agreed to retain
Cushman & Wakefield (Cushman), a real estate services company,
as a third appraiser.
Cushman outlined the terms of its appraisal services in a
letter of engagement (engagement agreement) signed by the
parties and by Robert Skinner, the Cushman professional selected
to perform the independent appraisal.5 On April 18, 2017,
Skinner submitted an appraisal valuing the property at $22.9
million. The valuation was accompanied by a "Certification of
Appraisal" signed by Skinner, which stated, "We have no present
or prospective interest in the property that is the subject of
this report, . . . no personal interest with respect to the
4 According to the complaint, Buffalo-Water's appraiser
evaluated the fair market value of the property as occupied, but
Fidelity's appraiser evaluated it as vacant. Because neither
party disputes the validity of these two initial appraisals, we
do not address this discrepancy here.
5 Robert Skinner may have had assistance in valuing the
property -- the engagement agreement retaining Cushman to
conduct the valuation lists a $475 hourly fee for Skinner, and a
$250 hourly fee for "Analysts/Appraisers." Skinner alone,
however, signed the engagement agreement and the certification
of appraisal attached to the final appraisal report.
6
parties involved," and "no bias with respect to the property
that is the subject of this report or to the parties involved
with this assignment."
Soon after receiving the valuation, Buffalo-Water asked
Skinner to reconsider the appraisal in light of certain "factual
errors."6 In response, Cushman offered to meet with Buffalo-
Water and Fidelity to discuss the appraisal. Fidelity declined
this offer to meet in a letter that noted that neither the
option agreement nor the engagement agreement "contemplates
reconsideration of the appraisal at any time." Fidelity also
stated that Buffalo-Water was obliged under the option agreement
to honor the third appraiser's valuation and deed the property
to Fidelity.
After receiving Fidelity's letter, Buffalo-Water learned
that in December 2016, before Cushman was engaged to conduct the
appraisal, Fidelity had retained Cushman for a national
representation contract.7 Buffalo-Water communicated this
6 In an electronic mail message sent on April 21, 2017,
Stephen Scalione -- Buffalo-Water's executive director of
finance -- summarized the alleged factual errors. Scalione
claimed that Skinner had misreported the purchase price and net
rentable area of the property, that a certain deduction was
improper, that the building should not have been valued as
vacant, and that the over-all valuation was inaccurate.
7 Fidelity asserts that the national representation contract
was with Cushman & Wakefield U.S., Inc., not Cushman & Wakefield
of Massachusetts, Inc., which employed the appraiser who
performed the valuation. Because the complaint identifies only
7
information to Fidelity, claiming that Fidelity's preexisting
relationship with Cushman created an impermissible conflict of
interest. Fidelity declined to retain a new appraiser or to
extend the closing date in light of this alleged conflict.
The following week, Buffalo-Water filed a two-count
verified complaint against Fidelity in the Superior Court. The
first count seeks a judgment declaring that the appraisal is
invalid and nonbinding; the second count alleges a breach of the
covenant of good faith and fair dealing. Fidelity moved to
dismiss the complaint for failure to state a claim upon which
relief can be granted. Mass. R. Civ. P. 12 (b) (6), 365 Mass.
754 (1974). The judge allowed Fidelity's motion and dismissed
the complaint, concluding that the facts alleged by Buffalo-
Water did "not amount to the kind of bad faith, fraud or
corruption required for a court to invalidate an independent
appraisal agreed to by the parties." Buffalo-Water appealed,
and we transferred the case to this court on our own motion.
Discussion. We review the allowance of a motion to dismiss
de novo. Galiastro v. Mortgage Elec. Registration Sys., Inc.,
467 Mass. 160, 164 (2014). In considering whether a count in a
complaint survives a motion to dismiss under Mass. R. Civ. P.
12 (b) (6), we accept as true the factual allegations in the
one Cushman entity, and because our decision does not rest on
the distinction, we refer to Cushman as a single entity.
8
complaint and the attached exhibits, draw all reasonable
inferences in the plaintiff's favor, and determine whether the
allegations "plausibly suggest" that the plaintiff is entitled
to relief on that legal claim (citation omitted). Id. The
allegations must be more than "mere labels and conclusions," and
must "raise a right to relief above the speculative level"
(quotations and citations omitted). Id. at 165.
Buffalo-Water raises three arguments on appeal. First, it
claims that the judge improperly dismissed its claim for
declaratory judgment under rule 12 (b) (6) because courts are
obligated to declare the rights of the parties in every properly
brought action for declaratory relief. Second, it claims that
the appraisal should be invalidated due to Cushman's failure to
disclose its preexisting contractual relationship with Fidelity.
Third, Buffalo-Water claims that Fidelity committed a breach of
the covenant of good faith and fair dealing by taking advantage
of an appraisal process it knew to be biased. We address each
of these arguments in turn.
1. Declaratory relief. Buffalo-Water contends that the
judge erred in dismissing its claim for declaratory relief under
G. L. c. 231A, § 1, because, where the claim was properly
brought, Buffalo-Water is entitled to a declaration of the
rights of the parties. We hold that, where a party moves to
dismiss a properly brought declaratory judgment claim under rule
9
12 (b) (6) and where the judge concludes that the facts alleged
in the complaint fail to state a claim upon which relief can be
granted, the judge has the option of dismissing the claim or of
declaring that, based on the facts alleged in the complaint, the
plaintiff is not entitled to the declaratory relief sought.
When evaluating a motion to dismiss a claim for declaratory
relief under rule 12 (b) (6), a judge must proceed in two steps.
First, the judge must determine whether the claim was "properly
brought." See Mscisz v. Kashner Davidson Sec. Corp., 446 Mass.
1008, 1010 (2006). A claim for declaratory relief is "properly
brought" where the plaintiff demonstrates that an actual
controversy exists, see G. L. c. 231A, § 1 (courts may issue
declaratory judgments where "an actual controversy has arisen
and is specifically set forth in the pleadings"); that the
plaintiff has legal standing to sue, see Massachusetts Ass'n of
Indep. Ins. Agents & Brokers, Inc. v. Commissioner of Ins., 373
Mass. 290, 292-293 (1977) (explaining standing requirement); and
that all necessary parties have been joined, see G. L. c. 231A,
§ 8 ("When declaratory relief is sought, all persons shall be
made parties who have or claim any interest which would be
affected by the declaration . . ."); Service Employees Int'l
Union, Local 509 v. Department of Mental Health, 469 Mass. 323,
338 (2014) (failure to join necessary parties under G. L. c.
231A, § 8, and Mass. R. Civ. P. 19, 365 Mass. 765 [1974] "may be
10
jurisdictional in a declaratory judgment action, thereby
precluding the court's consideration of the issue").8
Where the claim is "properly brought," as it is here, the
judge must proceed to the second step: determining whether the
facts alleged by the plaintiff in the complaint, if true, state
a claim for declaratory relief that can survive a defendant's
motion to dismiss.
Buffalo-Water contends that, even if the facts alleged in
its complaint fail to state a claim for declaratory relief, the
judge may not dismiss its properly brought claim but must
instead declare the rights of the parties. Buffalo-Water's
contention has considerable support in our case law. See Lynn
v. Lynn Police Ass'n, 455 Mass. 590, 599 (2010) ("In a properly
brought action for declaratory relief, there must be a
declaration of the rights of the parties even though relief is
denied to a plaintiff"); Cherkes v. Westport, 393 Mass. 9, 12
(1984) (same); Attorney Gen. v. Kenco Optics, Inc., 369 Mass.
412, 418 (1976) ("When an action for declaratory relief is
properly brought and relief is denied on the merits, the action
should not be dismissed. . . . The rights of the parties should
8 Where the relief sought through a declaratory judgment
claim involves administrative action, we further require the
plaintiff to show that all available administrative remedies
have been exhausted. See Villages Dev. Co. v. Secretary of the
Executive Office of Envtl. Affairs, 410 Mass. 100, 106 (1991).
11
be declared" [citation omitted]); Jewel Cos. v. Burlington, 365
Mass. 274, 277 (1974) ("a demurrer will not be sustained . . .
merely because the court is convinced the plaintiff will fail on
the merits but only where the bill on its face fails to state a
controversy proper for determination under the declaratory
procedure" [quotation and citation omitted]); Connery v.
Commissioner of Correction, 33 Mass. App. Ct. 253, 254 n.4
(1992), S.C., 414 Mass. 1009 (1993) ("Irrespective of the merits
of the case, dismissal of the case under Mass. R. Civ. P.
12 [b] [6] was not a correct disposition" because "[i]n an
action for declaratory relief . . . the court ought to declare
the rights of the parties"). But Massachusetts appellate courts
have also affirmed orders allowing motions to dismiss in
properly brought claims for declaratory relief. See State Room,
Inc. v. MA-60 State Assocs., L.L.C., 84 Mass. App. Ct. 244, 252
(2013) (affirming judgment dismissing claim for declaratory
relief under rule 12 [b] [6]). See also Harvard Crimson, Inc.
v. President & Fellows of Harvard College, 445 Mass. 745 (2006);
Wallerstein v. Board of Bar Examiners, 414 Mass. 1008 (1993).9
9 In Harvard Crimson, Inc. v. President & Fellows of Harvard
College, 445 Mass. 745, 748 n.5 (2006), and Wallerstein v. Board
of Bar Examiners, 414 Mass. 1008, 1009 (1993), this court
acknowledged that when "an action for declaratory relief is
properly brought and relief is denied on the merits, the action
should not be dismissed" (citation omitted) and the rights of
the parties should be declared. In both cases, however, the
court went on to affirm judgments granting motions to dismiss,
12
Our case law regarding whether courts may dismiss properly
brought claims for declaratory relief under rule 12 (b) (6)
therefore requires clarification.
Where a defendant has filed a motion to dismiss and the
judge concludes that the plaintiff has failed to state a claim
upon which relief can be granted, the claim is ripe for
disposition. If the plaintiff is not entitled to the
declaratory judgment sought even if all of the factual
allegations in the complaint are true, there can be no
justification for allowing the claim to proceed or for
permitting further discovery. If the judge were to declare the
rights of the parties, the declaration should simply be that the
plaintiff is not entitled to the declaratory relief sought based
on the ground that dismissal of a complaint under Mass. R. Civ.
P. 12 (b) (6), 365 Mass. 754 (1974), is not a decision on the
merits. See Harvard Crimson, Inc., supra; Wallerstein, supra.
At least for res judicata purposes, however, a dismissal under
Mass. R. Civ. P. 12 (b) (6) is considered an adjudication on the
merits. See Mass. R. Civ. P. 41 (b) (3), as amended, 454 Mass.
1403 (2009) ("any dismissal not provided for in this rule, other
than a dismissal for lack of jurisdiction, for improper venue,
or for failure to join a party . . . operates as an adjudication
upon the merits"); Mestek, Inc. v. United Pac. Ins. Co., 40
Mass. App. Ct. 729, 731 (1996) ("under Massachusetts law, as
elsewhere, a dismissal for failure to state a claim . . .
operates as a dismissal on the merits" [citation and alteration
omitted]). See also Federated Dep't Stores, Inc. v. Moitie, 452
U.S. 394, 399 n.3 (1981) (dismissal for failure to state claim
under Fed. R. Civ. P. 12 [b] [6], which is identical to Mass. R.
Civ. P. 12 [b] [6], is judgment on merits). We therefore find
the reasoning in support of the dismissals in the Harvard
Crimson, Inc. and Wallerstein cases to be unpersuasive.
13
on the allegations in the complaint. Such a declaration,
however, is implicit in a judge's order to dismiss a declaratory
judgment claim under rule 12 (b) (6). Here, for instance, the
judge's allowance of the motion to dismiss implicitly declares
that, based on the allegations in its complaint, Buffalo-Water
is not entitled to the declaration that Skinner's appraisal is
invalid. Therefore, we see no convincing reason to prohibit a
judge from dismissing a properly brought declaratory judgment
count where it fails to state a claim under rule 12 (b) (6). We
also see no convincing reason to prohibit a judge from making
explicit through a declaration of rights what would be implicit
in a dismissal. To the extent that previous cases have held
that a judge may not dismiss a properly brought declaratory
judgment claim where it fails to state a claim under rule 12 (b)
(6), those cases are overruled.
2. Validity of appraisal. Parties that agree to be bound
by an appraisal are free to set forth contractual terms
regarding the appraiser's obligations and the grounds for
invalidating the appraisal. Therefore, in deciding whether to
invalidate an appraisal, we look first to determine whether
there are allegations that would support a finding of a material
breach of the contract terms governing the appraisal. Where
there is no such material breach, we then look to the common law
14
to determine whether the appraisal is invalid due to "fraud,
corruption, dishonesty or bad faith." Eliot, 322 Mass. at 91.
a. Contract terms. Because the engagement agreement
retaining Cushman to perform an appraisal for Buffalo-Water and
Fidelity sets forth the terms of the appraisal at issue here, we
look to its contents to determine whether the appraiser was
contractually obligated to disclose Cushman's contract with
Fidelity. Three provisions of the engagement agreement are
relevant: the discussion of conflicts of interest, the
requirement that the appraiser's prior services be disclosed,
and the commitment to "develop an appraisal in accordance with
[the Uniform Standards of Professional Appraisal Practice
(USPAP)10] and the Code of Ethics and Certification Standards of
the Appraisal Institute."
i. Conflicts of interest. The "Conflicts of Interest"
section of the engagement agreement states that "[Cushman]
adheres to a strict internal conflict of interest policy. If we
discover in the preparation of our appraisal a conflict with
this assignment we reserve the right to withdraw from the
assignment without penalty." This provision does not obligate
Cushman or its appraisers to disclose any conflicts or
10The Uniform Standards of Professional Appraisal Practice
(USPAP) are published by the Appraisal Foundation, which sets
standards and qualifications for real estate appraisers.
15
relationships. Instead, it exists to protect Cushman should it
choose to withdraw from an assignment to perform an appraisal
because of a conflict of interest. The provision is therefore
not applicable where, as here, the appraiser completed a
valuation without exercising the right to withdraw.
ii. Disclosure requirement. In a section entitled "Prior
Services Disclosure," the engagement agreement states that the
"USPAP requires disclosure of prior services performed by the
individual appraiser within the three years prior to this
assignment." The section goes on to affirm that the
"undersigned appraiser has not provided prior services within
the designated time frame." The relevant USPAP section is an
"Ethics Rule" explaining that "[i]f known prior to accepting an
assignment, and/or if discovered at any time during the
assignment, an appraiser must disclose to the client . . . any
current or prospective interest in the subject property or
parties involved; and any services regarding the subject
property performed by the appraiser within the three year period
immediately preceding acceptance of the assignment, as an
appraiser or in any other capacity." Appraisal Foundation,
USPAP 9 (2016-2017) (USPAP).
The relevant appraiser for the purposes of the contract is
Skinner, who signed the engagement agreement and went on to
perform the valuation at issue. Buffalo-Water's argument --
16
that Cushman is the relevant appraiser -- is belied not only by
the text of the engagement agreement, which clearly refers to
the "individual" and "undersigned" appraiser, but also by an
Ethics Rule comment clarifying that the Ethics Rule "specifies
the personal obligations and responsibilities of the individual
appraiser." Id. at 8. This is consistent with the "Assumptions
and Limiting Conditions" section of Skinner's completed
appraisal report, which explicitly defines "[a]ppraiser(s)" to
mean "the employee(s) of [Cushman] who prepared and signed the
Report" (emphasis added). Buffalo-Water's focus on Skinner's
employer is further refuted by the answer to one of the
"Frequently Asked Questions" that provide guidance regarding the
interpretation of the USPAP. The relevant question asks, "If
the firm that employs me as an appraiser has provided leasing or
property management services in the past three years for the
subject property, must this be disclosed?" Id. at 219. The
Appraisal Foundation responds, "[n]ot necessarily," as the
Ethics Rule only "requires disclosure of services provided by
the appraiser. However, if an appraiser believes that the
provision of a service by the appraiser's firm or other related
entity may be relevant, he or she should disclose that
information to a potential client" (quotation omitted).11 Id.
11We note that there is no allegation in the complaint that
Cushman provided any services for the Winthrop Building.
17
Buffalo-Water's complaint alleges no facts suggesting that
Skinner had any interest in the Winthrop Building or that he had
performed an appraisal of the Winthrop Building in the three
years prior to his acceptance of the assignment (or at any other
time). Nor does the complaint allege that Skinner even knew of
Fidelity's national representation contract with Cushman.
Without such knowledge, Skinner cannot be expected to have
disclosed that information to Buffalo-Water. Nor, for that
matter, could he have been influenced in his valuation of the
property by a Cushman contract with Fidelity that he is not
alleged to have known anything about. The "Prior Services
Disclosure" section of the engagement agreement therefore did
not require the disclosure of Cushman's contract with Fidelity.
iii. Incorporation of USPAP and Code of Ethics. In an
engagement agreement section entitled "USPAP Compliance,"
Skinner agreed to "develop an appraisal in accordance with USPAP
and the Code of Ethics and Certification Standards of the
Appraisal Institute." Here, the relevant incorporated standard
is rule 3-6 of the Code of Ethics, which provides that in the
absence of disclosure, "[i]t is unethical to provide a Service
if a valuer has any direct or indirect, current, or prospective
personal interest in the subject or outcome of the Service or
with respect to the parties involved in the Service."
18
The Code of Ethics specifically defines a "valuer" as
"[o]ne who is expected to provide Services in an unbiased and
competent manner" (emphasis added). Appraisal Institute, Code
of Professional Ethics and Explanatory Comments 6 (2015). In
this case, where Skinner was the "valuer," the relevant inquiry
is whether Skinner's actions violated rule 3-6 of the Code of
Ethics. The complaint alleges no facts tending to show that
Skinner had any personal interest in the Winthrop Building or in
the outcome of his valuation, or knew of the national
representation contract between Fidelity and Cushman. Code of
Ethics rule 3-6, as incorporated by the engagement agreement,
therefore created no obligation to disclose the existence of
that contract.
b. Common law. Finding no contractual breach, we move on
to consider whether the appraisal was invalid under
Massachusetts common law. Our common law has recognized that,
when parties enter into a contract providing that the valuation
established by an independent appraiser shall determine the
value of a property or business, they express their "shared
desire for finality" through a means other than adjudication by
a court or an arbitrator. State Room, Inc., 84 Mass. App. Ct.
at 249. See Eliot, 322 Mass. at 89 (parties agreed to valuation
"that would in the future prevent a resort to the courts or to
technical arbitration"). The common law also recognizes that
19
the need for finality does not override the need for the
appraisal process to be untainted by "fraud, corruption,
dishonesty or bad faith." See Eliot, supra at 91. By allowing
courts to invalidate appraisals only in these narrow
circumstances, the common-law test established in Eliot balances
the desire for finality with the need for integrity in the
appraisal process.
Buffalo-Water claims that the appearance of bias arising
from Cushman's national representation contract with Fidelity
suffices to invalidate Skinner's appraisal. In evaluating this
claim, we first consider whether the appearance of bias falls
within the existing rubric of "fraud, corruption, dishonesty or
bad faith." Because we find that it does not, we then consider
whether we should revise our common law to include it.
We begin by noting that, in determining whether to
invalidate an appraisal, we look to the conduct of the
individual appraiser or appraisers responsible for the
valuation, not to the conduct of their employer. This rule is
in keeping with the USPAP and the Code of Ethics. See USPAP,
supra at 1 (defining "appraiser" as "one who is expected to
perform valuation services competently and in a manner that is
independent, impartial, and objective" [emphasis added]); id. at
8 ("This [Ethics] Rule specifies the personal obligations and
responsibilities of the individual appraiser"); Appraisal
20
Institute, Code of Professional Ethics and Explanatory Comments
6 (2015) (defining "valuer" as "[o]ne who is expected to provide
Services in an unbiased and competent manner" [emphasis added]).
In arguing for the adoption of an "appearance of bias"
standard, Buffalo-Water relies in large part on the statement in
the United States Supreme Court's opinion in Commonwealth
Coatings Corp. v. Continental Cas. Co., 393 U.S. 145, 150 (1968)
that, under the Federal Arbitration Act, "any tribunal permitted
by law to try cases and controversies not only must be unbiased
but also must avoid even the appearance of bias." Putting aside
that this decision involved an arbitration rather than an
appraisal and that it interpreted a Federal arbitration statute,
the appearance of bias in Commonwealth Coatings Corp. arose from
the fact that the "third arbitrator, the supposedly neutral
member of the panel, conducted a large business . . . in which
he served as an engineering consultant" and one of the "regular
customers" of that business was a litigant in the arbitration.
Id. at 146. Thus, "the appearance of bias" arose from his
personal, "repeated and significant" business relationship with
the defendant, not simply the business relationship of his
employer.12 Id. Even the cases from other jurisdictions that
12We note that the two concurring Justices sought to limit
the breadth of the holding, stating that "it is enough for
present purposes to hold, as the Court does, that where the
arbitrator has a substantial interest in a firm which has done
21
were cited by Buffalo-Water in its discussion of appraiser bias
focus on the bias of individual appraisers, not their employer.
See, e.g., Gebers v. State Farm Gen. Ins. Co., 38 Cal. App. 4th
1648, 1652 (1995) (appraiser was separately retained by party as
expert witness in two pending court cases); Central Life Ins.
Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257, 261 (Iowa 1991)
("appraiser was interested because he had a direct financial
interest in the dispute").
Buffalo-Water alleges that there is an appearance of bias
in Skinner's appraisal because of a business relationship that
his employer, Cushman, has with Fidelity. Skinner is not
alleged to have known about this business relationship when he
made the valuation. The alleged appearance of bias does not
qualify as "fraud, corruption, dishonesty or bad faith." Eliot,
322 Mass. at 91.
At a minimum, a claim of fraud sufficient to invalidate an
appraisal must allege a misrepresentation, and there are no
allegations in the complaint tending to show that Skinner made,
or was even aware of, a false representation to Buffalo-Water.
See Balles v. Babcock Power Inc., 476 Mass. 565, 573 (2017)
(describing elements of fraud). To the extent that Buffalo-
more than trivial business with a party, that fact must be
disclosed." Commonwealth Coatings Corp. v. Continental Cas.
Co., 393 U.S. 145, 151-152 (1968) (White, J., concurring, joined
by Marshall, J.).
22
Water alleges that Cushman committed fraud by omission because
Buffalo-Water relied to its detriment upon a "material omission
by Cushman (i.e. its failure to disclose its relationship with
Fidelity)," this allegation also fails. To show fraud by
omission, the plaintiff must allege "both concealment of
material information and a duty requiring disclosure." Sahin v.
Sahin, 435 Mass. 396, 402 n.9 (2001). Here, Buffalo-Water has
not shown that Skinner concealed (or even knew of) the national
contract between Fidelity and Cushman, nor has it shown any duty
to disclose that contract.13
"Dishonesty" is a broader term than fraud, encompassing all
"behavior that deceives or cheats people," "untruthfulness," and
"untrustworthiness." Black's Law Dictionary 568 (10th ed.
2014). We need not decide here whether a dishonest act that
falls short of fraud will suffice under our common law to
invalidate an appraisal, because an appearance of bias alone
cannot reasonably be deemed an act of dishonesty where, as here,
the appearance of bias arises from a business relationship of
Cushman that Skinner is not alleged to have known existed.
A finding of "corruption" might be warranted where the
individual appraiser had an undisclosed personal interest --
13In view of this conclusion, we need not decide whether a
complaint seeking to invalidate an appraisal on the ground of
fraud must plead the allegation of fraud with "particularity."
See Mass. R. Civ. P. 9 (b), 365 Mass. 751 (1974).
23
financial or otherwise -- in the outcome of his or her
valuation. As earlier noted, rule 3-6 of the Code of Ethics
provides that it is unethical to provide services without
disclosure if the valuer has any "personal interest" in the
subject or outcome of the service or "with respect to the
parties involved." But we decline to characterize as
"corruption" the mere appearance of bias based on a business
relationship of the appraisal company rather than of the
individual appraiser, especially where there is no allegation
that the individual appraiser knew of that relationship.
Bad faith is a "general and somewhat indefinite term" that
goes beyond "bad judgment" or "negligence," suggesting "a
dishonest purpose or some moral obliquity," a "conscious doing
of wrong," or a "breach of a known duty through some motive of
interest or ill will." Spiegel v. Beacon Participations, Inc.,
297 Mass. 398, 416 (1937). See Commonwealth v. Frith, 458 Mass.
434, 441 (2010). Bad faith is not a statutory ground for
invalidating arbitrations under the Massachusetts Uniform
Arbitration Act for Commercial Disputes, G. L. c. 251, § 12 (a)
(MAA), but the MAA does require courts to vacate arbitration
awards where "there was evident partiality by an arbitrator
appointed as a neutral." G. L. c. 251, § 12 (a) (2).
"[E]vident partiality means a situation in which a reasonable
person would have to conclude that an arbitrator was partial to
24
one party to an arbitration" (quotation and citation omitted).
JCI Communications, Inc. v. Int'l Bhd. of Elec. Workers, Local
103, 324 F.3d 42, 51 (1st Cir. 2003). We recognize that
partiality, where it exists, is more likely to be evident in an
arbitration than in an appraisal because an arbitrator generally
conducts a hearing where evidence is offered, while an appraiser
generally renders a valuation without a hearing or the
presentation of evidence. See Palmer v. Clark, 106 Mass. 373,
389 (1871) (appraisal decision, unlike arbitration decision,
"may be made without notice to or hearing of the parties"). But
if evident partiality were proved in the context of an
appraisal, it would be sufficient to establish bad faith and to
invalidate an appraisal under our common law, much as it would
invalidate an arbitration award under the MAA. Evident
partiality, however, means "more than just the appearance of
possible bias," JCI Communications, Inc., supra, and therefore
cannot be established based on the allegations in Buffalo-
Water's complaint.
Arguably, an appraiser may also act in "bad faith" where he
or she acts in any other way that would justify vacating an
arbitration award under the MAA. See, e.g., G. L. c. 251,
§ 12 (a) (1) (arbitration award shall be vacated if procured by
undue means); G. L. c. 251, § 12 (a) (2) (arbitration award
shall be vacated if there was "misconduct prejudicing the rights
25
of any party"). Buffalo-Water, however, has alleged no facts
showing that Skinner's actions, if committed in an arbitral
context, might have been impermissible under the MAA. We
therefore need not address here to what extent "bad faith" under
our common law might encompass the various grounds for
invalidating an arbitration award under the MAA.
Having determined that the appearance of bias alone does
not support a finding of "fraud, corruption, dishonesty or bad
faith," Eliot, 322 Mass. at 91, we consider whether to add
"appearance of bias" as a separate common-law ground for
invalidating an appraisal. We decline to do so. For more than
seventy years, the common-law standard established in Eliot has
provided an appropriate balance between parties' desire for
finality and the need for integrity in the appraisal process.
Allowing appraisals to be invalidated based on the appearance of
bias alone would considerably diminish the finality of
appraisals without significantly improving their over-all
integrity. Cf. Katz, Nannis & Solomon, P.C. v. Levine, 473
Mass. 784, 794 (2016) ("[a]llowing parties to expand the grounds
for judicial review would undermine the predictability,
certainty, and effectiveness of the arbitral forum that has been
voluntarily chosen by the parties" [quotation and citation
omitted]).
26
When parties negotiate a contract that provides for a
binding appraisal, they are free to include provisions that
establish more stringent impartiality requirements than those in
our common law and specify that the appraisal will be invalid
where those requirements are not met. Here, just as the parties
required that the individual appraisers have at least ten years
of experience valuing Greater Boston property, they could have
required disclosure of any information concerning Cushman's
business dealings with Buffalo-Water or Fidelity that might
create an "appearance of bias," and agreed to invalidate the
appraisal if such a disclosure was not made. Where they did
not, we decline to expand our common law to require invalidation
on this ground alone.
Because the allegations in Buffalo-Water's verified
complaint, taken as true, do not "plausibly suggest" that the
appraisal was tainted by fraud, corruption, dishonesty, or bad
faith, and because the appearance of bias alone is not
sufficient to invalidate an appraisal, the motion to dismiss the
count of the complaint seeking invalidation of the appraisal was
properly allowed under Mass. R. Civ. P. 12 (b) (6).
3. Covenant of good faith and fair dealing. In a separate
count of the complaint, Buffalo-Water alleges that the defendant
violated the covenant of good faith and fair dealing by
insisting that Buffalo-Water sell the Winthrop Building despite
27
knowing that the valuation was tainted by Cushman's potential
conflict of interest with Fidelity.
The covenant of good faith and fair dealing "requires that
neither party shall do anything that will have the effect of
destroying or injuring the right of the other party to the
fruits of the contract" (quotation and citation omitted). T.W.
Nickerson, Inc. v. Fleet Nat'l Bank, 456 Mass. 562, 570 (2010).
Although "[e]very contract implies good faith and fair dealing
between the parties to it," the "scope of the covenant is only
as broad as the contract that governs the particular
relationship" (quotations and citations omitted). Id. at 569-
570. In other words, the covenant of good faith and fair
dealing "cannot create rights and duties not otherwise provided
for in the existing contractual relationship" (quotation and
citation omitted). Id. at 570.
Nothing in the contractual agreements entered into by
Buffalo-Water and Fidelity prohibits Fidelity from demanding a
sale based on the price established in Skinner's appraisal. The
option agreement clearly states that the property's value would
be determined through an appraisal process, every step of which
was followed here. It does not require the parties to refrain
from selecting an appraiser whose company had previously
contracted with one of the parties. Nor does the option
agreement or the engagement agreement require disclosure of
28
potential conflicts of interest that could create the appearance
of bias. Buffalo-Water may not insert these conditions into its
contract with Fidelity through the side door of the covenant of
good faith and fair dealing. Because Buffalo-Water has alleged
no facts tending to show that Fidelity injured its rights under
the option agreement or the engagement agreement, we conclude
that the judge properly dismissed the claim for breach of the
implied covenant of good faith and fair dealing.14
Conclusion. For the reasons stated above, we affirm the
order allowing the defendant's motion to dismiss the complaint.
So ordered.
14Buffalo-Water contends that it was error for the judge to
dismiss its claim for breach of the covenant of good faith and
fair dealing without specifically referencing this claim or
providing a basis for the dismissal. "Findings of facts and
conclusions of law," however, "are unnecessary on decisions of
motions under Rule[] 12 . . . ." Mass. R. Civ. P. 52 (a), as
amended, 423 Mass. 1402 (1996). Furthermore, because we review
decisions on motions to dismiss de novo, our analysis is not
affected by the judge's lack of explanation. See Gabbidon v.
King, 414 Mass. 685, 686 (1993) ("on appeal, we may consider any
ground apparent on the record that supports the result reached
in the lower court").