Back Bay Spas, Inc. v. 441 Stuart Marketing, LLC

United States Court of Appeals
For the First Circuit
No. 11-1057
BACK BAY SPAS, INC.,
Plaintiff, Appellant,
v.
441 STUART MARKETING, LLC,
Defendant, Appellee,
FEDERAL DEPOSIT INSURANCE CORPORATION,
as Receiver for Corus Bank, N.A.,
Necessary Party, Appellee,
441 STUART STREET ASSOCIATES, LLC;
441 STUART STREET -- VEF V, INC.,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Lipez, Selya and Howard, Circuit Judges.
Sander A. Rikleen, with whom Mark R. Vernazza and Edwards
Angell Palmer & Dodge LLP were on brief, for appellant.
Lawrence M. Kraus, with whom Emily M. Kelley and Foley &
Lardner LLP were on brief, for appellee.
J. Scott Watson, with whom Sara A. Laroche, David E. Lurie and
Lurie & Krupp, LLP were on brief, for necessary party/appellee.
August 14, 2012
LIPEZ, Circuit Judge. Appellant Back Bay Spas, Inc.
("Back Bay"), seeks specific performance of a contract -- termed
the "Letter Agreement" -- giving it the right to purchase the space
it occupies in a building slated for conversion to condominium
units. Three factors complicate the scenario: (1) the other party
to the Letter Agreement needed the written consent of its mortgage
bank for the sale, but no such writing exists; (2) that would-be
seller no longer owns the condominium property, having lost it in
a foreclosure sale; and (3) the current owner, appellee 441 Stuart
Marketing, LLC ("Marketing"), is a subsidiary of the lender, Corus
Bank ("the Bank").
The district court found no basis for enforcing the
Letter Agreement against Marketing. It concluded that a
Massachusetts statute imposing obligations on lenders taking over
condominium developments after a foreclosure was inapplicable, see
Mass. Gen. Laws ch. 183A, § 22, and it rejected Back Bay's claim
that it was entitled to specific performance because the Bank had
consented to the deal by its conduct and silence. On appeal, Back
Bay does not challenge the adverse ruling on consent, arguing only
that the court erred in concluding that § 22 does not require
Marketing to carry out the Letter Agreement. Thus, in effect, Back
Bay argues for the first time on appeal that the Letter Agreement
is enforceable without the Bank's consent. This new theory is not
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only undeveloped, but, more importantly, it is too late. Hence, we
affirm summary judgment for Marketing.
I.
We review the district court's grant of summary judgment
de novo, taking the facts and any reasonable inferences drawn from
them in favor of the non-moving party. Barry v. Moran, 661 F.3d
696, 702-03 (1st Cir. 2011). Here, the material facts are
undisputed.
A. Factual Background
Appellant Back Bay has operated a women's health club at
441 Stuart Street in Boston since 1995, renting its space under a
long-term lease that is renewable through 2025. In May 2004, a
developer – 441 Stuart Street Associates, LLC ("Associates") –
purchased the building and subsequently obtained a zoning variance
allowing the premises to be converted into mixed-use condominium
units. Back Bay appealed the variance in April 2005, and, after
lengthy negotiations with Associates, agreed to drop its objections
to the redevelopment project in exchange for Associates' promise to
sell it a unit, identified as "Commercial Unit B," that essentially
consists of the space the health club occupies. Their "Letter
Agreement," signed in October 2005, called for the parties to enter
into a separate purchase and sale agreement within twenty-one days,
and it set a closing date for seventy-five days later, i.e., in
early January 2006.
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Under its construction mortgage and related loan
agreement with Corus Bank, Associates was required to obtain the
Bank's written consent for a sale of any condominium unit at 441
Stuart Street. See Mortgage, § 2; Loan Agreement, §§ 10.6, 11.6.1
The Loan Agreement also specified a minimum sales price for the
building's retail units that is higher than the price for
Commercial Unit B stated in the Letter Agreement. See Plaintiff's
Response to 441 Stuart Marketing, LLC's Statement of Undisputed
Material Facts ("Plaintiff's Response"), ¶¶ 30, 31. That deviation
from the Loan Agreement's terms also required written approval from
the Bank. Id. ¶ 32; see also Loan Agreement § 15.6(a) ("No waiver
of any provision of this Agreement or any other Loan Documents
shall be effective unless set forth in writing signed by Lender
. . . ."). Despite these explicit limitations on Associates'
1
The mortgage document, titled Construction Mortgage,
Security Agreement, Assignment of Rents, and Fixture Filing
("Mortgage"), includes a provision, titled "Prohibition on Sale,"
stating that no sale of any portion of the building is permitted,
but that
Lender may, in its sole discretion, consent to a sale
. . . and expressly waive this provision in writing to
Borrower . . . . Lender's ability to consent to any sale
. . . implies no standard of reasonableness in
determining whether or not such consent shall be granted
and the same may be based upon what Lender solely deems
to be in its best interest . . . . [A]ny sale . . . of
. . . the Premises . . . made, created or permitted in
violation of this provision shall be null and void
. . . .
Mortgage, § 2.
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authority to carry out the deal outlined in the Letter Agreement,
that Agreement did not mention the need for consent and no document
showing the Bank's approval was obtained.
Back Bay, however, was aware of the consent requirement.
Its president, Mark Harrington, acknowledged in an affidavit that
he had been repeatedly told during the negotiations leading to the
Letter Agreement that Associates "could not enter into the Letter
Agreement or agree to terms we were negotiating without approval of
Corus Bank." In addition, in August 2004, more than a year before
the parties completed that agreement, Back Bay had signed a
Subordination, Non-Disturbance and Attornment Agreement ("the
SNDAA") with Associates and the Bank that referenced the mortgage.
The SNDAA stated that Back Bay's lease would be subordinated to the
mortgage, but it protected the health club's rights under the lease
and provided that a foreclosure on the mortgage would not terminate
the lease. See Plaintiff's Response, ¶ 18. Back Bay thus had at
least constructive notice of the written consent requirement, as
contained in the publicly recorded mortgage, well before it
challenged the variance and negotiated the settlement with
Associates. The Loan Agreement is specifically referenced on the
first page of the Mortgage.
Harrington further stated in his affidavit, however, that
he had been assured by Associates that the Letter Agreement had
been approved by the Bank. He asserted that Back Bay had "relied
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upon these assurances and Corus Bank's silence in agreeing to
settle the Zoning Appeal." He continued:
Back Bay Spas would not have executed the
Letter Agreement and dismissed the Zoning
Appeal if there was any doubt as to Corus
Bank's assent or as to conveyance of
Commercial Unit B free and clear of the Corus
Bank mortgage.
It is undisputed that the Bank was aware of the negotiations
leading to the Letter Agreement and that the Bank official
responsible for the project had reviewed an unsigned version of the
contract, but there is no evidence in the record that Bank
officials ever directly communicated with Back Bay. See Defendant
441 Stuart Marketing LLC's Response to Plaintiff's Statement of
Additional Material Facts ("Marketing Response"), ¶¶ 70 (Response),
79 (Response); Affidavit of Paul Carlson, ¶ 12; Carlson Deposition,
at 25.
Beginning with Back Bay's challenge to the variance,
Associates encountered serious difficulties in moving forward with
the condominium project. See Marketing Response, ¶¶ 68, 73
(Response); Plaintiff's Response, ¶ 43. Associates' loan agreement
originally required it to obtain the necessary permits and begin
construction by March 31, 2005, but the developer's inability to
obtain a variance until Back Bay withdrew its appeal delayed
issuance of a building permit and, consequently, there was neither
a permit nor a construction contract at the time the Letter
Agreement was signed in October 2005. See Plaintiff's Response,
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¶¶ 10, 43; Marketing Response, ¶ 68. In addition, because of the
project delays, the Bank had stopped advancing funds on the loan in
the summer of 2005. Plaintiff's Response, ¶ 24.
The building permit eventually issued in March 2006, and
Associates recorded the condominium master deed in June 2006. Both
events occurred well after the January closing date specified in
the Letter Agreement for Back Bay's purchase of Commercial Unit B.
As time passed, various disputes arose between Back Bay and
Associates about terms of the Letter Agreement, including the delay
in the closing. See Plaintiff's Response, ¶ 52; Marketing
Response, ¶ 96.
B. Litigation Background
In September 2006, Back Bay filed this action in a
Massachusetts state court seeking specific performance of the
Letter Agreement and breach of contract damages against Associates;
Associates filed a counterclaim seeking rescission of the Letter
Agreement. Back Bay's complaint also alleged violation of
Massachusetts' deceptive business practices act, Mass. Gen. Laws
ch. 93A, against Associates and a related entity.2 The Bank was
named as a necessary party for the specific performance claim.
Meanwhile, Associates' plans for 441 Stuart Street
remained unrealized. Although the maturity date for Associates'
2
Defendant 441 Stuart Street – VEF V, Inc. is a part owner of
Associates.
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loan was extended three times, the Bank declared the developer in
default in early 2009 and foreclosed on the mortgage in April 2009.
After the Bank was the winning bidder at a public auction, it
created a subsidiary, 441 Stuart Marketing, LLC ("Marketing"), to
take title to the property. Back Bay then amended its complaint to
add a count of specific performance against Marketing. The Bank
subsequently failed, and the Federal Deposit Insurance Corporation
("FDIC") was appointed receiver. After the FDIC was substituted
for the Bank as a necessary party in the litigation, the agency
removed the lawsuit to federal court.
Shortly thereafter, Marketing moved for summary judgment
on the ground that the foreclosure sale had extinguished any rights
Back Bay held under the Letter Agreement with Associates. In its
response, Back Bay argued, inter alia, that Marketing was required
to honor the Letter Agreement based on a Massachusetts statute
providing that a lender taking over a condominium development must
assume "any obligations the developer has with the unit owners and
to the tenants." See Mass. Gen. Laws ch. 183A, § 22. Back Bay
contended that summary judgment was improper "because genuine
issues of material fact exist as to whether Stuart Marketing and
Corus Bank are the lender taking over the project" within the
meaning of section 22. Plaintiff's Opposition to 441 Stuart
Marketing, LLC's Motion for Summary Judgment, at 8.
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The district court rejected the applicability of section
22 and granted judgment for Marketing. It held that Back Bay's
interest in Commercial Unit B was junior to the Corus mortgage and,
under ordinary real estate principles, the commitment to sell the
unit did not survive the foreclosure. Section 22 did not modify
the generally applicable principles in the circumstances of this
case, the court concluded, because Back Bay's allegations did not
arise from its tenancy and it was not a unit owner. See Opinion at
6 ("Back Bay does not allege any breach of its rights as a tenant,
and the company brings this lawsuit because it is not a unit
owner.").
The court also rejected Back Bay's argument, based on the
principle of equitable estoppel, that the Letter Agreement was
enforceable because the Bank had consented to the sale of
Commercial Unit B by its silence. The court pointed to multiple
factors undermining the assertion of consent-by-silence: (1) the
explicit requirements for written consent in the Loan Agreement and
Mortgage, (2) Associates' verbal disclosure of the consent
requirement, (3) a purchase price for the unit that was
"substantially below the minimum price specified in the Loan
Agreement,"3 (4) the absence of evidence that "the Bank
3
It is undisputed that the price was "approximately 30% below
the lower threshold price at which the Bank could not unreasonably
withhold consent." Plaintiff's Response to 441 Stuart Marketing,
LLC's Statement of Undisputed Material Facts, at ¶ 31.
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affirmatively communicated its consent, in writing or otherwise,"
and (5) Associates' acknowledgment of the lack of consent in
correspondence with the Bank in July 2006 – nine months after the
Letter Agreement was signed.4 The court further cited the
"significant, and ultimately insurmountable, obstacles" to
completion of the condominium project, including the Bank's cutoff
of loan funds and the lack of a building permit or construction
contract, which made it "unreasonable for plaintiff to infer
consent from silence."
The district court's order also addressed a motion to
dismiss filed by the FDIC. In granting the motion, the court
4
The July 2006 letter, signed by attorney Jonathan Gold for
Associates, stated that the Master Deed for the condominium project
had been filed without the Bank's consent, "on an emergency basis,"
because of ongoing negotiations with Back Bay about the parties'
mutual obligations under the Letter Agreement and Back Bay had been
pressing for a firm closing date. Gold also stated:
Obviously, the sale of Commercial Unit B also requires
the Lender's consent. You have our assurances that
Commercial Unit B will not be sold without first
obtaining the Lender's consent to the transaction.
The record contains an affidavit from the Bank official primarily
responsible for the project, Paul Carlson, acknowledging awareness
of the negotiations leading to the Letter Agreement and stating his
belief that Associates "would, in advance of executing the purchase
and sale agreement described in the Letter Agreement, make a formal
request to the Bank for approval of the transaction described in
the Letter Agreement." Carlson Affidavit, ¶¶ 12, 13. Carlson also
testified in deposition that the Bank was never asked to approve or
reject the Letter Agreement. He did, however, acknowledge that he
had seen an unsigned draft of the Agreement, but that the Bank had
neither objected to it nor given approval, and he stated that the
Bank "did not dissent or approve or object [to]" any of the terms
in the final version of the document.
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explained that the government agency was no longer a necessary
party in light of the judgment in favor of the current property
owner, Marketing. The court subsequently denied Back Bay's motion
for reconsideration, as well as its request that the court certify
to the Massachusetts Supreme Judicial Court a question concerning
the application of section 22. After the district court entered
final judgments in favor of Marketing and the FDIC, see Fed. R.
Civ. P. 54(b),5 Back Bay filed this appeal challenging the judgment
for Marketing.6
II.
On appeal, Back Bay focuses on section 22, the
Massachusetts statute imposing successor liability on lenders who
foreclose on, and take over, condominium developments. In full,
the provision states:
§ 22. Foreclosure of condominium development;
liability of lender and developer
In the event of a foreclosure upon a
condominium development, the lender taking
over the project shall succeed to any
obligations the developer has with the unit
5
In granting those judgments before the entire case was
resolved, the district court noted that the remaining claims
against Associates for breach of contract and violation of chapter
93A were "different in kind and scope from those against the other
parties."
6
Back Bay has not appealed the FDIC's dismissal from the
case, but such a challenge would in any event have been unavailing
given our disposition. We note that the FDIC's departure from the
action does not divest the federal court of jurisdiction. See
Destfino v. Reiswig, 630 F.3d 952, 958 (9th Cir. 2011).
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owners and to the tenants, except that the
developers shall remain liable for any
misrepresentation already made and for
warranties on work done prior to the transfer.
Mass. Gen. Laws ch. 183A, § 22. Back Bay argues that Marketing
must provide specific performance of the Letter Agreement because
the circumstances here plainly fit within the language of the
statute: Marketing (1) is effectively a lender, as it stands in
the shoes of its parent, Corus Bank; (2) it has taken over the
condominium project; and (3) the Letter Agreement is an obligation
to a tenant, i.e., Back Bay. The district court took issue with
Back Bay's showing on the third of these elements, observing that
the statute did not apply because Back Bay had failed to "allege
any breach of its rights as a tenant."
Even if the district court were wrong about the statute's
scope, Back Bay's claim for specific performance would founder. It
is undisputed that the Bank's written consent was a prerequisite
for the conveyance of Commercial Unit B to Back Bay. Back Bay's
response to Marketing's motion for summary judgment acknowledged
that requirement, and Back Bay forcefully argued that the Bank
manifested consent through its actions and silence.7 Back Bay lost
7
In its Opposition to Marketing's Motion for Summary
Judgment, Back Bay stated:
Corus Bank had the right to approve or reject the
proposed sale of Commercial Unit B contained in the
Letter Agreement . . . , and as Corus Bank acknowledged,
the price of Commercial Unit B was material to the Bank
since it constituted part of the Bank's collateral
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that argument, however, and it does not appeal the adverse ruling.
Indeed, its opening brief entirely ignores the issue of consent and
focuses solely on whether the Letter Agreement is an obligation to
a tenant covered by § 22. For the first time in its reply brief,
Back Bay asserts that Marketing can be ordered to abide by the
Letter Agreement in the absence of the Bank's consent because the
Agreement does not itself record the consent requirement.
But having chosen its theory of the case below, and
failed, Back Bay cannot start over. See Sotirion v. United States,
617 F.3d 27, 39 n.10 (1st Cir. 2010) ("It is a bedrock rule that
when a party has not presented an argument to the district court,
she may not unveil it in the court of appeals." (quoting United
States v. Slade, 980 F.2d 27, 30 (1st Cir. 1992) (internal
. . . . Nevertheless, Corus Bank never objected while
the parties changed their positions and Back Bay Spas
began to spend considerable sums in anticipation of its
purchase of Commercial Unit B . . . . These actions
evidence Corus Bank's consent to settlement of the Zoning
Appeal, the Letter Agreement and the parties' performance
thereunder, and the condominium master deed. . . . By
its conduct, Corus Bank provided its consent to all terms
of the Letter Agreement, including the sale price and any
requirement associated with it.
Opposition, at 9-10. In a separate section of the Opposition, Back
Bay argued that the Bank "[r]epresented its [c]onsent to the Letter
Agreement by its [c]onduct and [s]ilence." Id. at 12. Back Bay
further stated that it "would not have executed the Letter
Agreement and dismissed the Zoning Appeal if it had any doubt as to
Corus Bank's assent" and argued that "Corus Bank's own conduct and
its silence amount to misrepresentations concerning its intent to
forgo some of its contractual and property rights in order to
facilitate the development of the Premises." Id. at 13.
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quotation marks omitted)); Teamsters, Local No. 59 v. Superline
Transp. Co., 953 F.2d 17, 21 (1st Cir. 1992) ("If any principle is
settled in this circuit, it is that, absent the most extraordinary
circumstances, legal theories not raised squarely in the lower
court cannot be broached for the first time on appeal.").
Moreover, Back Bay does not explain why the consent requirement
should suddenly be deemed unenforceable despite both parties'
previously undisputed understanding that it was a necessary element
of the transaction. Contrary to Back Bay's assertion, the mere
fact that the Letter Agreement does not contain an explicit consent
provision is an insufficient basis for cancelling the requirement.
Massachusetts law allows such prerequisites to be implied from the
circumstances. See Rizika v. Donovan, 695 N.E.2d 1097, 1101 (Mass.
App. Ct. 1998) ("In order for performance to depend on the
occurrence of a condition, the condition must be expressed, unless
a court implies the existence of the condition from the
circumstances of the contract."). Back Bay's repeated
acknowledgment that the Bank's consent was a condition for the
conveyance of Commercial Unit B is reason enough to imply such a
requirement in the Letter Agreement. See Mass. Mun. Wholesale
Elec. Co. v. Town of Danvers, 577 N.E.2d 283, 289 n.5 (Mass. 1991)
("Extrinsic evidence of a condition precedent must indicate a clear
intent which is expressly stated." (citing Tilo Roofing Co. v.
Pellerin, 122 N.E.2d 460, 462 (Mass. 1954), and noting in a
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parenthetical describing Tilo Roofing that an "express condition
[was] created orally at the time of agreement").
Back Bay's concession also eliminates any parol evidence
or statute of fraud concerns. Neither party is seeking to vary or
modify the terms of the deal outlined in the Letter Agreement, see,
e.g., Kobayashi v. Orion Ventures, Inc., 678 N.E.2d 180, 184 (Mass.
App. Ct. 1997) ("The parol evidence rule only bars the introduction
of prior or contemporaneous written or oral agreements that
contradict, vary, or broaden an integrated writing."), or to
enforce a promise that is not memorialized in the Letter Agreement,
see, e.g., Harrington v. Fall River Hous. Auth., 538 N.E.2d 24, 29
(Mass. App. Ct. 1989) ("In order to satisfy the Statute of Frauds,
the writing must incorporate the promise that the plaintiff seeks
to enforce."). In short, in the circumstances here, the consent
requirement did not need to be in writing to be enforceable. See
Tilo Roofing, 122 N.E.2d at 462 ("It is settled that a condition
precedent to the taking effect of a written instrument may be shown
by parol [evidence].").8
8
We reject Back Bay's attempt in its reply brief to equate
the situation here to those in which courts, in the absence of
contingency provisions, have enforced contracts despite later
events that frustrated one party's expectations. Back Bay argues
that, because Associates unconditionally promised to sell
Commercial Unit B to Back Bay, Associates' failure to obtain the
Bank's consent does not relieve Associates from its promise. This
contention is a variation on its new argument that the Bank's
consent was not an element of the Letter Agreement because it was
not included in the document. As we have explained, Back Bay must
live with the view of consent presented to the district court,
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Back Bay's failure on appeal with regard to Marketing
does not mean that it is inevitably without a remedy if it proves
it was wronged. Back Bay's claims remain pending against
Associates, but we take no view about their viability. We thus
affirm the district court's grant of summary judgment for Marketing
and the FDIC. Appellant's motion to certify a question to the
Massachusetts Supreme Judicial Court is denied.9
So ordered.
i.e., that the Bank's consent was a known and necessary element of
the deal outlined in the Letter Agreement.
9
Given our conclusion that § 22 does not govern the outcome
of this case, there is no basis for certifying a question
concerning the statute's scope to the Massachusetts Supreme
Judicial Court. See Mass. S.J.C. Rule 1:03(1) (providing authority
to answer certified questions where, inter alia, "questions of law
of this state . . . may be determinative of the cause then pending
in the certifying court").
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