GOODWILL ENTERPRISES, INC. v. WILLIAM F. GARLAND, individually, WILLIAM F. GARLAND as Trustee of the 218 ANDOVER STREET PEABODY REALTY TRUST, and CATHLEEN E. KAVANAGH, as Trustee of the APRIL REALTY TRUST.
MISC 15-000317
Essex, ss.
FOSTER, J.
MEMORANDUM AND ORDER ON PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANTS' CROSS-MOTION FOR SUMMARY JUDGMENT.
Plaintiff, Goodwill Enterprises, Inc. (Goodwill), brings this action, as tenant and lessee, against defendants William F. Garland (Garland), both individually and as trustee of the 218 Andover Street Peabody Realty Trust (Realty Trust), and Cathleen E. Kavanagh (Kavanagh), as trustee of the April Realty Trust (April Realty). Goodwill seeks to enforce its right of first refusal (ROFR) to purchase property located at 218 Andover Street in Peabody (Property). The Realty Trust is the record owner of the Property. In 2011, one of the beneficiaries of the Realty Trust, non-party Daniel Corbett, voluntarily filed for Chapter 7 bankruptcy, and in August 2012, his 50% beneficial interest in the Realty Trust was sold by the Chapter 7 bankruptcy trustee to April Realty. The other 50% beneficial interest in the Realty Trust remains with Garland. Goodwill argues that the sale of the beneficial interest to April Realty in the bankruptcy action triggered its ROFR contained within its lease for the Property, and that it was not given notice of the sale or extended any offer to match the terms.
This case is here by leave of the Bankruptcy Court, which found that this court has concurrent jurisdiction to decide the status of the ROFR. Goodwill moves for partial summary judgment on Counts I and II of its complaint, seeking a declaration that the ROFR was triggered and its lease contract breached, and an order for specific performance allowing Goodwill to exercise its ROFR and purchase the 50% beneficial interest in the Realty Trust that was sold to April Realty from the Chapter 7 bankruptcy trustee. April Realty filed a cross motion for summary judgment asserting that the sale of beneficial interest did not trigger the ROFR because it was not a transfer of the Property, and only Garland's receipt and acceptance of a bona fide offer from a third party would trigger the ROFR. Garland takes no position with respect to whether the sale of the beneficial interest to April Realty triggered Goodwill's ROFR, but argues he was not required to give Goodwill notice of the sale and any claim for a declaratory judgment that the ROFR would apply to a hypothetical future sale of the Garland Interest should be dismissed as there is no current intention of selling the Garland Interest.
As discussed further below, Goodwill's ROFR was triggered by the bankruptcy sale of the beneficial interest and its lease contract was breached. Under Massachusetts law Goodwill is entitled to specific performance. How that relief is to be enforced is a question for the Bankruptcy Court.
Procedural History
On August 14, 2015, Goodwill filed its Verified Complaint. The Verified Complaint has four counts: Count I) breach of contract and specific performance; Count II) declaratory judgment; Count III) injunctive relief; and Count IV) breach of implied covenant of good faith and fair dealing. On November 16, 2015, the Answer and Affirmative Defenses on Behalf of William F. Garland, Individually and as Trustee of the 218 Andover Street Peabody Realty Trust was filed. On November 18, 2015, the Answer of Cathleen E. Kavanagh Trustee of the April Realty Trust was filed. The Case Management Conference was held on May 6, 2016.
On December 15, 2016, Goodwill filed its Motion for Partial Summary Judgment, Memorandum of Law in Support of Plaintiff Goodwill Enterprises, Inc.'s Motion for Partial Summary Judgment, Statement of Undisputed Material Facts in Support of Motion for Partial Summary Judgment (Pl. SOF), and Affidavit of Sara Judge with Goodwill's Summary Judgment Appendix (Pl. App.). On December 29, 2016, Kavanagh filed an Assented-to Motion to Amend Answer, which was allowed. The Amended Answer of Defendant Cathleen E. Kavanagh was filed January 6, 2017.
Defendant William Garland's Motion for Summary Judgment, Brief in Support of Defendant William Garland's Motion for Summary Judgment, Response of William F. Garland, individually and as Trustee of 218 Andover Street Peabody Realty Trust to Goodwill's Motion for Partial Summary Judgment, Defendant William F. Garland's Responses to Goodwill's Statement of Undisputed Material Facts in Support of Motion for Partial Summary Judgment and Statement of Additional Material Facts (GSOF), and Affidavit of William F. Garland and Miriam Garland were filed on January 31, 2017. The Cross Motion of Cathleen E. Kavanagh, Trustee of April Realty Trust, for Summary Judgment, Memorandum of Law in Support of Cathleen E. Kavanagh's Cross-Motion for Summary Judgment and Opposition of Cathleen E. Kavanagh to Plaintiff's Motion for Partial Summary Judgment, Defendant Cathleen E. Kavanagh's Responses to Goodwill's Statement of Undisputed Material Facts in Support of Motion for Partial Summary Judgment and Cathleen E. Kavanagh's Statement of Additional Material Facts (KSOF), and Affidavit of Thomas S. Angel, Esq. and Summary Judgment Appendix (Def. App.) were also filed on January 31, 2017.
On March 15, 2017, Goodwill filed its Memorandum of Law in Opposition to Defendant April Realty's Cross Motion for Summary Judgment, Plaintiff Goodwill Enterprises, Inc.'s Memorandum of Law in Opposition to Defendant William Garland's Motion for Summary Judgment, Combined Statement of Facts, Statements of Additional Facts, and Responses Thereto, and Supplemental Affidavit of Sara Decatur Judge. Goodwill's Reply Memorandum of Law in further Support of its Motion for Partial Summary Judgment, Reply Brief of Cathleen E. Kavanagh, Trustee of April Realty Trust, in Support of Her Cross-Motion for Summary Judgment, and Combined Statement of Facts, Statements of Additional Facts, and Responses Thereto (Add. SOF) were filed on April 18, 2017. On May 18, 2017, the court held a hearing on the motions for summary judgment, and took the motions under advisement. This Memorandum and Order follows.
Summary Judgment Standard
Generally, summary judgment may be entered if the "pleadings, depositions, answers to interrogatories, and responses to requests for admission . . . together with the affidavits . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Mass. R. Civ. P. 56(c). In viewing the factual record presented as part of the motion, the court draws "all logically permissible inferences" from the facts in favor of the non-moving party. Willitts v. Roman Catholic Archbishop of Boston, 411 Mass. 202 , 203 (1991). "Summary judgment is appropriate when, 'viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law.'" Regis College v. Town of Weston, 462 Mass. 280 , 284 (2012), quoting Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117 , 120 (1991).
Based on the pleadings and the documents submitted with the cross-motions for summary judgment, the following facts are undisputed or deemed admitted:
1. William F. Garland, as Trustee of the Realty Trust, is the owner of property located at 218 Andover Street in Peabody (Property) by a deed dated March 14, 2006, and recorded with the Essex South Registry of Deeds (registry) on March 16, 2006, in Book 25467, Page 381. Pl. SOF ¶ 1; Pl. App., Exh. 1; GSOF ¶ 1; KSOF ¶ 1.
2. The Realty Trust is a nominee trust. From March 15, 2006, to the present, Garland has been the trustee of the Realty Trust. Pl. SOF ¶¶ 2, 10; Pl. App., Exh. 2; G SOF ¶¶ 2, 10; KSOF ¶¶ 2, 10.
3. From March 15, 2006 to September 22, 2009, the sole beneficiary of the Realty Trust was 218 Andover Street Peabody, LLC, a Massachusetts limited liability company. The shares of 218 Andover Street Peabody, LLC were owned equally by Garland and Daniel Corbett (Corbett). Pl. SOF ¶¶ 3, 4; GSOF ¶¶ 3, 4; KSOF ¶¶ 3, 4.
4. On or around April 13, 2007, EMSAT, Inc. (EMSAT) entered into an agreement with the Realty Trust to lease the Property. Included in the lease was a right of first refusal to purchase the Property. In November 2007, EMSAT and Garland as trustee of the Realty Trust executed a First Amendment to Lease. Pl. SOF ¶¶ 35-37; Pl. App., Exhs. 9, 13; GSOF ¶¶ 35-37; KSOF ¶¶ 35-37.
5. On or around April 28, 2009, EMSAT assigned its lease, including the right of first refusal, to Goodwill with the assent of the Realty Trust. Pl. SOF ¶ 38; G SOF ¶ 38; KSOF ¶ 38.
6. Goodwill operates motor vehicle dealerships, including "Automall Collection," a luxury pre-owned motor vehicle dealership located at the Property. Pl. SOF ¶ 31; Pl. App., Exh. 11; GSOF ¶ 31; KSOF ¶ 31.
7. Cheri Jamali is the President of Goodwill. Thomas Jamali, Cheri Jamali's husband, is the General Manager of Goodwill's Dedham dealership location. Nader Jamali Afussi, d/b/a John Jamali, is the General Manager of Automall Collection in Peabody. Pl. SOF ¶¶ 32-34; Pl. App., Exhs. 9, 11, 12; GSOF ¶¶ 32-34; KSOF ¶¶ 32-34.
8. Attorney John Keilty represented both EMSAT and Goodwill in connection with obtaining a Class II Motor Vehicle Dealer License from the City of Peabody and in negotiating the lease for the Property with the Realty Trust. KSOF ¶¶ 73-85; Def. App., Exhs. 13, 31-32; Add. SOF ¶¶ 73-85.
9. On April 28, 2009, Goodwill and the Realty Trust executed a Second Amendment to Lease. On May 8, 2009, Goodwill and the Realty Trust executed a Third Amendment to the Lease, titled "Second Amendment to Lease" (Second Amendment). This Second Amendment provided Goodwill with its current right of first refusal (ROFR), titled "Option to Buy" (Goodwill Lease) Pl. SOF ¶¶ 39-41; Pl. App., Exhs. 9, 13, 14; GSOF ¶¶ 39-41; KSOF ¶¶ 39-41.
10. Goodwill's ROFR in the Second Amendment to the Goodwill Lease states: Option to Buy:
Landlord agrees that it will not sell the Property unless (a) Landlord has received a bona fide offer to purchase the Property; (b) Landlord has given written notice (which shall be deemed to be duly given when mailed by certified mail to [Goodwill]) stating the name and address of the offeror and the terms and conditions of said bona fide offer and the encumbrances subject to which the Property or an part thereof, are to be conveyed and containing an offer by Landlord to sell the same to Tenant on the same terms and conditions as said bona fide offer; and (c) Tenant has not within fifteen (15) days after the giving of such notice, mailed or otherwise given Landlord written notice that he elects to purchase the same in accordance with said offer. In the event that Tenant shall not give such notice of election to purchase within the time above specified, such purchase as hereinabove provided, then Landlord shall be free thereafter to sell and convey the property or such part thereof covered by the offer to the offeror named in the Landlord's notice at a price not lower than that specified therein . . .
Pl. Exh. 13.
11. Goodwill's Lease term expires April 2022. Pl. SOF ¶ 42; Pl. App., Exhs., 13, 16; GSOF ¶ 42; KSOF ¶ 42.
12. On September 22, 2009, a certificate of cancellation of 218 Andover Street Peabody, LLC was filed and the beneficial interest in the Realty Trust was divided equally between Garland and Corbett. Pl. SOF ¶¶ 5, 11; Pl. App., Exhs. 3, 4; GSOF ¶¶ 5, 11; KSOF ¶¶ 5, 11.
13. From September 22, 2009, to March 13, 2013, Garland individually owned a 50% beneficial interest in the Realty Trust (Garland Interest). From September 22, 2009, to August 31, 2012, Corbett individually and, subsequently, his bankruptcy estate owned a 50% beneficial interest in the Realty Trust (Corbett Interest). Pl. SOF ¶¶ 6, 12; Pl. App., Exh. 3; GSOF ¶¶ 6, 12; KSOF ¶¶ 6, 12.
14. Kavanagh is the Trustee of April Realty. April Danvers Series of Kelly Realty Series LLC (April LLC) is the beneficiary of April Realty. Brian Kelly (Kelly) is the Manager of April LLC. Pl. SOF ¶¶ 27-29; Pl. App., Exhs., 6, 7; GSOF ¶¶ 27-29; KSOF ¶¶ 27-29.
15. In late 2010, Kelly called Thomas Jamali and expressed interest in purchasing the Property. Mr. Jamali informed Kelly that he did not own the land, but that Goodwill had a lease. Kelly asked Jamali if he was interested in assigning the Goodwill Lease to Kelly for April LLC. Goodwill and Kelly never agreed upon any terms for the assignment of the Goodwill Lease. Pl. SOF ¶¶ 43-45, 47; Pl. App., Exhs. 6, 9; GSOF ¶¶ 43-45, 47; KSOF ¶¶ 43-45, 47.
16. In late 2010, Kelly entered into negotiations with Corbett to purchase the Property in its entirety from the Realty Trust. During these negotiations April Realty received a copy of the Goodwill Lease. Kelly's attorney drafted a purchase and sale agreement for the Property, which provided that one of the real estate trusts that Kelly manages would pay $1,600,000.00 to the Realty Trust for the entire Property. The offer was not accepted by the Realty Trust and the Property was not sold. Pl. SOF ¶¶ 48-52; Pl. App., Exhs. 3, 6, 17; GSOF ¶¶ 48-52; KSOF ¶¶ 48- 52.
17. Between December 2010 and November 2011, Corbett spoke with Kelly and informed him that he intended to file or had filed for bankruptcy and that Kelly should bid on his 50% interest in the Property. Pl. SOF ¶ 54; Pl. App., Exh. 10; GSOF ¶ 54; KSOF ¶ 54.
18. On April 22, 2011, Corbett filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code with the United States Bankruptcy Court for the District of Massachusetts, In re Corbett, Docket No. 1:11bk13667 (the bankruptcy case). The Chapter 7 trustee for Corbett's bankruptcy estate was Attorney Stewart Grossman (Bankruptcy Trustee). Pl. SOF ¶¶ 14-15; Pl. App., Exhs. 5, 6; GSOF ¶¶ 14-15; KSOF ¶¶ 14-15.
19. On April 22, 2011, the Corbett Interest became property of Corbett's bankruptcy estate. GSOF ¶ 13; KSOF ¶ 13; Add. SOF ¶¶ 117-118.
20. On April 30, 2012, Attorney Marc Frey, counsel to Garland and his wife, Miriam Garland, sent an email to Attorney Keilty, counsel for Goodwill, to notify him that Corbett filed for bankruptcy and that the Bankruptcy Trustee may be selling the Corbett Interest. Attorney Frey's email stated in part:
First, the landlord is a realty trust of which [Garland] is the trustee and of which the beneficiary at least initially was an LLC. [Garland] and Dan Corbett were equal owners of the LLC. The LLC was dissolved in 2009 and, although there is no paperwork actually saying this, [Garland] and Corbett probably are simply 50- 50 owners as tenants in common. Corbett is in bankruptcy and his half interest is an asset of the bankruptcy and Miriam [Garland] will likely buy Corbett's half interest from the trustee. If not, the trustee will seek to force a sale. Either way, we need to pin down the state of the lease . . . I do understand that, if the trustee sells the property (as opposed to a sale of the underlying beneficial interest to the Garlands, which I do not believe triggers the tenant's right of first refusal), the tenant has a right of first refusal.
This email was not forwarded to any representative or officer of Goodwill. KSOF ¶ 88-93; Def. App., Exhs. 31, 34, 57.
21. On May 7, 2012, Attorney Keilty responded to Attorney Frey's email, stating: "I did speak to my client, Tom Jamali. He has an interest in purchasing the Corbett interest from Bankruptcy if that is of any assistance to you. Tom feels that Goodwill Enterprises, Inc. has an Option to Purchase." Def. App., Exh. 35.
22. On July 31, 2012, a Notice of Sale was submitted to the Bankruptcy Court by the Bankruptcy Trustee. No representative of Goodwill registered to receive notice of documents in the bankruptcy case. Pl. SOF ¶¶ 20-21, 56; Pl. App., Exhs., 5-6, 18, 27; GSOF ¶¶ 20-21, 56; KSOF ¶¶ 20-21, 56; Def. App., Exhs. 31, 36-38; Add. SOF ¶ 120.
23. Prior to the sale, Miriam Garland submitted two bids to the Bankruptcy Trustee in an effort to purchase the Corbett Interest. Pl. SOF ¶ 22; Pl. App., Exhs. 3, 26; Add. SOF ¶¶ 100, 108-109.
24. On August 28, 2012, the Bankruptcy Trustee held an auction for the sale of Corbett Interest in the Property. Pl. SOF ¶ 16; Pl. App., Exh. 6; GSOF ¶ 16; KSOF ¶ 16; Add. SOF ¶¶ 108-109.
25. At the direction of Kelly, Kavanagh, as Trustee of April Realty, purchased the Corbett Interest at the auction. Pl. SOF ¶ 30; Pl. App., Exhs. 7, 10; GSOF ¶ 30; KSOF ¶ 30.
26. On August 29, 2012, Kelly and Kavanagh submitted a joint affidavit to obtain a finding from the Bankruptcy Court that April Realty was purchasing the Corbett Interest in good faith. Pl. SOF ¶ 57; Pl. App., Exh. 19; GSOF ¶ 57; KSOF ¶ 57; Add. SOF ¶¶ 105, 112-114.
27. On August 31, 2012, the Bankruptcy Court entered an Order authorizing and approving the sale of the Corbett Interest and Corbett's interest in the 218 Andover Street Peabody, LLC entity to Kavanagh as Trustee of April Realty (Bankruptcy Sale Order). April Realty paid $250,250.00 for the Corbett Interest and Corbett's interest in the 218 Andover Street Peabody, LLC entity. Pl. SOF ¶¶ 18-19, 58, 60; Pl. App., Exhs. 6, 8; GSOF ¶¶ 18-19, 58, 60; KSOF ¶¶ 18-19, 58, 60.
28. The Membership/Beneficial Interest Purchase Agreement, approved by the Bankruptcy Court on September 13, 2012, states in relevant part that the parties to the transaction "intend by this Agreement to convey Corbett's, and now the Seller's interest in the Realty Trust and Property," with the term "property" being specifically defined as the real property located at 218 Andover Street, Peabody. Pl. SOF ¶ 59; Pl. App., Exhs. 20-21; GSOF ¶ 59; KSOF ¶ 59.
29. From September 13, 2012, to the present, the Corbett Interest has been owned by April Realty. Pl. SOF ¶ 26; Pl. App., Exhs. 3, 6; GSOF ¶ 26; KSOF ¶ 26; Add. SOF ¶¶ 117-118.
30. Since September 2012, April Realty has collected rental payments from Goodwill as a tenant of the Property. April Realty receives a payment of approximately $8,000 to $8,500 per quarter ($32,000 to $34,000 per year) as a draw from the Realty Trust. These payments are derived entirely from Goodwill's rental payments to the Realty Trust under the Lease. Add. SOF ¶ 133; Dep. App., Exhs. 50-51.
31. There was no deed delivered by the Bankruptcy Trustee to April Realty and no deeds excise tax paid on the sale. Add. SOF ¶ 119; Def. App., Exh. 11.
32. On or about March 6, 2013, Garland transferred the Garland Interest to the Miriam Garland Revocable Trust for estate planning purposes. From March 6, 2013, to the present, the Miriam Garland Revocable Trust (Garland Trust) has owned the 50% Garland Interest in the Realty Trust. Miriam Garland is the Trustee of the Garland Trust. Pl. SOF ¶¶ 7-9; Pl. App., Exh. 3; GSOF ¶¶ 7-9; KSOF ¶¶ 7-9.
33. The Bankruptcy Trustee did not give Goodwill any notice of the sale of the Corbett Interest prior to the sale of the interest to April Realty. Garland, as Trustee of the Realty Trust, did not give Goodwill any notice that an offer to purchase the Corbett Interest had been accepted by the Bankruptcy Trustee. Garland never offered Goodwill the Corbett Interest for purchase under the same terms and conditions as April Realty's purchase. Pl. SOF ¶¶ 20, 23-24; Pl. App., Exhs. 9, 27; GSOF ¶¶ 20, 23-24; KSOF ¶¶ 20, 23-24.
34. Goodwill did not learn about April Realty's purchase of the Corbett Interest until April 8, 2015. Pl. SOF ¶ 25; Pl. App., Exhs. 3, 9, 11-12.
35. On May 13, 2015, Goodwill, through its counsel, gave notice to Garland, as Trustee of the Realty Trust, that Goodwill was seeking to exercise its ROFR under the Second Amendment of Lease. In its letter, Goodwill asked Garland to sign a Notice of Lease. On June 18, 2015, legal counsel for April Realty responded to the May 13, 2015 letter, stating that Garland, as Trustee, would not sign a proposed Notice of Lease as drafted by Goodwill. Pl. SOF ¶¶ 64-67; Pl. App., Exhs. 24-25; GSOF ¶¶ 64-67; KSOF ¶¶ 64-67.
36. Garland has stated that he cannot act on Goodwill's request to the Realty Trust unless Kavanagh, as Trustee of April Realty, and now owner of the 50% Corbett Interest, gives her assent. Garland may only act when directed to do so by a majority of the Realty Trust's beneficiaries. Pl. SOF ¶ 69-70; Pl. App., Exh. 3; GSOF ¶¶ 69-70; KSOF ¶¶ 69-70.
37. Kelly, as the General Manager of April LLC, the beneficiary of April Realty, refused to give April Realty's assent to Goodwill's request. Kelly also refused Goodwill's request to assist it in its application to increase the number of permitted unregistered vehicles on its lot by amending its Class II license since it was not required under the Goodwill Lease. Pl. SOF ¶¶ 67, 71; Pl. App., Exhs. 10, 25; GSOF ¶¶ 67, 71; KSOF ¶¶ 67, 71.
38. Kelly asked Miriam Garland to have the Realty Trust deny Goodwill's request for the approval of additional parking spots due to the recent litigation involving Goodwill and April Realty. Miriam Garland had no objection to Goodwill's request. Pl. SOF ¶ 72; Pl. App., Exh. 26; GSOF ¶ 72; KSOF ¶ 72.
39. On August 14, 2015, Goodwill filed its Verified Complaint in Land Court. Pl. SOF ¶¶ 61; Pl. App., Exh. 22; GSOF ¶¶ 61; KSOF ¶¶ 61.
40. On August 31, 2015, Goodwill filed a Motion to Modify the Sale Order in Bankruptcy Court, requesting that the Sale Order be modified to reflect that the sale was still subject to Goodwill's ROFR under the Second Amendment to Lease. On October 26, 2015, the Bankruptcy Court issued an order abstaining from deciding whether the sale of the Corbett Interest triggered Goodwill's ROFR. The Bankruptcy Court stated:
[T]his Court made no determination that the Chapter 7 Trustee's sale of the bankruptcy estate's interest in the Realty Trust and the LLC triggered the right of first refusal. The Court shall make no ruling regarding, and abstains from, the dispute between the parties as to whether the sale was free and clear of Goodwill's right of first refusal. The Land Court has concurrent jurisdiction to determine whether the Chapter 7 Trustee's sale of the Debtor's 50% beneficial interest in the Realty Trust triggered Goodwill's right of first refusal, as well as determining whether Garland's proposed sale of his 50% beneficial interest in the Realty Trust to Kavanagh or her nominee, as alleged in the state court complaint, triggers Goodwill's right of first refusal.
In re Corbett, No. 11-13667-JNF, 2015 WL 6460000, at *4 (Bankr. D. Mass. Oct. 26, 2015); Pl. SOF ¶¶ 62-63; Pl. App., Exh. 23; GSOF ¶¶ 62-63; KSOF ¶¶ 62-63.
The issue before this Court is whether the Bankruptcy Trustee's sale of Corbett's 50% beneficial interest in the Realty Trust to April Realty constituted a sale of real property, and whether the sale triggered Goodwill's ROFR. Resolution of this issue requires determining whether (a) the sale by a bankruptcy trustee of a beneficial interest in a nominee trust owning real estate is the equivalent of a transfer of title to the real estate and (b) the sale of a beneficial interest in bankruptcy proceedings is subject to a right of first refusal.
To determine if the Bankruptcy Trustee's sale of the Corbett Interest was a transfer of title in the Property, it is first necessary to examine the nature of the relationship between the trustee of the Realty Trust and its beneficiaries. The Realty Trust is a nominee trust. A nominee trust is "an arrangement for holding title to real property under which one or more persons or corporations, pursuant to a written declaration of trust, declare that they will hold any property they acquire as trustees for the benefit of one or more undisclosed beneficiaries." R. Birnbaum & J. Monahan, The Nominee Trust in Massachusetts Real Estate Practice, 60 Mass. L.Q. 364, 364 (1976) (footnotes omitted) (hereinafter "Birnbaum"); see Roberts v. Roberts, 419 Mass. 685 , 688 (1995). The typical features of a nominee trust include: "(1) the names of the beneficiaries are filed with the trustees rather than being publicly disclosed; (2) a trustee may serve simultaneously as a beneficiary; (3) the trustees lack power to deal with the trust property except as directed by the beneficiaries; (4) a third party may rely on the disposition of trust property pursuant to any instrument signed by the trustees, without having to inquire as to whether the terms of the trust have been complied with; and (5) the beneficiaries may terminate the trust at any time, thereby receiving legal title to the trust property as tenants in common in proportion to their beneficial interests." In re Grand Jury Subpoena, 973 F.2d 45, 48 (1st Cir. 1992), citing Birnbaum, at 364-365.
Thus, unlike a traditional trust, the trustees of a nominee trust lack any power to act unless directed by the beneficiaries. Roberts, 419 Mass. at 687-688; Morrison v. Lennett, 415 Mass. 857 , 861 (1993). The declaration of trust of a nominee trust generally makes explicit that the trustee has the power to act on behalf of the trust (including being able to enter into legally-binding contracts) only with the authorization of the trust's beneficiaries. Penta v. Concord Auto Auction, Inc., 24 Mass. App. Ct. 635 , 639 (1987); Perry v. Lauria, 22 LCR 585 , 588 (2014). "Because the beneficiaries of a nominee trust direct the actions of the trustee, the arrangement has been likened to a principal-agent relationship in which the 'trustees are frequently seen as agents for the principals' convenience rather than as trustees in the more familiar fiduciary sense.'" In re Colbran, LLC, 475 B.R. 289, 296-97 (Bankr. D. Mass. 2012), quoting Apahouser Lock & Sec. Corp. v. Carvelli, 26 Mass. App. Ct. 385 , 388 (1988); see Roberts, 419 Mass. at 688, quoting Restatement (Second) of Agency § 14B, at 62 (1957) ("the trustee [of a nominee trust] is an 'agent-trustee' who holds title to property 'for the benefit of and subject to the control of another.'").
One of the advantages of a nominee trust is that the trustee holds record title to real estate while the beneficiaries, the real parties in interest, remain undisclosed in the registry and are able to transfer their interests in the real estate to other beneficiaries without a deed. In re Colbran, LLC, 475 B.R. at 296. The question in this case is whether a beneficial interest in a nominee trust is a personal property interest or an interest in the real estate held by the trust. Massachusetts courts have had occasion to look behind the record ownership of the trust to ascertain the real party in interest holding the subject real estate, and the beneficiaries of nominee trusts have been characterized as the true owner of the trust and real party in interest. Id. at 297; Morrison v. Lennett, 415 Mass. 857 , 862 (1993) (beneficiary of nominee trust reasonably can be regarded as true owner); Bellemare v. Clermont, 69 Mass. App. Ct. 566 , 573 (2007); see Hawthorne's, Inc. v. Warrenton Realty, Inc., No. 78137, slip op (Mass. Supp. May 1, 1991) (transfer of interest in real estate trust whose beneficial interests were owned 50% by each beneficiary constituted a "sale" which triggered rights under lease), aff'd on other grounds, 414 Mass. 200 , 207 (1993); see also Birnbaum, at 368 ("there is logic in treating [beneficiaries of a nominee trust] as the owners of the property for the purposes of liability as well as benefit").
The United States Bankruptcy Court for the District of Massachusetts has looked at when the holder of a beneficial interest in a real estate trust should be considered the equitable owner of the real property for purposes of proper treatment of the interest under the Bankruptcy Code. In re Colbran, LLC, 475 B.R. at 298; In re Zoppo, No. 02-1363, 2005 WL 3738964, at *9 (Bankr. D. Mass. Dec. 19, 2005) (holder of beneficial interest is the equitable owner of the real estate); In re Eastmare Dev. Corp., 150 B. R. 495, 503 (Bankr. D. Mass. 1993) ("[F]or purposes of section 541 of the Bankruptcy Code, the Debtor's estate includes equitable ownership of the nominee trust res."); In re Lincoln North Assoc. Ltd. P'ship, 155 B.R. 804, 806 n.1 (Bankr. D. Mass. 1993) ("Debtor is deemed the beneficial owner of the Lincoln North property, not just the beneficial owner of all the interest in the Trust."); In re Village Green Realty Trust, 113 B.R. 105, 114 (Bankr. D. Mass. 1990) ("Since the beneficiaries of a nominee trust have the exclusive power to direct the activities of the trustee, it makes sense to view the beneficiaries as the owners of the trust res."); In re Medallion Realty Trust, 103 B.R. 8, 12 (Bankr. D. Mass. 1989) (the beneficiaries of nominee trust are "the owners of both the legal and beneficial interest in the 'trust' property"). The Bankruptcy Court has found that the factor determining whether a beneficial interest is an interest in the real property of the trust is whether the beneficial interest is a controlling one—that is, whether the beneficiary controls the property. See In re Colbran, LLC, 475 B.R. at 298; In re Varrichione, 354 B.R. 563, 570 (Bankr. D. Mass. 2006) (debtor who was one of two trustees of a nominee trust who held a twenty five percent (25%) beneficiary interest of the trust held only a personal property interest in the trust where the record did not indicate the debtor had ultimate control of the trust); In re Simon, 179 B. R. 1, 6 (Bankr. D. Mass. 1995) (debtor did not have controlling beneficial interest in nominee trust, interest deemed a personal property interest in the trust, not an interest in the trust's res). "What interest the beneficiary of a nominee trust is deemed to hold depends on the particular facts presented but as has been repeatedly acknowledged, 'in the bankruptcy context there has been a reluctance to permit the beneficiaries of nominee trusts to shield their personal assets from the reach of creditors through the use of nominee trusts.'" In re Colbran, LLC, 475 B.R. at 297, quoting In re Varrichione, 354 B.R. at 567; In re Eastmare Dev. Corp., 150 B.R. at 500.
The court agrees with these decisions of the Bankruptcy Court. A controlling beneficial interest in a nominee trust constitutes an interest in the real property held by the trust. Under the Bankruptcy Sale Order, the Trustee sold the Corbett Interest in the Realty Trust (as well as Corbett's interest in 218 Andover Street Peabody LLC). The question, therefore, is whether the Corbett Interest gave Corbett sufficient control over the Property to be considered an interest in the Property rather than a personal interest in the Realty Trust. Under the Realty Trust, Garland, as Trustee, held record title to the Property for the sole benefit of the beneficiaries, Garland and Corbett, who each shared a 50% beneficial interest in the Realty Trust. In order to act, Garland, as Trustee, needed authorization from both beneficiary interests because each had a 50% interest. If there was a disagreement between Garland and Corbett, no authorization to act could be made. The division of beneficial interests in the Realty Trust presents a troublesome situation where neither of the beneficiaries has plenary power to direct the actions of the Trustee, but each is possessed of an unfettered power to veto any proposed actions. While a 50% beneficial interest may not always be regarded a controlling interest, this distribution of power places in each beneficiary enough control over the Trustee and the Realty Trust such that it is unreasonable to conclude that the two beneficiaries hold merely personal property interests. Based on the rights allocated to the Corbett interest and historical treatment of realty and nominee trusts by the courts of the Commonwealth, both Garland and Corbett possessed controlling interests.
Since Garland and Corbett each held a controlling beneficiary interest, the Corbett Interest is equivalent to an interest in the Property as tenant in common with the Garland Interest. The conveyance of the Corbett Interest from the Bankruptcy Trustee to April Realty was the sale of a controlling interest in the Realty Trust, which means that it was equivalent to a transfer of title in real estate, namely in the Property, not simply an assignment of a personal property interest. The Bankruptcy Sale Order effectively sold a 50% undivided interest in the Property to April Realty.
Having determined that the sale of the Corbett Interest did constitute a sale of a 50% interest in the Property held by the Realty Trust, it must next be determined if this sale triggered Goodwill's ROFR. "A right of first refusal is not an option to purchase property at a certain price, but a limitation on the owner's ability to dispose of property without first offering the property to the holder of the right at the third party's offering price." Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376 , 382 (2004). Once the property owner receives "a bona fide third-party offer to purchase the property burdened by the right," the owner then must present that offer, with the same terms, to the holder of the right of first refusal for acceptance. Uno Restaurants, Inc., 441 Mass. at 383; Savery v. Duane, 22 LCR 284 , 294 (2014). An offer is bona fide when "the offeror genuinely intends to bind itself to pay the offered price," and the offer is made "honestly and with serious intent." Uno Restaurants, Inc., 441 Mass. at 383, citing Mucci v. Brockton Bocce Club, Inc., 19 Mass. App. Ct. 155 , 158 (1985).
"A right of first refusal is 'designed to afford the holder protection against a sale to others. That protection is only effective if, in the event the owner has elected to sell the property, the holder . . . has a realistic opportunity to meet the offer the owner has elected to accept.'" T.W. Nickerson, Inc. v. Fleet Nat. Bank, 456 Mass. 562 , 572 (2010), quoting Roy v. George W. Greene, Inc., 404 Mass. 67 , 71 (1989). The right belongs "both to the owner of the property, who may decide whether to sell, as well as the holder of the right, who may decide whether to purchase at the price offered by the third party." Bortolotti v. Hayden, 449 Mass. 193 , 201 (2007). Once the owner decides to accept a third-party offer, "the right of first refusal ripens into an option to purchase according to the terms of the third-party offer." Id. "A right of first refusal is waived by a holder of the right if he attempts to exercise the right after the expiration of the time limit set forth in the terms of the option." Kalmes v. Sacca, No. 10-P-981, 2011 WL 898583 at *2 (Mass. App. Ct. Mar. 16, 2011), citing Christian v. Edelin, 65 Mass. App. Ct. 776 , 779-780 (2006).
The circumstances in this action vary from the typical situation in which a party's right of first refusal is triggered. The offer and sale of the beneficial interest in the Property occurred within the context of bankruptcy proceedings. April Realty did not directly make an offer to Corbett or Garland to purchase the Corbett Interest. Rather, the Bankruptcy Trustee submitted a Notice of Sale to the Bankruptcy Court for the sale of the Corbett Interest. Thereafter, the Bankruptcy Trustee held an auction for the sale of Corbett Interest in the Property. Kavanagh, as Trustee of April Realty, purchased the Corbett Interest at the direction of Kelly. On August 31, 2012, the Bankruptcy Court entered the Bankruptcy Sale Order authorizing and approving the sale of the Corbett Interest and the Corbett interest in 218 Andover Street Peabody, LLC entity to Kavanagh, as Trustee of April Realty.
April Realty argues that the Bankruptcy Trustee's sale of the Corbett Interest did not trigger the ROFR because the option to buy is between the "Landlord" and Goodwill, not the Bankruptcy Trustee. The Option to Buy provision states in part: "Landlord agrees that it will not sell the Property unless (a) Landlord has received a bona fide offer to purchase the Property . . ." The bona fide offer to purchase was not presented to Garland or Corbett, but was the high bid at an auction held by the Bankruptcy Trustee. The resulting sale of the Corbett Interest was not made by the Landlord, but by the Bankruptcy Trustee and approved by the Bankruptcy Court in entering the Bankruptcy Sale Order. Because the sale occurred in the context of a Chapter 7 Bankruptcy auction conducted by the court-appointed Bankruptcy Trustee, April Realty submits that the sale falls outside the terms of the Option to Buy provision in the Goodwill Lease that would have triggered Goodwill's ROFR.
April Realty's purchase of the beneficial interest through the Bankruptcy Trustee does not insulate it from the application of general principles of nominee trust law and the triggering of a right of first refusal. Garland, as trustee of the Realty Trust, is identified as the "Landlord" in the Goodwill Lease. This means that the landlord and owner of the Property is the Realty Trust. At the time of the bankruptcy sale of the Corbett Interest, Garland and Corbett each held a 50% beneficial interest in the Realty Trust, making them equal owners of the Property. This in turn made them the "Landlords" as that term is used in the ROFR in the Goodwill Lease.
The Bankruptcy Trustee, in turn, was the "Landlord" under the Lease for the purposes of the ROFR, at least with respect to Corbett's interest. When a debtor files for bankruptcy under Chapter 7, the Bankruptcy Court typically appoints a trustee to take charge of the debtor's financial obligations. The bankruptcy trustee is responsible for investigating the financial condition of the debtor and any matters relevant to the disposition of the bankruptcy estate. "When a trustee is appointed, the trustee 'steps into the shoes of the debtor for the purposes of asserting or maintaining the debtor's causes of action[ ].'" DiMaio Family Pizza & Luncheonette, Inc. v. The Charter Oak Fire Ins. Co., 448 F.3d 460, 463 (1st Cir. 2006), quoting In re Rare Coin Galleries, Inc., 862 F.2d 896, 901 (1st Cir.1988); see In re Stoll, 330 B.R. 470, 479 (Bankr. S.D. N.Y.) ("The Court also finds that the bankruptcy trustee stands in the shoes of the Debtor and may employ § 363(h) to sell the property."). Thus, when Corbett filed for bankruptcy, the Bankruptcy Trustee stepped into Corbett's shoes and became a "Landlord" of the Property, with the ability to receive offers and sell Corbett's interest in the Property. Goodwill's ROFR is binding on the Bankruptcy Trustee.
The Bankruptcy Trustee held an auction for the sale of the Corbett Interest in the Property, at which April Realty was the highest bidder. Kelly and Kavanagh submitted an
affidavit in order to obtain a finding from the Bankruptcy Court that April Realty was purchasing the Corbett Interest in good faith, i.e., that April Realty made a bona fide offer to purchase the Property. The Bankruptcy Sale Order approved April Realty's offer to purchase and authorized the sale of the Corbett Interest. April Realty's approved bid was a bona fide offer to the Bankruptcy Trustee standing in the shoes of the Landlord, and triggered the ROFR. The sale to April Realty should not have been approved without providing notice and an opportunity for Goodwill to purchase the Corbett Interest in the Property for the amount matching April Realty's offer.
April Realty asserts that even if Corbett, as a beneficiary, was the true owner of the Property and subject to the ROFR, that particular contractual provision in the Goodwill Lease would have been automatically deemed rejected by the Bankruptcy Trustee pursuant to 11 U.S.C. § 365(d)(4). April Realty argues that a rejection is deemed to be a breach of contract occurring on the date immediately prior to the debtor's bankruptcy filing and Goodwill's remedy is limited to asserting a claim for damages against Corbett's bankruptcy estate. See In re Fleishman, 138 B.R. 641, 644-646 (Bankr. D. Mass. 1992). In addition, April Realty submits that the Bankruptcy Trustee could utilize the "strong-arm" provision of the Bankruptcy Code to invalidate the unrecorded Goodwill Lease and any rights of first refusal contained therein. See 11 U.S.C. § 544(a); In re Webber Lumber & Supply Co., Inc., 134 B.R. 76, 78-80 (Bankr. D. Mass. 1991).
April Realty's speculation as to what the Bankruptcy Trustee would or would not do with respect to the Goodwill Lease and the ROFR is irrelevant. The Bankruptcy Court made clear that "state law will be dispositive of the enforceability of the right of first refusal," not federal bankruptcy law. The Goodwill Lease was not rejected by the Bankruptcy Trustee, and, in any event, that Goodwill views the sale of Corbett's interest as triggering the ROFR does not mean that the Goodwill Lease and its rights under it constituted a lien, claim, or encumbrance against Corbett's interest that would be subject to rejection by the Bankruptcy Trustee. Further, the strong-arm provision, 11 U.S.C. § 544(a), which can be used to avoid any unperfected security interests or to defeat the claims of any unsecured creditor against property of the bankruptcy estate and to preserve the value represented by those liens to the general estate, see In re Traverse, 753 F.3d 19, 26 (1st Cir. 2014), is inapplicable. Goodwill has no claim that it could maintain as a creditor in the bankruptcy action, making the strong-arm provision inapplicable in this action.
April Realty and Garland claim that Goodwill had constructive notice of the sale of the Property in 2012 and, thus, waived its right to exercise its ROFR. In support of their claim, the defendants rely on the April 30, 2012 email, sent by Attorney Frey on behalf of Garland and his wife, to Attorney Keilty, counsel for Goodwill, notifying Keilty that Corbett filed for bankruptcy and that the Bankruptcy Trustee may be selling the Corbett Interest. The defendants argue that this email provided Attorney Keilty with notice of the sale of the Property that was imputed upon Goodwill. This contention fails.
Constructive notice of a right of first refusal requires more than simply the obtaining of information. Such notice implicitly includes "a requirement that the [holder of the ROFR] be able to use that information in the way it ordinarily evaluates transactions of this type." Hingham Land, LLC v. Town of Rockland, 13 LCR 620 , 627-628 (2005) (letter mentioning sale without disclosing terms and conditions did not give rise to constructive notice to waive rights under ROFR). The ROFR states that Goodwill is to be provided with "written notice (which shall be deemed to be duly given when mailed by certified mail to [Goodwill]) stating the name and address of the offeror and the terms and conditions of said bona fide offer and the encumbrances subject to which the Property or an part thereof, are to be conveyed and containing an offer by Landlord to sell the same to Tenant on the same terms and conditions as said bona fide offer." No notice by certified mail was provided to Goodwill and this email was not sent to or copied to any employee or officer of Goodwill. The email did not provide Goodwill with notice of any scheduled sale or bona fide offer, and did not set forth any terms or conditions of an offer. The email was sent long before a bona fide offer was made by any bidder on the Property. It was sent at time when questions remained regarding how Corbett's assets were legally held and the Bankruptcy Court had not yet made a determination as to which assets were actually going to be sold. "The requirement that triggering offers be bona fide serves to disable property owners from extinguishing a right of first refusal by simply relaying vague offers that may include indefinite terms from unidentified third parties." Uno Restaurants, Inc., 441 Mass. at 383. Attorney Frey's email fails to present even a vague offer and, therefore, cannot constitute constructive notice of a sale that would have triggered trigger Goodwill's ROFR.
To the extent that Goodwill was on notice of a pending sale, Goodwill did not waive its right to exercise its ROFR against April Realty. '"Waiver may occur by an express and affirmative act, or may be inferred by a party's conduct, where the conduct is consistent with and indicative of an intent to relinquish voluntarily a particular right [such] that no other reasonable explanation of [the] conduct is possible. . . . [W]here waiver is not explicit, it must be premised on clear, decisive and unequivocal conduct."' Town of Brimfield v. Caron, 18 LCR 44 , 52 (2010), quoting Kact, Inc. v. Rubin, 62 Mass. App. Ct. 689 , 695 (2004). Goodwill's actions did not give any indication of an intent to voluntarily relinquish its ROFR. Rather, Goodwill took affirmative steps to preserve its ROFR. Attorney Keilty promptly replied to Attorney Frey's email on May 7, 2012, stating that Goodwill wanted to exercise its ROFR and reaffirming Goodwill's belief that it retained the option to purchase the Corbett Interest in the Property. The email was not a waiver.
If the Realty Trust had given notice to Goodwill of April Realty's offer in the bankruptcy proceedings, in accordance with the requirements of the Option to Buy provision in the Goodwill Lease, Goodwill would have been precluded from exercising its option after 15 days. This was not done, however, and the April 30, 2012 email from Attorney Frey did not disclose a bona fide offer or any purchase terms. In these circumstances, the 15-day period for Goodwill to exercise the option did not start to run. Because Goodwill did not receive notice of the Bankruptcy Trustee's sale of the Corbett Interest in the Property, it did not have an opportunity to object to the sale or exercise its ROFR. Goodwill's actions did not constitute a waiver of its rights, but demonstrate a continued intent to exercise its ROFR to purchase the beneficial interest in the Property.
As discussed above, Garland takes no position with respect to whether the sale of the beneficial interest to April Realty triggered Goodwill's ROFR, but argues that he was not required to give Goodwill notice of the sale and that any claim for a declaratory judgment that the ROFR would apply to a hypothetical future sale of the Garland Interest should be dismissed as there is no current intention of selling the Garland Interest. As Trustee, Garland would have had an obligation to notify Goodwill of the sale if he had knowledge of the conveyance of the Property or of the assignment of a controlling beneficial interest in the Realty Trust. Drawing inferences in his favor, the court cannot find that Garland had knowledge of the sale sufficient to make such a finding at summary judgment. The court does find that whether or not Garland had such knowledge, the Bankruptcy Trustee was the person with the obligation to notify Goodwill of the auction sale of the Corbett Interest.
In short, the auction and April Realty's offer to purchase the Corbett Interest triggered the ROFR, and the Bankruptcy Trustee should have notified Goodwill of the offer. The triggered ROFR would then have ripened into an option in Goodwill to purchase the Corbett Interest on the same terms and conditions. The Bankruptcy Trustee's failure to notify Goodwill so that it could decide whether to exercise its option breached the Lease.
This breach voids the sale and gives Goodwill the right to specific performance of the ROFR. "A completed sale to a third party does not extinguish the lessee's right of first refusal. Rather, the lessee in such circumstances is entitled to exercise the option upon notice of the sale, and may enforce the option through an action for specific performance. The option may be specifically enforced against the grantor, or in the alternative, a grantee who took with actual or constructive notice of the lessee's interest." Stone v. W.E. Aubuchon Co., 29 Mass. App. Ct. 523 , 526 (1990), citing Tucker v. Connors, 342 Mass. 376 , 382-383 (1961); Greenfield Country Estates Tenants Assoc., Inc. v. Deep, 423 Mass. 81 , 89 (1996) ("[the] holder [of a right of first refusal . . .] may enforce the right in an action of specific performance against a third party who purchased with notice of the option"); Roy, 404 Mass. at 71; Parkhurst v. Maynard, 285 Mass. 59 , 62-63 (1933). '"Specific performance, being an equitable remedy, must be asserted promptly unless there are circumstances which would excuse prompt action."' Stone, 29 Mass. App. Ct. at 527, quoting Abdallah v. Abdallah, 359 F.2d 170, 174 (3d Cir. 1966). See McDonald's Corp. v. Lebow Realty Trust, 710 F. Supp. 385, 388–389 (D.Mass.1989) (holding that notice of a third- party offer to purchase requires a lessee holding both a right of first refusal and a fixed-price option to purchase to exercise one or the other promptly to avoid waiver of both), aff'd, 888 F.2d 912 (1st Cir.1989). As discussed above, Goodwill did not waive its ROFR, and by bringing this action upon receiving notice of the sale Goodwill promptly asserted its right to specific performance of the ROFR. How specific performance is to be enforced in the circumstances of this sale, in the context of the bankruptcy case, is a question best left to the Bankruptcy Court.
For the foregoing reasons, Goodwill's Motion for Partial Summary Judgment on Counts I and II of its Complaint is ALLOWED, April Realty's Motion for Summary Judgment is DENIED, and Garland's Motion for Summary Judgment is ALLOWED IN PART and DENIED IN PART. Judgment shall enter declaring that (a) the Corbett Interest constituted a 50% interest in the Property; (b) the Notice of Sale, auction of the Corbett Interest, and bid by April Realty, triggered the ROFR under the Lease; (c) the Bankruptcy Trustee was obligated to give notice to Goodwill of the auction sale and bid, and his failure to do so violated the ROFR under the Lease; and (d) Goodwill has the right to specific performance of the ROFR.
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