Buffalo Water 1, LLC v. Fidelity Real Estate Company, LLC (Lawyers Weekly No. 12-103-17)



SUFFOLK, ss.                                                                                   SUPERIOR COURT

                                                                                                             SUCV2017-1584-BLS 2



             BUFFALO WATER 1, LLC











This is an action challenging an independent appraisal of property as provided by an agreement between the parties, two sophisticated entities with experience in owning and leasing real estate.  The plaintiff, Buffalo Water 1, LLC (Buffalo) is the owner of the property, located at 7 Water Street in downtown Boston (the Property).   The defendant Fidelity Real Estate Company LLC (Fidelity) occupied the Property under a long term lease with an option to purchase the Property in the final year of the lease as set forth in an Option Agreement.    The Option Agreement sets the purchase price at 95 percent of the “fair market value” (FMV) or $ 16,275,000, whichever is greater.  If the parties could not agree upon the FMV, the Option Agreement set forth the specific appraisal process that the parties were to follow.   Fidelity timely exercised its option to purchase and, with the parties unable to agree to the FMV,   complied with the appraisal process, which included an independent appraisal. The Verified Complaint attacks the validity of the independent appraisal, contending among other things that the entity that employed the individual appraiser did not disclose a prior business relationship that it had with Fidelity.

The case is now before the Court on Fidelity’s Motion to Dismiss.  In support, it relies on the Massachusetts common law rule that severely limits the scope of judicial review regarding appraisals contractually authorized by the parties.   Pursuant to that rule, the Court may invalidate an appraisal only where the appraiser plainly exceeded the scope of his authority or where the appraisal was the result of “fraud, corruption, dishonesty or bad faith.”  Nelson v. Maiorana, 395 Mass. 87, 89 (1985), citing Eliot v. Coulter, 322 Mass. 86, 91 (1947).  “The premise of the rule of restricted reviewability is that the contracting parties’ assignment of a valuation to an appraisal embodies their shared desire for finality.”  State Room, Inc. v. MA-60 State Assoc., LCC, 84 Mass.App.Ct. 244 249 (2013). Applying that rule to the allegations in the Verified Complaint, this Court agrees with the defendant that the Complaint fails to state a claim upon which relief may be granted.   Rule 12(b)(6), Mass.R.Civ. P.

The independent appraisal was performed by Robert Skinner. Skinner worked for Cushman & Wakefield (Cushman), which was selected in compliance with the terms of the Option Agreement.  The Engagement Letter pursuant to which Cushman was hired stated that the appraisal would be performed in accordance with certain standards, including the Code of Ethics of the Appraisal Institute.  That Code of Ethics (an Exhibit to the Verified Complaint) states: “It 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, unless…such personal interest is disclosed to the client prior to the valuer agreeing to provide the Service.”  The Engagement Letter represented that the “undersigned appraiser has not provided prior services” within the preceding three years.

The Verified Complaint  states that Cushman had a “national representation” contract with Fidelity in December 2016. The Complaint provides no further details about this. There is no allegation that Skinner was involved in this alleged contract in any way.  Nevertheless, the Complaint alleges, in conclusory fashion,  that Cushman’s failure to disclose this contract to the plaintiff was a “conflict of interest,” in violation of the terms of the Engagement Letter and in violation of the Code of Ethics.   It is far from clear that the nondisclosure alleged in the Verified Complaint violates any ethical or contractual obligation of Cushman, much less of Skinner.   Even if it did, however, this does 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.

Like the defendants, this Court has not been able to locate any Massachusetts case in which a plaintiff has been successful in invalidating an appraisal. That is because the bar is extremely high.  Indeed, courts have analogized this standard to the parallel statutory provision that restricts review of arbitration awards.  See State Room, 84 Mass.App.Ct. at 249 n. 9.  Under that standard, the SJC has made it clear that a court should not vacate an arbitration award absent conduct that is “underhanded, conniving or unlawful [conduct] similar to corruption or fraud.”  Katz Nannis & Solomon P.C. v. Levine, 473 Mass. 784, 796-796 (2016).  This high standard makes sense when one considers the purpose of restricting  judicial review in this circumstances.  Having agreed to an appraisal process in their contract, the parties have expressed their desire for finality. This objective would be undermined  if a  plaintiff was permitted to  keep two strings in its bow – that is,  move forward with the appraisal and then, if dissatisfied with the result, seek to overturn the appraisal with only vague allegations of bias.  See JCI Commun., Inc. v. IBEW 103, 324 F.3d, 42 52 (1st Cir. 2003). (discussing purpose behind judicial review of arbitration awards).



For all the foregoing reasons and for other reasons stated in defendant’s thorough memorandum in support of the motion, the Motion to Dismiss is ALLOWED and the Complaint is hereby DISMISSED.


Janet L. Sanders

Justice of the Superior Court


Dated: July 21, 2017



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