CC&F Wells-First Managing Member, LLC v. RCG LLP 135 Wells, LLC (Lawyers Weekly No. 12-050-17)




SUFFOLK, ss.                                                                                         SUPERIOR COURT

                                                                                                                  CA No. 17-0620-BLS1

















            The plaintiff, CC&F Wells-First Managing Member, LLC (CC&F), and the defendant, RCG LLP 135 Wells, LLC (RCG), are members of Wells-First JV LLC (the Joint Venture or JV), a Delaware Limited Liability Company organized pursuant to an operating agreement (the Agreement).  Through a subsidiary, the 135 Wells Avenue LLC (135 Wells), the Joint Venture owns a property commonly known as 135 Wells Avenue in Newton, Massachusetts (the Property).  The Property consists of approximately 6.5 acres of land in the Wells Avenue Office Park.  The JV was formed to develop the Property into 334 residential units, 25% of which were to be affordable housing within the meaning of M.G.L. c. 40B.  According to the terms of the Agreement, if the permits necessary for the development were not obtained (with any rights of appeal exhausted or expired) by May 30, 2016, RCG had the unilateral right to cause the sale of the properties to a third-party in an arms-length transaction.  The case is now before the court on CC&F’s motion for a preliminary injunction enjoining the marketing and sale of the Property.


The following facts are set out in summary fashion sufficient to explain the court’s reasoning.  They are drawn from the verified amended complaint, affidavits, and documents submitted by the parties.

The Property is subject to a restrictive use covenant adopted by the City of Newton in 1969 and applicable to all parcels in the Office Park.  To proceed with the development of the Property, the JV[1] applied to the Newton Zoning Board of Appeals (ZBA) for a permit. The ZBA determined that the JV must obtain an amendment to the covenant from the Newton Board of Alderman (the Board) before it had authority to issue a permit. The JV made the request of the Board, but it was rejected. The ZBA concluded that, in consequence, it could not approve the development.  The JV appealed the ZBA’s decision to the Housing Appeals Committee of the Department of Housing and Community Development (the HAC), which also found that, in the absence of an amendment to the restrictive covenant, it could not approve the Development.  In January, 2016, the JV sought review of HAC’s decision under G.L. c. 30A, § 14 in the Land Court.  On August 16, 2016, the Land Court affirmed HAC.  A Notice of Appeal of the Land Court’s decision was timely filed.

In November, 2015, after the adverse decision by HAC, the parties jointly began efforts to sell the Property.  In March, CCF asked RCG if marketing efforts could be placed on hold until after the Land Court ruled on the appeal. RCG agreed.  Following the Land Court’s decision affirming HAC, CC&F sent RCG an email in which it stated that it was “abandoning our pursuit of a multifamily 40 B permit at 135 Wells Avenue in Newton and will turn our attention to the sale, or other development plan, for the 6.5 acres site.  It’s not an easy opportunity; it will take some study and a wide market net.”  On November 14, 2016, CC&F, as the managing member of the JV, and with the agreement of RCG, signed a six-month Exclusive Listing Agreement with Holliday Fenoglio Fowler LLP (the Broker), a real estate brokerage firm.

On December 13, 2016, CC&F caused a Petition for Direct Appellate Review of the appeal of the Land Court’s decision to be filed in the Supreme Judicial Court (SJC).  It appears that CC&F did not inform RCG that it was adopting this strategy.  On December 19, 2016, the Office of the Attorney General (AG), which represents HAC and the City of Newton in the appeal, wrote to the SJC joining in the Petition. The AG explained that it contested the positions that 135 Wells was asserting in the appeal and the manner in which it had framed the issues for appeal, but agreed that the case was appropriate for Direct Review.  On January 18, 2017, the SJC allowed the Petition.  Oral argument is presently scheduled in April.

Thereafter, believing that there was an increased likelihood that the Land Court’s adverse decision would be reversed on appeal, CC&F asked RCG if efforts to sell the Property could again be placed on hold until after the SJC’s decision on the appeal issued. RCG indicated a willingness to do this, but only if CC&F made an additional capital contribution to the JV, which RCG maintained had been due for over a year.  Under Section 4.12 of the Agreement, CC&F was obligated to make an additional capital contribution of $ 1.6 million to the JV by November, 2015. This Section further provided that the JV would then distribute that money to RCG, and the distribution would be treated as “a return of RCG’s previously contributed Capital Contributions.”  The parties agree that RCG’s present capital account is $ 7.1 million, and, therefore, this contribution would decrease its capital to $ 5.5 million and increase CC&F’s account by $ 1.6. RCG had apparently not previously sought to enforce this capital obligation because the parties had begun the steps necessary to sell the Property in November, 2015, but was unwilling further to delay sales efforts unless this payment was made.

Discussions between the parties led to a tentative agreement that, among other terms, CC&F would make an immediate partial payment toward this capital obligation and then the balance of the $ 1.6 million in ninety days (although there was a disagreement concerning whether the first payment would be $ 800,000 or $ 1 million) and a sale would be postponed until the SJC rendered its decision or October 31, 2017, whichever came first, or, sooner, at CC&F’s option.  Documents codifying this agreement were prepared by RCG’s counsel, but CC&F decided not to sign them. On February 16, 2017, RCG made formal demand for the additional contribution. On February 27, 2017, CC&F filed this action.

As noted above, the exclusive listing agreement that CC&F executed on behalf of the JV is still in effect. However, while work has been done to prepare marketing materials, the Broker has not yet begun the process of contacting potential buyers and exposing the Property to the market.

Before turning to the claims that CC&F asserts against RCG in its Amended Complaint, it is useful to consider additional sections of the Agreement.

Section 9.3 of the Agreement is entitled:  “Rights of RCG to Cause a Sale.”  It provides that if the final approvals (without any further rights of appeal) to develop the Property have not been obtained “by the second anniversary date of this Agreement, than at any time thereafter RCG, . . . , shall have the unilateral right (without the consent of Manager or any other Member), to . .. cause a sale of [the Property] . . . on arm’s-length terms to a third party after a commercially reasonable marketing process.”  Section 11.16 is entitled: “Rules of Construction.”  As relevant to this dispute, it provides that:  “Whenever in this Agreement . . . any Member is permitted or required to make a decision or determination . . . (a) such . . . Member may make that decision or determination in its sole and absolute discretion . . . and (b) without limiting the generality of the foregoing, in making such decision or determination such . . . Member is entitled to consider, favor and further only such interests and factors as it desires, including its own interests, and has no duty or obligation to consider, favor or further any other interest of the Company . . . or any other Member.” Section 6.4 sets forth the priority for distribution of cash received by the JV prior to the date all permits for development are obtained.  In general, it provides that after third-party debt is paid, RCG receives an amount equal to its invested capital, then CC&F receives the return of its capital, and then the parties share according to their ownership interest in the JV.

CC&F requests that the court preliminarily enjoin RCG from invoking its rights under Section 9.3, marketing the Property, and potentially selling it.  It makes two arguments in support of its position. First, RCG is presently unable to engage in a “commercially reasonable marketing process” because of the pendency of the appeal of the Land Court’s decision in the SJC.  Second, RCG has engaged in a breach of the covenant of good faith and fair dealing, because it is enforcing its rights to sell the Property to gain “leverage” to force CC&F to make payment of the $ 1.6 million to the JV, which it now disputes is owed.[2]







To prevail on its request for a preliminary injunction, CC&F must show a strong likelihood of success on the merits of its claims, that it will suffer irreparable harm without the requested injunctive relief and that its harm, without the injunction, outweighs any harm to RCG from being enjoined.  GTE Products Corp. v. Stewart, 414 Mass. 721, 722-723 (1993); see also Planned Parenthood League of Massachusetts, Inc. v. Operation Rescue, 406 Mass.701, 710 (1990). “[T]he significant remedy of a preliminary injunction should not be granted unless the plaintiff[] ha[s] made a clear showing of entitlement thereto.”  Student No. 9 v. Board of Educ., 440 Mass. 752, 762 (2004).  See also  Landry v. Attorney General, 429 Mass. 336, 343 (1999) (remedy of a preliminary injunction “should not be grant[ed] unless [the plaintiffs] by a clear showing, carrie[d their] burden of persuasion”).  In this case the court need not go further than the first factor: a likelihood of success on the merits of the claims asserted by CC&F.

Breach of Contract

CC&F argues that, because the appeal of the Land Court decision is now pending in the SJC, the Property cannot be sold “on arm’s-length terms to a third party after a commercially reasonable marketing process,”[3] as required by the Agreement.  The court disagrees.

According to CC&F, because of the uncertainty that exists regarding the outcome of the appeal, it is a breach of contract to market the Property at this time. This argument is unlikely to succeed.  In November, 2016, while the appeal was pending in the Appeals Court, CC&F stated that it was abandoning efforts to develop the Property for residential purposes and signed an exclusive listing agreement with the Broker on behalf of the JV.  CC&F’s contention that the SJC’s grant of its Petition for Direct Review, so changes the calculus that it is no longer possible to undertake a “commercially reasonable marketing process” is unlikely to succeed on the merits.  The issues raised in the appeal are still opposed by the AG on behalf of its clients, only the forum is different.  This change in forum does not transform what CC&F previously believed was a commercially reasonable marketing plan into one that constitutes a breach of contract.

Moreover, the Agreement is explicit in stating that RCG has the “unilateral right” to cause the Property to be marketed and sold if the necessary permits are not obtained within two years of the date the Agreement became effective.  The Agreement goes on to make clear that RCG need only consider its own circumstances in deciding to sell the Property and not the effect of its decision on CC&F.  The fact that presently an appeal of an adverse decision of the Land Court is pending in the SJC and if the Land Court’s decision is reversed the Property might become more valuable, does not mean that the Property cannot be sold in an arm’s-length transaction to a third-party. It simply means that an arm’s-length purchaser might demand a discount because of the uncertainty. The fact that the price that results from arm’s-length negotiations might not allow CC&F to recover all of its invested capital (as noted, the Agreement gives RCG a preferential return), is simply not something that RCG is required to take into account.  If CC&F wanted to limit RCG’s right to sell the Property when circumstances existed that might depress its market value, it should have negotiated such a provision in the Agreement.  A court is not empowered to infer a provision into the Agreement that CC&F was unable to negotiate with its equity partner in the Joint Venture.  See Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010) (a court will “not rewrite the contract to appease a party who later wishes to rewrite a contract he now believes to have been a bad deal.”

Additionally, the evidence that CC&F offers with respect to the effect of the pendency of the appeal on the value of the Property is not sufficiently convincing.  It has submitted the affidavit of a real estate appraiser in which the appraiser opines that:  “The intended use set forth in the Operating Agreement is a higher and better use of the Property than the manufacturing use allowed under the Covenant. If the SJC’s decision renders such use ‘legally permissible,’ the Property’s worth will increase significantly. In my opinion, if the SJC rules that the Covenant’s restriction on the Property is unenforceable, the Property’s worth will increase by 40% to 50%.”  The appraiser’s affidavit provides no back-up for this valuation and, while the court is willing to credit the concept that a favorable decision of the SJC may increase the Property’s value, it gives little weight to this particular valuation. Indeed, there is a reasonable inference that if the Land Court’s decision is affirmed, the valuation may decrease because the possibility of the proposed use is foreclosed.

Moreover, the court heard argument concerning the nature of the order that the SJC might enter, if it reverses the Land Court.  The court finds that CC&F has neither established that it is more likely than not that the Land Court decision will be reversed, or, if it is, that the SJC’s order will, in effect, immediately permit the JV to develop the Property into 334 residential units.  It seems at least equally likely that even if the SJC held that the 1969 restrictive covenant no longer requires the ZBA to deny the permit, there will still be further proceedings in the Land Court, before HAC, and/or the ZBA regarding the Property, with the potential for rights of appeal by an administrative agency or other persons aggrieved by the issuance of the permit.




Breach of the Covenant of Good Faith and Fair Dealing

CC&F argues that “RCG is unfairly attempting to leverage the threatened sale and CC&F’s resulting loss of its interest and investment in the Property to extract a concession from CC&F with respect to the parties’ unrelated $ 1.6 million dispute.”  According to RCG, this constitutes a violation of the covenant of good faith and fair dealing implied in the Agreement.  This argument fails for a number of reasons.
First, the $ 1.6 million “dispute” is not unrelated.  At present, RCG has $ 1.6 million more invested in the Property and at risk than it would if CC&F fulfilled its capital investment obligation under Section 4.12.  It is not unreasonable for RCG to take the position that, if it is going to stay in this joint venture and forego its right to sell the Property, CC&F should make the contribution that it agreed to make under the terms of the Agreement thereby increasing its exposure and limiting RCG’s.  Additionally, the $ 1.6 million payment would decrease the amount that RCG would receive from the sale of the Property and increase the amount that CC&F would receive by that amount.  It cannot sell the Property, recover its capital investment, and require CC&F to pay it another $ 1.6

Moreover, with respect to its obligation to make this $ 1.6 million capital contribution clearly called for under the Agreement, CC&F only states that it “maintains that RCG has long since waived its rights under the Operating Agreement to make such a demand, and/or that CC&F has already made the required payment to the JV by alternative means which RCG expressly accepted.” (emphasis supplied) It provides no further detail or any evidentiary support for this very general and curiously alternative declaration.  Indeed, the emails that CC&F’s principal sent to RCG’s principal in February 3, 2017 do not appear to support the averment:  “my confidence in a favorable decision has grown though I cannot be sure that the timing of the decision can be counted upon any earlier.  Therefore, I do not want to invest in making any pay down to take on this project with a new partner. If still acceptable to you, I would revert to the terms below[4], noting, of course that you told me that the initial amount of the pay down was not enough.”  In any event, for the purposes of this motion, it is sufficient to note that CC&F has not carried its burden of factually establishing a likelihood of success on its claim that RCG’s request that CC&F make the capital contribution required under the Agreement in return for RCG agreeing to forebear on its right to sell the Property is a violation of the covenant.  See NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 20 (Del. Ch. 2009) (The implied covenant “does not apply when the subject at issue is expressly covered by the contract.”)




For the foregoing reasons, CC&F’s motion for a preliminary injunction is DENIED.



Mitchell H. Kaplan

Justice of the Superior Court

Dated: April 6, 2017





[1] The JV took all actions with respect to the Property in the name of the owner, 135 Wells.

[2] CC&F’s original Verified Complaint asserted that by invoking its rights under Section 9.3, RCG was breaching its fiduciary duty to CC&F.  CC&F has abandoned that claim.

[3] More specifically, CCF’s argument is that “the Agreement requires any sale be “commercially reasonable” and on specified “terms” that Delaware law equates to a fair price.” As reflected above, that is not what the Agreement actually states.

[4] The “terms below” refer to an earlier email in which CC&F agreed to make $ 600,000 payment with $ 1 million to follow in 90 days in return for forbearance.

Full-text Opinions