First Bostonview Management, LLC v. Bostonview Corporation

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13-P-1237 Appeals Court
FIRST BOSTONVIEW MANAGEMENT, LLC vs. BOSTONVIEW
CORPORATION & others. 1
No. 13-P-1237.
Norfolk. October 1, 2014. - August 19, 2015.
Present: Berry, Hanlon, & Carhart, JJ.
Charity. Corporation, Charitable corporation, Religious, Sale
of assets, Officers and agents, Board of directors. Sale,
Of corporate property, Real estate. Contract, Sale of real
estate, Ratification. Real Property, Purchase and sale
agreement. Agency, Ratification.
Civil action commenced in the Superior Court Department on
November 13, 2009.
The case was heard by Kenneth J. Fishman, J., on a motion
for summary judgment, and a separate and final judgment was
ordered by him.
David B. Summer (Elliot M. Sherman with him) for the
plaintiff.
Carole C. Cooke (Nicholas B. Carter with her) for
Bostonview Corporation.
1
Thomas J. Kennedy, individually and doing business as JMJ
Nominee Trust, and Edward J. MacKenzie, Jr., individually and as
trustee of and doing business as Courmac Realty Trust.
2
BERRY, J. The plaintiff, First Bostonview Management, LLC
(First Bostonview), appeals from the judgment entered pursuant
to Mass.R.Civ.P. 54(b), 365 Mass. 821 (1974), after the
allowance of the summary judgment motion by the defendant,
Bostonview Corporation (Bostonview), a charitable corporation,
on First Bostonview's claims stemming from its attempt to
purchase substantially all of Bostonview's real property. We
affirm the judgment.
As is further discussed herein in more particularized
detail, the corporate board of directors of a charity and the
powers of corporate officers in a charitable organization, such
as Bostonview, are subject to strict fiduciary standards in the
conduct of the charity's business affairs. The Supreme Judicial
Court has made clear that only specific authorization can bind a
charitable corporation to an "extraordinary transaction" entered
into by its corporate officers, and that authority to enter into
a contract which would divest the charitable corporation "of the
very essence" of its existence lies beyond the power of the
charitable corporate board to delegate to corporate officers.
Boston Athletic Assn. v. International Marathons, Inc., 392
Mass. 356, 364-367 (1984).
In this case, the sale of substantially all of the
Bostonview church property (consisting of a church sanctuary, a
parish meeting hall, a large apartment complex, offices, and
3
parking spaces on prime land on Beacon Hill near the
Massachusetts State House) was indisputably an "extraordinary
transaction," and, if completed to the end would have stripped
Bostonview of the very essence of its existence as a charitable
corporation, organized "exclusively for religious, charitable,
scientific and education purposes" subject to the holding of the
church property and the collection of income from that property
for the church. We conclude that the authority to make such a
divesting asset/property sale contract in the case of Bostonview
was beyond the power of the charitable corporate board to
delegate to two of its officers. The contract was void. The
"shady" nature of the underlying prenegotiations to sell the
church's very valuable (but sole) asset for $30 million --
including combined cash payments of close to $100,000 to two of
the executive officers, and the purchase of the $94,000 luxury
car for the church secretary -- only serves to demonstrate why
restrictions on "extraordinary transactions" must be closely
scrutinized by the charity's corporate board. Otherwise
intemperate wrongful delegations and improper business deals may
result, as here threatening the existence of the charity.
Background. We take the undisputed facts from the Superior
Court judge's August 15, 2012, Memorandum of Decision and Order
on Defendant Bostonview Corporation's Motion for Summary
Judgment, which we supplement from the record, as noted. First
4
Bostonview is a Massachusetts limited liability company managed
by Michael Perry, a real estate developer with over forty years
of experience. Roger J. Lehrberg, a real estate attorney, acted
as a signatory for First Bostonview for real estate filings.
The defendant Bostonview is a charitable corporation,
incorporated in Delaware and registered in Massachusetts to do
business on behalf of the Boston Society of New Jerusalem, Inc.
(church). Bostonview was organized "exclusively for religious,
charitable, scientific and education purposes with the specific
object of holding title to properties and collecting the income
therefrom and turning over the entire amount thereof, less
expenses," to the church. The property at issue here is located
at 130-140 Bowdoin Street, and includes 146 rental apartments,
eighty-two parking spaces, offices, a religious sanctuary, and a
parish meeting hall (church property). A 1978 amendment to
Bostonview's certificate of incorporation included provisions
allowing Bostonview to "enter into, perform, and carry out
contracts of any kind necessary to, or in connection with, or
incidental to, the accomplishment of the purposes of the
corporation," and to "acquire any property real or personal
. . . necessary for the construction and operation of such
project."
The defendant, Thomas J. Kennedy, served on Bostonview's
board of directors from September 22, 2003, until July, 2005,
5
and served as its president for a time starting on September 22,
2003. The defendant, Edward J. MacKenzie, Jr., served as the
treasurer of Bostonview, also starting on September 22, 2003,
and served as the director of operations as well. 2
On April 22, 2004, a purchase and sale agreement for the
church property was signed by Kennedy, as president of
Bostonview, by MacKenzie, as Bostonview's treasurer, and by
Lehrberg, on behalf of First Bostonview. The agreement listed a
purchase price of $30 million and acknowledged receipt of
$50,000. It also provided that the purchaser could pay the
balance of $29,950,000, with a note to the seller, secured by a
purchase money mortgage. A closing was set for August 16, 2004,
at the Suffolk County registry of deeds.
There is no record of the $50,000 deposit Perry claimed to
have made to Bostonview. But Perry claims that in addition to
that check, he made cash payments totaling $15,000 to Kennedy
and MacKenzie personally, as well as paid $94,000 to purchase a
Mercedes Benz for the church secretary. He also paid $10,000 to
a trust set up for MacKenzie's daughter and $20,000 to a nominee
trust set up by Kennedy.
On August 16, 2004, the date scheduled for the closing, no
one from Bostonview appeared. Kennedy and MacKenzie later told
2
The dates that Kennedy and MacKenzie ceased to hold their
respective offices are disputed.
6
Perry that the closing was delayed due to litigation, and that
additional payments were needed to extend the closing. Perry
paid another $60,000 to the aforementioned trusts.
According to the plaintiff, the parties subsequently
entered into an exclusive option to purchase agreement, dated
January 2, 2005 (2005 option). The document consists of a one-
page letter, signed by Bostonview's then-president, John B.
Burke. The 2005 option provided an expiration date of January
2, 2008, but failed to state a purchase price, deposit amount,
or the manner in which the purchaser was to exercise the option.
A few weeks later, on January 23, 2005, a one-page document,
entitled Resolution by the Board of Trustees Boston Society of
the New Jerusalem Inc. (2005 resolution), stated that First
Bostonview was given the first option to purchase the property,
for a purchase price of "30 million dollars, four apartments of
the Church's choice, ten parking spaces on the top level and the
space now occupied by the Church." Although the 2005 resolution
expressly provided that it was only valid with the official
church seal affixed, no seal appears on the document. The
document shows the signatures of eight members of Bostonview's
7
board of trustees, but four of those members claimed they did
not actually sign it. 3
A second option was executed on February 19, 2008, to
expire December 31, 2008 (2008 option). It was signed by Perry
and by Robert von Wolfgang, chairman of Bostonview's board of
trustees, though Wolfgang denied he signed it. The option
contained a description of the property, similar to that set
forth in the 2005 resolution, but did not include a purchase
price or the manner in which to exercise the option. It did
provide that "[t]his agreement supersedes all other agreements."
Perry claims that he and his business partner wrote checks to
Bostonview totaling $30,000 toward the 2008 option.
First Bostonview brought this action to recover for breach
of the purchase and sale agreement. The complaint included
additional counts for breach of an indemnification agreement,
damages for money loaned and for money had and received,
misrepresentation, civil conspiracy, and violation of G. L.
c. 93A. Kennedy and MacKenzie were also named as defendants. 4
3
The summary judgment record contains affidavits from four
of the members, asserting that they had never seen or signed the
resolution. The affidavits were unopposed.
4
MacKenzie and other codefendants were also the subject of
Federal indictment concerning misadministration of the affairs
of the church. In the indictment, MacKenzie was charged by a
Federal grand jury in several counts with engaging in "a pattern
of fraudulent acts," in order to "defraud the Church of its
considerable financial holdings and profit from transactions
8
The judge allowed Bostonview's motion for summary judgment,
ruling that the purchase and sale agreement was not enforceable
because the corporate officers lacked authority to bind
Bostonview. Bostonview's motion for entry of final and separate
judgment was allowed, and First Bostonview appealed.
Discussion. 1. Actual authority. To begin, the plaintiff
argues that Kennedy and MacKenzie had actual authority to enter
into the purchase and sale agreement by virtue of their
respective corporate offices and the Bostonview corporate by-
laws, which allowed the president to execute certain mortgages
and other contracts. 5 We disagree. It is well established that
involving the Church." On October, 23, 2014, MacKenzie pleaded
guilty to the Federal charges. By his guilty pleas, MacKenzie
was convicted of a series of Federal criminal offenses,
including but not limited to racketeering conspiracy,
racketeering, mail fraud, and money laundering. The predicate
racketeering acts to defraud the church in the Federal criminal
case were in addition to the subject asset sale transaction
which is the subject of this appeal, and which was not
incorporated in the Federal criminal indictment. This
particular purported transaction to sell the church’s sole asset
-- all as further described in this opinion -- is, for the
reasons stated herein, voided under Massachusetts law as in
breach of fiduciary obligations. See United States vs.
MacKenzie, U.S. Dist. Ct., No. 13-cr-10149 (D. Mass. May 21,
2013). Also of note, Kennedy, after waving indictment, pleaded
to criminal information charging mail fraud conspiracy and
several counts of filing false individual tax returns. See
United States vs. Kennedy, U.S. Dist. Ct., No. 13-cr-10065 (D.
Mass. Mar. 13, 2013).
5
The plaintiff relies on the following: "[The president]
shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required
or permitted by law to be otherwise signed and executed and
9
corporate officers do not have authority to sell the principle
asset of a corporation without specific authorization from its
board of directors. See Stoneman v. Fox, Film Corp., 295 Mass.
419, 425 (1936); Boston Athletic Assn. v. International
Marathons, Inc., 392 Mass. at 365; Kanavos v. Hancock Bank &
Trust Co., 14 Mass. App. Ct. 326, 333 (1982).
Moreover, because Bostonview is a charitable corporation,
the powers of its corporate officers are more strictly
construed. See Boston Athletic Assn. v. International
Marathons, Inc., 392 Mass. at 366. To that end, the Supreme
Judicial Court has made clear that only specific authorization
can bind a charitable corporation to an extraordinary
transaction entered into by its corporate officers. Id. at 364-
365. The court, in fact, went further, holding that authority
to make a contract that divested the charitable corporation "of
the very essence" of its existence, in that case the exclusive
right to promote the Boston Marathon, was beyond the power of
the board to delegate to its president. Id. at 366-367.
Here, in our view, the sale of substantially all of the
church property can only be characterized as an extraordinary
transaction, and, indeed, one that would divest Bostonview of
the very essence of its existence as a charitable corporation.
except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other
officer or agent of the corporation."
10
Bostonview was formed "exclusively for religious, charitable,
scientific and education purposes" and to hold the church
property and collect its income for the church. We believe the
authority to make such a contract was beyond the power of the
board of trustees to delegate to Kennedy and MacKenzie. See
ibid. At the very least, if such power could be delegated at
all, the corporate officers required specific authorization from
the board of trustees to bind Bostonview to the purchase and
sale agreement, and no such authority was conferred here. See,
e.g., Bisceglia v. Bernadine Sisters of the Third Order of St.
Francis of Mass., Inc., 29 Mass. App. Ct. 959, 960-961 (1990)
(treasurer's authority "most certainly does not extend to
agreements to dispose of real estate owned by the corporation,
whose principal activity was the pursuit of its religious
purposes").
The plaintiff counters that the cases relied upon by the
judge, requiring specific authorization, involved only one
corporate officer. Because both the president and the treasurer
of Bostonview signed the purchase and sale agreement here, the
plaintiff posits that the requirement of specific authorization
does not apply to these facts. We note, however, that in
Peoples Natl. Bank of Boston v. New England Home for Deaf Mutes,
Aged, Blind & Infirm, 209 Mass. 48, 49-50 (1911), cited in
Boston Athletic Assn. v. International Marathons, Inc., 392
11
Mass. at 366, the court held unenforceable, for lack of
authority, a promissory note signed by both the president and
treasurer on behalf of a charitable corporation. 6 In a
transaction involving the transfer of a major asset of a
charitable corporation, specific authorization from the board of
directors is required, regardless of the number of corporate
officers involved.
2. Apparent authority. Even if they were without actual
authority, the plaintiff maintains that Kennedy and MacKenzie
had apparent authority to sign the purchase and sale agreement
on Bostonview's behalf. The judge correctly ruled that the
doctrine of apparent authority has no application in this
context.
Apparent authority is "created as to a third person by
written or spoken words or any other conduct of the principal
which, reasonably interpreted, causes the third person to
believe that the principal consents to have the act done on his
behalf by the person purporting to act for him." Theos & Sons,
Inc. v. Mack Trucks, Inc., 431 Mass. 736, 745 (2000). In the
case of a charitable corporation, however, apparent authority
6
The plaintiff's argument on appeal, concerning enforcement
of the purchase and sale agreement under G. L. c. 156D, § 8.46,
fails, if for no other reason than that the agreement lacked the
statutorily required acknowledgement to constitute a recordable
instrument. See G. L. c. 183, § 30; Bisceglia v. Bernadine
Sisters of the Third Order of St. Francis of Mass., Inc., supra
at 961.
12
cannot be relied upon to enforce an agreement that transfers the
charity's primary asset or principal function. See Boston
Athletic Assn. v. International Marathons, Inc., 392 Mass. at
367; Bisceglia v. Bernadine Sisters of the Third Order of St.
Francis of Mass., Inc., supra at 960-961. Furthermore, as here,
"[w]here the sale of corporate real estate is 'outside the scope
of . . . [the corporation's] usual activity,' the doctrine of
apparent authority does not apply." Id., at 961, quoting from
Kanavos v. Hancock Bank & Trust Co., 14 Mass. App. Ct. at 333.
3. Ratification. The plaintiff additionally argues that
the apparent authority of Bostonview's corporate officers was
established by the actions of Bostonview's board of trustees
after the purchase and sale agreement was executed. The
plaintiff points to cases holding that even in the absence of
actual authority, the corporation may be bound if it later
ratified the transaction. See, e.g., Bloomberg v. Greylock
Bdcst. Co., 342 Mass. 542, 548 (1961) (corporate president's
authority to sell major asset of corporation must be shown
either by express delegation of such authority or that a
majority of directors knew of the sale and approved or ratified
it); Boice-Perrine Co. v. Kelley, 243 Mass. 327, 330-331 (1923).
To clarify, ratification is not apparent authority.
Ratification, which may be established by the principal's
subsequent acquiescence or approval of, or failure to repudiate,
13
a transaction conducted by it agent, "relates back, and has the
same effect, as a prior grant of authority by the principal to
the agent." Linkage Corp. v. Trustees of Boston Univ., 425
Mass. 1, 18 (1997). Nevertheless, in a transaction involving
the transfer of a major asset of a charitable corporation, the
requirement of specific authorization is presumed, and the
burden is on the purchaser to inquire as to the authority
conferred before entering into the transaction. Bisceglia v.
Bernadine Sisters of the Third Order of St. Francis of Mass.,
Inc., 29 Mass. App. Ct. at 960. "Persons dealing with a
corporation are presumed to know the extent of its powers."
Boston Athletic Assn. v. International Marathons, Inc., 392
Mass. at 367, quoting from Wiley & Foss, Inc. v. Saxony
Theatres, Inc., 335 Mass. 257, 260-261 (1957).
It is true that the above cases, cited by the plaintiff,
identified ratification as an alternative to actual authority.
Nevertheless, that aspect of the analysis has not been adopted
in subsequent cases involving charitable corporations. See,
e.g., Boston Athletic Assn. v. International Marathons, Inc.,
392 Mass. at 364-366; Bisceglia v. Bernadine Sisters of the
Third Order of St. Francis of Mass., Inc., 29 Mass. App. Ct. at
960-961. Because of the heightened public interest involved in
the disposition of charitable assets, officers of a charitable
corporation must have specific authorization to bind the charity
14
to an extraordinary transaction. Boston Athletic Assn. v.
Industrial Marathons, Inc., 392 Mass. at 364-365. "Those
entrusted with the management of funds dedicated to charitable
purposes and donated out of a sense of social or moral
responsibility owe an especially high degree of accountability
to the individual donors as well as to the community." Id. at
366. We therefore conclude that subsequent approval or other
conduct by the board of directors of a charitable corporation
will not substitute for prior specific authorization to commit
the charity to an extraordinary transaction.
For that reason, we reject the plaintiff's assertion that
Bostonview's board of trustee's failure to repudiate the
purchase and sale agreement, when the transaction came to light
in 2008 in litigation involving the church, should be treated as
proof of authorization. We reject, as well, the plaintiff's
reliance on the 2005 resolution as reaffirming the plaintiff's
right to purchase the church property. Even assuming its
authenticity, the 2005 resolution was executed three weeks after
the 2005 option to purchase and nine months after the purchase
and sale agreement. 7 Contrary to the plaintiff's position, the
7
Moreover, the 2005 resolution contained different terms
than the 2005 option and, like the option itself, made no
reference whatsoever to the purchase and sale agreement. It
also lacked the official church seal, without which it was not
valid as provided therein. We add here that, to the extent the
plaintiff seeks to enforce the 2005 and 2008 options -- its
15
evidence of subsequent conduct by the board of trustees did not
create a question of fact regarding the authority of
Bostonview's corporate officers to sell the church property.
4. Separate and final judgment. The plaintiff argues that
the judge's allowance of Bostonview's motion for entry of
separate and final judgment, whereby the judge dismissed the
plaintiff's remaining claims, was error. We touch briefly on
the dismissal of those claims, which we determine was not error.
The plaintiff sought damages for breach of an
indemnification agreement, dated September 17, 2008, between
Perry and Bostonview, signed by Rex Ellis, as president and
chairman of the board of trustees of Bostonview. The
plaintiff's one-paragraph argument in its brief on appeal does
establish that Ellis had authority to bind Bostonview to an
agreement to pay up to $475,000 to indemnify Perry for amounts
he had paid to MacKenzie towards the purchase of the church
property. As previously explained, the power of an officer of a
charitable corporation to enter into a transaction that falls
outside the general managerial functions of the charity is
narrowly construed. Boston Athletic Assn. v, International
Marathons, Inc., 392 Mass. at 364-366. And Perry, as the party
brief does not make that clear -- the judge properly dismissed
the claims, as both documents lacked essential terms, even apart
from the issue of authorization. See, e.g., Lewis v. Chase, 23
Mass. App. Ct. 673, 676 (1987) (option agreements are "to be
strictly construed").
16
dealing with a charitable corporation, was bound to inquire as
to the extent of Ellis's authority. See id. at 367. Instead,
the record indicates that Perry was aware that the church had
filed a lawsuit against Ellis claiming that he had illegally
gained control of the church, as Perry signed an affidavit in
connection with the litigation on September 18, 2008, the day
after Ellis executed the indemnification agreement in Perry's
favor.
The plaintiff's claims for civil conspiracy and violation
of G. L. c. 93A, were properly dismissed, based on the judge's
ruling regarding the lack of actual or apparent authority of
Bostonview's corporate officers to transfer the church property,
as the judge correctly determined that Kennedy and MacKenzie
were not acting on Bostonview's behalf or in concert with
Bostonview in signing the purchase and sale agreement.
We do not reach the plaintiff's following claims. The
plaintiff devotes two sentences in its brief to its claim for
monies loaned and monies had and received; as that does not
constitute appropriate appellate argument, the issue is deemed
waived. See Mass.R.A.P. 16(a)(4), as amended, 367 Mass. 921
(1975); Morgan v. Laboratory Corp. of Am., 65 Mass. App. Ct.
816, 821 n.6 (2006). The plaintiff's claim against Bostonview
for misrepresentation, regarding the status of Kennedy and
MacKenzie as corporate officers when they were negotiating the
17
sale, was not set out in its complaint and may not be raised
here. See Flynn v. Boston, 59 Mass. App. Ct. 490, 495 (2003).
Judgment affirmed.