Edlow v. RBW, LLC

United States Court of Appeals
For the First Circuit
No. 10-1746
KENNETH EDLOW,
Plaintiff, Appellant,
v.
RBW, LLC,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Lipez, Circuit Judge,
Souter,* Associate Justice,
and Howard, Circuit Judge.
Diane Rubin, with whom Jeffrey J. Pyle, Joshua A. Lewin and
Prince, Lobel, Glovsky & Tye LLP were on brief, for appellant.
Richard D. Batchelder, Jr., with whom William J. Dunn and
Ropes & Gray were on brief, for appellee.
August 8, 2012
*
Hon. David H. Souter, Associate Justice (Ret.) of the Supreme
Court of the United States, sitting by designation.
HOWARD, Circuit Judge. This action, removed from
Massachusetts Superior Court, involves residential condominium
units in a development along Boston's Battery Wharf. Plaintiff
Kenneth Edlow appeals the 12(b)(6) dismissal of his suit against
the developer RBW, LLC, in which he sought to rescind his purchase
of a condominium unit, to recoup his deposits on a second unit, and
to recover damages. Mr. Edlow also appeals the district court's
denial of his motion to amend his complaint.
I.
As presented in the complaint and documents incorporated
therein, the facts alleged are as follows.1 In the fall of 2004,
Edlow entered into three nearly identical purchase and sale ("p &
s") agreements with RBW for the purchase of three residential
condominium units in RBW's Battery Wharf Development project. The
Master Deed and Condominium Documents explained that the project
was a luxury development consisting of a Residential Unit (which
included Edlow's units at issue here), a Commercial Unit, and a
Hotel Unit (the "Hotel"). At the time that the p & s agreements
were executed, it was anticipated that the Regent Hotel group would
operate the Hotel as the "Regent Boston," and the residential unit
occupants would have privileged access to the Hotel's "first-rate"
1
These documents include "RBW's marketing materials
[including the Condominium Presentation], the condominium documents
[including the Master Deeds of Battery Wharf Master Condominium,
the Residences Condominium, and the Commercial Condominium], and
the Purchase and Sale Agreements."
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amenities and concierge services. According to the marketing
materials that Edlow received from RBW, the Regent Boston was to
offer an 18,000 square foot Guerlain spa, over 5,000 square feet of
meeting space, and a signature restaurant by Michelin chef Guy
Martin. The hotel services were to include 24-hour concierge
service and an executive business center.
Edlow's closings were scheduled to take place by June
2007, with prices set at $1,800,000 for the first unit and
$3,200,000 for each of the other two units. Over an eighteen-month
period beginning when the p & s agreements were entered into in
2004, Edlow paid promised deposits of varying amounts in three
installments, totaling twenty percent ($1,640,000) of the combined
purchase price.
When construction on the project fell behind, RBW
exercised its rights to extend the closing dates several times.
Concerned by this anemic progress, Edlow visited the site in April
2008. It was clear to him during that visit that the Hotel was not
yet ready and that no restaurant or spa yet existed. RBW
representatives nevertheless assured him that the project was
proceeding and that "all promised amenities would be available."
During the next month, the parties negotiated a revised
agreement. Under this new agreement, Edlow would affirm his
commitment to purchase two of the units. He would be released from
the obligation to buy one of the more expensive units, and it was
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agreed that his $640,000 deposit on that unit would be put toward
the imminent purchase of the first of the two remaining units. The
new agreement contemplated that the parties would close on the sale
of the second remaining unit on August 15, 2008 and that they would
otherwise perform under the terms of the prior agreements. The
closing for the first unit took place on May 15, 2008.
In early June, RBW informed Edlow in writing that Regent
was pulling out of the project and that the restaurant and spa were
now scheduled to open in early 2009. In early July, RBW also
informed him that the replacement hotel would not offer the
property management and concierge services that were discussed in
the original marketing materials. Despite having received these
notices, Edlow executed the new agreement on July 27, 2008.
Days later, Edlow notified RBW that he would not attend
the scheduled August 15 closing on the second unit, and he demanded
the return of his deposits on that unit. He now justifies his
withdrawal by arguing that at the time, the project was far from
completion. He emphasizes that it had no hotel or hotel operator,
no spa, no restaurant, no business center, "nor any of the other
elements of the promised package of lifestyle amenities."
After the passage of several months, Edlow reasserted his
demand for the return of his deposits on the second unit. In
November 2009 he sued in Massachusetts state court. He alleged
that as of the date of his complaint, "RBW had still failed to
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deliver the complete package of promised amenities and lifestyle
commitments for Battery Wharf." The complaint did not specify
which amenities and lifestyle commitments had yet to be delivered,
but it did allege that RBW knew at the time of Edlow's April 2008
site visit that the hotel, restaurant, and spa would not be ready
by the scheduled August closing because Regent was no longer
involved in the project. The complaint asserted that RBW
intentionally and negligently misrepresented the project's status
to induce him into agreeing to purchase the remaining units under
the new agreement. In addition, Edlow alleged that RBW violated
the "notice and delivery" requirements of § 9(3) of the p & s
agreement by failing to timely inform him of "secret,"
"substantive" modifications to the Master Deed of the Battery Wharf
Condominium.2
Based on these allegations, Edlow's suit asserted various
contract, tort and statutory claims, and it sought both damages and
equitable relief, including rescission of his purchase of the first
unit. RBW removed the case to federal court and sought dismissal.
Shortly after a hearing on the motion to dismiss, Edlow sought
leave to amend his complaint to "clarify and expand upon the
factual bases of that claim." The district court granted RBW's
2
The modifications include the addition of "three prime,
valuable waterfront patio areas to the limited common areas under
the control, and for the exclusive use of, the Hotel Unit, at the
expense of the amenities and value of the residential
condominiums."
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motion to dismiss and denied the motion to amend as moot. This
appeal followed.
II.
Review is de novo, and our "sole inquiry . . . is
whether, construing the well-pleaded facts of the complaint in the
light most favorable to the plaintiff[], the complaint states a
claim for which relief can be granted." Ocasio-Hernández v.
Fortuño-Burset, 640 F.3d 1, 7 (1st Cir. 2009); see also Fed. R.
Civ. P. 12(b)(6) (providing review for failure to state a claim).
In making our inquiry, we are "not wedded to the lower court's
rationale and may affirm the district court's order of dismissal on
any ground made manifest by the record." Decotiis v. Whittemore,
635 F.3d 22, 28 (1st Cir. 2011) (internal quotation marks omitted).
Although Edlow is not required to provide detailed factual
allegations "to provide the grounds of his entitlement to relief,"
he must articulate "more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not
do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(internal citations omitted). Because jurisdiction is based on
diversity, 28 U.S.C. § 1332, we look to Massachusetts law for the
elements of Edlow's claims. See Andrew Robinson Int'l, Inc. v.
Hartford Fire Ins. Co., 547 F.3d 48, 51 (1st Cir. 2008).
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A. Breach of Contract
The breach of contract claims were properly dismissed
because the complaint does not plausibly plead a breach of any
contractual duty. The plaintiff's position is that RBW "was
unwilling or unable fully to perform" its contractual obligations;
that it failed to provide certain amenities allegedly promised as
part of the bargain; and that it "engag[ed] in a pattern of
obfuscation and misrepresentation concerning the status of the
project[] and its delays and setbacks." Edlow also says that RBW
"made substantive modifications to the Master Deed" of the overall
condominium without the notice called for by § 9(e) of the p & s
agreements.
1. The Allegedly Promised Amenities
Edlow's position is that RBW had a duty to provide
certain promised amenities. In making this claim, the complaint
refers to not only the p & s agreement,3 but also to the marketing
materials, to oral statements made by RBW representatives, and to
the Condominium Presentation's incorporated materials.4 Of the
3
For ease of exposition, we sometimes refer to the p & s
agreements in the singular where the agreements contain identical
provisions.
4
As described in section 9(a) of the p & s agreement, the
Condominium Presentation consisted of "(i) the current forms of the
Residences Condominium Documents, the Master Condominium Documents,
the Commercial Condominium Documents, the Deed and the Parking
Documents, (ii) a proposed estimated budget for the Residences
Condominium for its initial year of operation, (iii) the Project
Outline Specifications; (iv) the form of Certificate of Limited
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documents and communications referred to in the complaint, however,
only the marketing materials and the alleged oral statements by RBW
representatives discussed specific details of alleged promised
amenities (e.g., a "Guerlain" spa, in contrast to a hotel spa; a
"three-star Michelin" restaurant, rather than a hotel restaurant;
and a "Regent" hotel, instead of a generic four-star hotel). But
neither the marketing materials nor the oral statements were
incorporated into the p & s agreement, and that agreement contains
an unambiguous merger clause preventing their consideration. See
Sound Techniques, Inc. v. Hoffman, 737 N.E.2d 920, 924 (Mass. App.
Ct. 2000) (agreed upon and unambiguous merger clauses are effective
unless fraud or deceit induced the contract, and thus they apply
notwithstanding negligent oral misrepresentations). The primary
merger clause reads as follows:
The terms of this Agreement, together with the
Condominium Presentation, constitute the entire agreement
between the parties hereto and no statements made whether
orally or in writing, by anyone with regard to the
transaction which is the subject of this Agreement shall
be construed as a part hereof unless the same be
incorporated herein by writing and signed by Seller and
Buyer. Buyer has relied only upon the warranties and
representations set forth in this Agreement, if any, and
Buyer hereby waives, to the extent permitted by law any
and all implied warranties. No oral warranties,
representations or statements shall be considered a part
hereof.
Warranty for the Unit and Common Area Limited Warranty Certificate;
(v) the form of Tax Letter Agreement; (vi) the form of the 6(d)
certificates and Parking Unit expense certificate; and (vii) a
Specimen Owner's Title Insurance Policy and related title
information."
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P & s agreement § 21 (emphasis added); see also id. § 9(b) ("Seller
expressly disclaims any representations and warranties not
expressly made in this Agreement in writing concerning the
condition of the Unit or common areas and facilities . . . or any
other matter . . . ." (emphasis added)); id. § 9(d) ("Other than as
expressly set forth in this Agreement, . . . Buyer is not aware of
and does not rely upon any such representations."); id. § 16(b)
("The foregoing warranties shall constitute the only warranties
. . . . Seller makes no other warranty or representation
whatsoever or implied with respect thereto." (additional emphasis
omitted)).
This unambiguous merger language and the fact that the
p & s agreement makes no mention of the marketing materials, either
directly or by incorporation through the Condominium Presentation,
place whatever those materials might say about the allegedly
promised amenities beyond the contractual obligations of RBW.
Nor can the additional written terms of the p & s
agreement and the Master Deeds save this claim. Although the
agreement references the Commercial and Hotel Units, it does not
specify amenities to be included within those units, let alone any
particular level of any amenity. Section 7 of the agreement
describes what "Necessary Facilities" RBW does agree to
"substantially complete[]" by the closing date and what parts of
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the project may not be completed by the closing date,5 but nowhere
does that section discuss amenities such as a three-star Michelin
restaurant or a Guerlain spa.
The p & s agreement also provides, in § 7(d), that the
"Buyer may not refuse to consummate Closing on account of
construction work in progress or pending with respect to other
units and/or the common areas and facilities . . . ." According to
the complaint, two of the amenities that he was most concerned
about -- the Michelin restaurant and Guerlain spa -- were pending
at the time of the scheduled closing, as RBW had stated that they
were scheduled to open in early 2009; therefore, they could not
have been grounds for refusing to close.6
The Condominium Presentation, by means of the explicitly
incorporated Master Deeds, mentions some amenities in general
terms, but it does not promise to provide specific amenities.
Rather, the Deeds discuss amenities in the broader, and negative,
context of reserving RBW's rights to include certain types of
5
This section of the p & s agreement defines "Necessary
Facilities" as "the Unit, and the common areas and facilities
necessary for access thereto and use thereof . . . ." Parts that
RBW is not obligated to complete are described as including those
whose "incompleteness . . . will not unreasonably prevent the
occupancy of the Unit or use of the Necessary Facilities," and
"finishes in hallways and lobbies need not be completed until unit
construction on the floor on which the Unit is located is
completed."
6
The record indicates that both the Michelin restaurant and
a hotel actually opened at least ten months prior to the filing of
Edlow's complaint.
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amenities within the project.7 The Deeds' language conveys an
intention to authorize RBW to use the Commercial and Hotel Units
for such amenities, but it does not state RBW will provide
particular amenities.
Where there is no obligation to provide under a contract,
there can be no breach of that obligation. Accordingly, Edlow's
claims of breach that rest on the allegedly promised amenities
necessarily fail.
2. Changes to the Master Deed
The complaint also alleges that RBW breached § 9(e) of
the p & s agreement by substantively modifying the Master Deed of
the Master Condominium to add patios to the limited common areas of
the Battery Wharf complex for the exclusive use of the Hotel Unit,
7
Section 8(a) of the Master Deed of the Master Condominium
provides that "[t]he Building and the Master Units may be used for
any lawful purpose not otherwise prohibited by the terms and
provisions of this Master Deed, . . . including, without
limitation, use for a hotel (including restaurants, bar and meeting
rooms), spa, health or fitness club, restaurants, parking garage
. . . and retail facilities, multi-family residences and time-share
hotel units." (Emphasis added). In addition, § 8(b)(8) restricts
the uses of the Commercial Unit, stating that it "shall be used
only for restaurants and food service, retail facilities selling
goods (but not services) at retail, spa, health or fitness club and
parking garage . . . and uses accessory thereto." (Emphasis
added). Similarly, § 8(a) of the Master Deed of the Commercial
Condominium states that "[t]he portion of the Building constituting
the Commercial Condominium and the Units are intended to be used
primarily for hotel (including restaurants, bar and meeting rooms),
spa, health or fitness club, restaurants, parking garage . . . and
retail facilities and related purposes not otherwise prohibited by
the terms and provisions of this Master Deed . . . ." (Emphasis
added).
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and that RBW did this without giving the plaintiff required notice.
Section 9(e) of the p & s agreement states in relevant part:
The Seller reserves the right, upon notice and delivery
of a copy to Buyer, prior to the Closing Date, to make
such modifications, additions or deletions in or to any
of the Residences Condominium Documents, Master
Condominium Documents, Deed or Parking Documents as
Seller may reasonably determine to be desirable in
connection with the development and marketing of the
Project or to meet the requirements of any applicable law
or regulation, . . . provided that no such modification,
addition or deletion shall (i) impose any additional
restrictions on the use of the Unit; (ii) require a
material physical modification of the layout, location,
size or features of the Unit; or (iii) eliminate the
right to use any area designated for the exclusive use of
the Unit.
(Emphasis added). Section 15 states that "[a]ny notice . . . shall
be in writing and shall be deemed to have been properly given when
mailed, . . . or when hand delivered or sent by a recognized
overnight courier service, or when sent by facsimile by confirmed
transmission . . . ."
Whatever the plaintiff's frustration with these changes,
we do not see how they were impermissible under § 9(e): they do
not "impose any additional restrictions on the use of [his units]";
"require a material physical modification of the layout, location,
size or features of [his units]"; or "eliminate the right to use
any area designated for the exclusive use of [his units or the
Residential Unit as a whole]." (Emphasis added). Furthermore,
sections 5(d), (e) and (f) of the p & s agreement are consistent
with RBW's right to burden the master deeds and to modify its
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obligations under those deeds upon proper notice to buyers. Those
sections provide that RBW's promise to convey the individual unit
deeds in the form presented in the Condominium Presentation, as
well as free from liens and encumbrances, is subject to "the
rights, obligations, easements and restrictions and all other
provisions contained in" the master deeds (and related by-laws and
regulations) of the Master Condominium, Residences Condominium, and
Commercial Condominium.
The question, at least so far as concerns the unit as to
which the closing never took place, is whether the complaint
plausibly alleges that RBW failed to meet its obligation to
"noti[fy] and deliver a copy" of the modifications to Edlow prior
to the scheduled closing. We conclude that it does not. First,
Edlow does not assert that he never received a copy of the modified
Master Deed.8 Rather, he argues that he was not effectively
notified, for the "modifications were obscurely buried in the text
of the Master Deed . . . and the accompanying plans and were not
clearly featured or otherwise mentioned to [him]." But this
constructive non-delivery argument ignores the definition of
satisfactory notice included in § 15 of the p & s agreement, which
8
The parties enthusiastically dispute whether Edlow received
a copy of the modified Master Deed in conjunction with the purchase
of the first unit. The complaint, however, does not allege that
Edlow never received a copy, and he did not attempt to correct this
alleged misinterpretation by clarifying the facts in his proposed
Amended Complaint.
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states nothing about having to "feature[] or otherwise mention[]"
to him the individual changes in order to effectuate notice; it
simply calls for "a copy . . . of the . . . Documents" that have
been modified to be delivered to him.
Second, the closing was not scheduled to occur until
August 15, and under § 9(e) RBW's obligation was only to notify
Edlow of the modifications before that date. Id. § 9(e) ("notice
and delivery" must occur "prior to the Closing Date" (emphasis
added)). Even were we to assume that Edlow did receive a copy of
the modified Master Deed in conjunction with the closing on the
first unit but that such delivery did not satisfy the notice
requirements of § 9(e) regarding the closing on the second unit, at
the time that Edlow balked RBW still had an entire week remaining
to act before it would have been in breach. The plaintiff cannot
now successfully complain that RBW breached its notification
obligations under § 9(e) because it failed to act before a closing
that he effectively cancelled. Although, on a motion to dismiss,
we review "the well pleaded facts in the light most favorable to
the plaintiff, we need not 'swallow [his] invective hook, line, and
sinker.'" Palmer v. Champion Mortgage, 465 F.3d 24, 28 (1st Cir.
2006) (citing Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir. 1996)).
Because the complaint does not plausibly allege that RBW failed to
honor its duty to provide notice under § 9(e) prior to the aborted
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closing on the second unit, no claim of a breach of § 9(e) has been
stated as to that unit.
The claim with respect to the unit on which Edlow did
accept delivery of title also, as noted in footnote 8 above,
amounts to a challenge to the adequacy of the notice received,
rather than an allegation that no notice was given. But again the
agreement did not require any highlighting, featuring, or any
specific mentioning of the changes made. Whether or not there is
a conceivable case for relief, this is not a plausible one, and
thus the complaint similarly fails to state a claim regarding this
unit. Sepúlveda-Villarini v. Dep't of Educ. of P.R., 628 F.3d 25,
29 (1st Cir. 2010) ("The make-or-break standard . . . is that the
combined allegations, taken as true, must state a plausible, not a
merely conceivable, case for relief.").9
9
Along with his breach of contract claims, the plaintiff also
seeks to rescind his purchase of the first unit. Massachusetts
expects actions for rescission to "be brought with reasonable
promptness," Elias Bros. Rests., Inc. v. Acorn Enters., Inc., 831
F. Supp. 920, 927-28 (D. Mass. 1993) (internal quotation marks and
citation omitted), yet the plaintiff waited almost a year and a
half from the time that he purchased the first unit to file his
claims. Moreover, he has not averred that the p & s agreement for
either unit lacked consideration or that RBW had repudiated it.
See Worcester Heritage Soc'y, Inc. v. Trussel, 577 N.E.2d 1009,
1010 (Mass. App. Ct. 1991) ("There is ample authority for refusing
rescission where there has been only a breach of contract rather
than an utter failure of consideration or a repudiation by the
party in breach."). Having failed to state even a breach claim as
to either unit, Edlow is not entitled to rescission as a remedy.
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B. The Covenant of Good Faith and Fair Dealing
Edlow argues that RBW breached the covenant of good faith
and fair dealing by "fail[ing] to construct and deliver the
promised facilities and amenities for the Battery Wharf
Development," by refusing to return his deposits on the second unit
that it had retained as liquidated damages, by withholding critical
information, and by modifying the umbrella Master Deed without
giving proper notice under the p & s agreement.
In Massachusetts, "every contract is subject to an
implied covenant of good faith and fair dealing," Anthony's Pier
Four, Inc. v. HBC Assocs., 585 N.E.2d 806, 821 (Mass. 1991), but
"[t]he scope of the covenant is only as broad as the contract that
governs the particular relationship." Ayash v. Dana-Farber Cancer
Inst., 822 N.E.2d 667, 684 (Mass. 2005); see also Uno Rests., Inc.
v. Boston Kenmore Realty Corp., 805 N.E.2d 957, 966 (Mass. 2004)
("[T]he covenant of good faith and fair dealing is not to supply
contractual terms that the parties are free to negotiate."). As
explained above, RBW did not have a contractual duty to provide
Edlow's desired lifestyle amenities by the closing date. Because
RBW was not obligated under the contract to provide the amenities,
it could not have breached the covenant as to them, and the claims
regarding them necessarily fail.
Edlow also alleges that RBW violated the covenant of good
faith and fair dealing by retaining his deposits as liquidated
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damages. That action, however, was expressly permitted by the
agreement. Without a plausible allegation of bad faith, this claim
stumbles. Equipment & Sys. for Indus. Inc. v. Northmeadows Constr.
Co., 798 N.E.2d 571, 575 (Mass. App. Ct. 2003) (dismissing covenant
claim under Rule 12(b)(6) because "there is nothing in the
complaint from which one might draw the reasonable inference that
the [alleged breach] was done in bad faith").
Similarly, with respect to the modifications of the
Master Deed, not only is no plausible breach of contract alleged on
the face of the complaint, but also the complaint articulates no
"dishonest purpose, consciousness of wrong, or ill will." See id.The only potential allegation of bad faith -- and it is more
implied than stated -- is that RBW knew that Regent was pulling out
of the project months before RBW notified the plaintiff of that
change. But Edlow has not linked this one possible allegation of
a failure to share knowledge to any known duty, contractual or
otherwise. Without more, this conclusory allegation does not
survive. See Twombly, 550 U.S. at 555; see also Bank of Am., N.A.
v. Prestige Imports, Inc., 917 N.E.2d 207, 218 (Mass. App. Ct.
2009) (quoting Spiegel v. Beacon Participations, Inc., 8 N.E.2d 895(1937)) ("'[Bad faith] is not simply bad judgment. It is not
merely negligence. . . . It implies conscious doing of wrong. It
means a breach of a known duty through some motive of interest or
ill will.'"); see also id. ("Massachusetts law has consistently
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defined 'bad faith' with a . . . focus on the subjective,
specifically on knowing and purposeful misbehavior.").
C. Misrepresentation
The complaint alleges that RBW's statements in 2008
concerning the status of the project and associated amenities, as
well as its acts and omissions during that period, "constitute
intentional and/or negligent misrepresentation." Allegedly, Edlow
relied on these statements to his detriment, in that he was induced
by them into purchasing the first unit and executing the new
agreement.
In Massachusetts, proof of misrepresentation "requires
that a plaintiff show a false statement of material fact made to
induce the plaintiff to act and reliance on the false statement by
the plaintiff to his detriment." McEneaney v. Chestnut Hill Realty
Corp., 650 N.E.2d 93, 96 (Mass. App. Ct. 1995); see also Cummings
v. HPG Int'l, Inc., 244 F.3d 16, 21 (1st Cir. 2001) ("[The]
threshold determination for any misrepresentation claim, be it for
deceit or for negligent misrepresentation[] [is that] only
statements of fact are actionable; statements of opinion cannot
give rise to a deceit action or to a negligent misrepresentation
action."). Furthermore, a plaintiff must show reasonable or
justifiable reliance on the allegedly injurious representation.
See Cumis Ins. Society, Inc. v. BJ's Wholesale Club, Inc., 918
N.E.2d 36, 47 (Mass. 2009) (holding that intentional
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misrepresentation plaintiff must establish he "reasonably relied on
the representation as true" (emphasis added)); Nota Constr. Corp.
v. Keyes Assocs., 694 N.E.2d 401, 405 (Mass. App. Ct. 1998)
(holding that negligent misrepresentation plaintiff "must prove
that the defendant . . . supplies false information . . . causing
and resulting in . . . loss . . . by their justifiable reliance
upon the information" (emphasis added)). The alleged
misrepresentations that Edlow complains of are statements and
promises allegedly made in the context of negotiating the new
agreement, but that were not included either in that written
agreement or in the underlying p & s agreement. For the reasons
already discussed, we have concluded that none of these documents
incorporate any actionable promises or oral statements from RBW
regarding the amenities or their status. In the context of merger
doctrine applicable to this case then, the plaintiff's alleged
reliance on such statements would have been neither reasonable nor
justifiable.
Moreover, as to the second unit, Edlow cannot argue that
he reasonably relied upon Regent's continued participation when he
signed the new agreement to purchase that unit, because he signed
that agreement after he had received notice of Regent's withdrawal,
the lack of concierge services, and the fact that the restaurant
and spa would not be ready until 2009.
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D. Liquidated Damages
Edlow argues that the liquidated damages provision in the
p & s agreement, which provided for up to twenty percent of the
purchase price to be kept as liquidated damages,10 was not a
reasonable forecast of damages and was so unconscionably excessive
as to constitute a penalty. On the record before us, we disagree
with him that this count should have survived the motion to
dismiss.
The reasonableness vel non of a liquidated damages
provision involves a question of law, see NPS, LLC v. Minihane, 886
N.E.2d 670, 673 (Mass. 2008), and such "provisions will be
enforceable so long as 'at the time the agreement was made,
potential damages were difficult to determine and the clause was a
reasonable forecast of damages expected to occur in the event of a
breach.'"11 NRT New England, Inc., v. Moncure, 937 N.E.2d 999, 1002
10
The p & s agreement's liquidated damages provision, § 18,
states that "[i]f Buyer shall fail to fulfill any of Buyer's
agreements herein, the Deposits shall be paid to Seller and
retained as complete and final liquidated damages and neither party
shall have any further recourse to the other."
11
Addressing the purpose of liquidated damages in a real
estate context, the Massachusetts Supreme Judicial Court has
underscored that "[r]eal estate purchase and sale agreements are
precisely the type of contracts that are amenable to liquidated
damages provision," for "the parties could not know what delays
might ensue, what might occur in the real estate market, or how a
failed sale might affect [the seller's] plans." Kelly v Marx, 705
N.E.2d 1114, 1117 (Mass. 1999) (citation omitted). We need go no
further to conclude that damages here were difficult to determine
ex ante.
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(Mass. App. Ct. 2010) (quoting Kelly v. Marx, 705 N.E.2d 1114, 1115
(Mass. 1999)); see also Restatement (Second) of Contracts, § 356(1)
(1979) (holding that liquidated damages must be "reasonable in the
light of the anticipated or actual loss," and "[a] term fixing
unreasonably large liquidated damages is unenforceable on grounds
of public policy").
There is no "bright line separating an agreement to pay
a reasonable measure of damages from an unenforceable penalty
clause." TAL Fin. Corp. v. CSC Consulting, Inc., 844 N.E.2d 1085,
1093 (Mass. 2006). Pointing to Massachusetts cases, Edlow says
that drawing any line requires an examination of the factual
context. See, e.g., Honey Dew Assocs., Inc., v. M & K Food Corp.,
241 F.3d 23, 28 (1st Cir. 2001) (holding that "[d]etermining the
validity of a liquidated damages clause is usually a fact-specific
exercise[,]" and courts should inform their determinations of
reasonableness with "an understanding of the factual predicates for
the liquidated damages clause"). None of the cases he cites,
however, hold that dismissal is improper in the absence of facts
alleged in the complaint that would support a finding of
unreasonableness, and Edlow's complaint does not contain such
allegations.
Beyond a conclusory assertion that the liquidated damages
amount is not reasonably related to anticipated damages, the
complaint alleges no facts to support that conclusion. Indeed, the
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only potentially relevant facts alluded to in the complaint
suggest, if anything, that the forecast was not unreasonable. The
complaint alleges that a representative of RBW was quoted in the
Boston Globe newspaper as saying that the units were expected to
bring in "an average price per square foot of $1,150, record
territory for Boston real estate" and that the project was to
"equal the Mandarin Oriental in condo finishes, services, and in
exclusivity." This allegation suggests that the high-end, luxury
units were aimed at a limited and distinctive market of financially
capable prospective owners and investors. An inference that
naturally follows is that RBW might encounter difficulties in
moving units placed back into inventory after a breach, and no
facts have been alleged suggesting otherwise.
In addition to the alleged facts suggesting an exclusive
market, we also note that the anticipated sales involved pre-
construction commitments to purchase units that would not be
completed for at least two years. This extended time frame is
reflected in the staggered structure of the deposits. Contrary to
the inferences that the plaintiff would have us draw, the
liquidated damages provision did not call for automatic retention
of a twenty percent deposit. Rather, the provision contemplated
three separate deposits to be submitted over the course of eighteen
months. If Edlow had breached within six months of signing the p
& s agreement, then RBW would have been entitled to retain only the
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first five percent deposit as liquidated damages, a measure that
Massachusetts courts have routinely found to be reasonable. See,
e.g., NRT New England, 937 N.E.2d at 1003 (holding five percent
liquidated damages were reasonable and noting it "reflected the
'industry norm'" in the context of the case's real estate
transaction). Similarly, after six months and payment of the
second five percent deposit, RBW would have been entitled to retain
only ten percent in total deposits, also not an unprecedented
amount. Cf. Allen v. Wenger, No. 07-P-426, 2008 WL 3877182, at *2
(Mass. App. Ct. Aug. 22, 2008) ("A deposit of ten percent on a real
estate contract does not appear unreasonable on its face."); see
also Lynch v. Andrew, 481 N.E.2d 1383, 1386 (Mass. App. Ct. 1985)
(liquidated damages provision of purchase and sales agreement
calling for retention of $25,400 deposit for failure to obtain
$155,000 mortgage was not so unreasonable as to constitute an
unenforceable penalty).
The parties' protestations notwithstanding, what happened
to the general real estate market beginning in 2008 is irrelevant
to a first look analysis. Even in 2004 it would have been evident
that RBW faced multiple risks in the event of buyer breach: the
real estate market could not be predicted with certainty or
specificity that far out, there were potential costs related to
finding replacement buyers, and there were financial risks
associated with carrying the expenses of the units during
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condominium construction and beyond. Compounding these risks was
the fact that, as noted, these units were part of a niche luxury
residential condominium market, with price tags so high that the
potential-buyer pool was naturally limited.
Because the facts pleaded would not support a plausible
inference that the liquidated damages provision was unconscionable,
we affirm the district court's dismissal of this count.12
E. Mass. Gen. Laws ch. 93A
Taken together, §§ 2 and 9 of the Massachusetts Consumer
Protection Act, Mass. Gen. Laws ch. 93A, permit a plaintiff to sue
for injury resulting from unfair or deceptive business practices.
Gossels v. Fleet Nat'l Bank, 902 N.E.2d 370, 378 (Mass. 2009).
"There is no binding definition of what constitutes an unfair
practice under [the Act]," and "[t]he existence of unfair
. . . practices must be determined from the circumstances of each
case." Green v. Blue Cross & Blue Shield of Mass., Inc., 713
N.E.2d 992, 996 (Mass. App. Ct. 1999) (citation omitted)(internal
quotation marks omitted).
Edlow says that RBW violated the Act "[i]n making
material misrepresentations to [him], in failing to provide
accurate and timely information concerning the status of the
12
The plaintiff sought a declaratory judgment under Mass. Gen.
Laws ch. 231A § 1, et seq., that he is entitled to the return of
his deposits on the second unit, with interest. We affirm the
district court's denial of this request, because the liquidated
damages provision was not unconscionable.
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project, in failing to make disclosures that would have influenced
[him] not to close on [the first unit], in insisting on its right
to retain [his] 20% deposit as liquidated damages despite the
unconscionability of the forfeiture, and in failing to provide full
performance as of the date set for the closing."13 We have
explained why the latter two claims cannot form any basis for
relief. Additionally, whether or not proof of the alleged
misrepresentations or failures to disclose could lead a fact-finder
to conclude that RBW has committed "an 'immoral, unethical,
oppressive, or unscrupulous' business act as required by [chapter]
93A," see Gossels, 902 N.E.2d at 375, under Massachusetts law Edlow
cannot prevail on claims for unfair and deceptive trade practices
"unless [he] can also prove that [his] reliance on the allegedly
false statements was reasonable." Mass. Laborers' Health & Welfare
Fund v. Philip Morris, Inc., 62 F. Supp. 2d 236, 241-42 (D. Mass.
1999) (emphasis in original) (citation omitted); see also Aspinall
v. Philip Morris Cos., Inc., 813 N.E.2d 476, 488 (Mass. 2004)
(holding that conduct is actionably "deceptive when it has the
capacity to mislead consumers, acting reasonably under the
circumstances, to act differently from the way they otherwise would
have acted (i.e., to entice a reasonable consumer to purchase the
product)" (emphasis added)). For the reasons previously discussed,
13
We presume that the "closing" referred to at the end of this
claim was the scheduled August closing on the second unit.
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no reasonable fact-finder could conclude that Edlow's reliance upon
the allegedly false statements was reasonable.14
F. The Motion to Amend
Finally, the plaintiff argues that the district court
erred in denying his motion to amend the complaint. See Fed. R.
Civ. P. 15. We review denials of motions to amend for abuse of
discretion. Platten v. HG Bermuda Exempted Ltd., 437 F.3d 118, 132
(1st Cir. 2006). Leave to amend is "freely given when justice so
requires," Fed. R. Civ. P. 15(a), but courts have discretion to
deny such motions under appropriate circumstances, including undue
delay and futility. Palmer, 465 F.3d at 30.
There was no abuse of discretion. Edlow filed the
original complaint in November 2009 and sought to amend it only
after the May 2010 hearing on the motion to dismiss at which the
court expressed serious doubts that the complaint was sufficient to
survive dismissal. During the intervening six months, however, no
"newly discovered evidence, not previously available, . . . came to
light." Id. at 31. To the contrary, the factual predicates on
which the proposed amended complaint is based are the same as those
in the original complaint and were known to Edlow before he filed
suit. See Id. Although the amended complaint does elaborate on
the factual context of several of the counts, the proposed
14
In his proposed amended complaint, Edlow elaborates somewhat
on his reliance, but he does not assert additional facts that would
make such reliance plausibly reasonable.
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amendments are futile because they do not rectify his claims'
fundamental flaws and thus save them from dismissal, for the
reasons already discussed above. See Platten, 437 F.3d at 132("Since denial of plaintiffs' motion as futile would be appropriate
if the amended complaint still failed to state a claim sufficient
to survive a motion to dismiss, our review . . . is, for practical
purposes, identical to review of a Rule 12(b)(6) dismissal based on
the allegations in the amended complaint.").15 In view of the
timing and futility of the proposed amendments, we affirm the
district court's denial of Edlow's motion.
III. CONCLUSION
We affirm the dismissal of all claims, as well as the
denial of the motion to amend.
So ordered.
15
Prior to the motion to amend, Edlow maintained that he was
not claiming fraud in the inducement. In Count V of the proposed
amended complaint he alleged that RBW "fraudulently induc[ed] [him]
to enter into the Three-Unit Agreement." This conclusory
allegation fails to meet the general pleading standards under Rule
8(a); accordingly, neither can it meet the heightened pleading
standards required for fraud. See Linear Retail Danvers 1, LLC v.
Casatova, LLC, 2008 WL 2415410, at *2 (Mass. Super. June 11, 2008)
(citing Equip. & Sys. for Indus., Inc., 798 N.E.2d at 574) ("At a
minimum, a complaint alleging fraud must particularize the identity
of the person(s) making the representation, the contents of the
misrepresentation, and where and when it took place."). Amending
the complaint to add this allegation would therefore be futile.
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