Opinion ID: 204058
Heading Depth: 2
Heading Rank: 1

Heading: Applicability of the Liquidated Damages Clause to the Town and Trust

Text: We begin with the question of whether the liquidated damages clause in Kunelius's contract with Cohousing is a term that inures to the benefit of the Trust and the Town. The district court noted that all parties agree that TPL breached the purchase and sale contract, but they disagree as to the proper remedy. Kunelius sought specific performance or full benefit-of-the-bargain damages, while the Trust claimed that Kunelius's remedy for breach was limited to the $19,000 in deposits and monthly payments that it had already paid and Kunelius has retained. The district court observed, as the parties had, that it is unclear whether Massachusetts courts would find that an exercise of an ROFR requires the purchaser to literally meet every last detail of the prior offer or only the essential terms, such as, for instance, the identity of the subject property, the price, the time for performance and the like, but not subsidiary agreements, such as, for instance, mortgage contingencies, rights to inspect . . . or pertinent to this controversy, provisions regarding remedies for breach. Kunelius v. Town of Stow, No. 05-11697-GAO, 2008 WL 4372752 at  (D. Mass. Sept. 23, 2008) (footnote omitted). The district court determined that it did not need to answer this question because the parties agreed that the purchase and sale agreement set[] forth the terms of their contract. As evidence of this agreement on the part of plaintiff, the district court cited paragraph 58 of her complaint which states, The P & S is a valid and enforceable contract between Kunelius and Stow and TPL. Id. Unlike the district court, we are not persuaded that Kunelius has admitted that the liquidated damages provision applied to the Town and the Trust. Paragraph 55 of her complaint specifically states that The obligations of Stow and TPL under Mass. Gen. Laws ch. 61 could not be avoided by relying on the liquidated damage[s] clause . . . since such liquidated damage[s] clause . . . was applicable only to Cohousing since it sought certain permits and approvals in connection with its [Chapter] 40B . . . Development. (emphasis added). In light of this paragraph, we think that the complaint is best read as asserting that the Town and the Trust's joint exercise of the ROFR, by operation of law, obliged them to purchase the property identified in the contract at the price stated. The district court is, of course, correct that the Trust has consistently taken the position that it assumed the role of Cohousing in the contract and that the liquidated damages provision inured to its benefit. The plaintiff, however, claims that through her then-counsel, she communicated to the Town attorney her belief that the liquidated damages clause did not apply to the Town and the Trust. Moreover, the record also reveals that the Trust, in a communication to the Town, acknowledged that the question of which provisions of the P & S apply to the exercisor or assignee of an ROFR under Chapter 61 remains an open question. Ultimately, therefore, we are satisfied that the plaintiff adequately preserved this question below, and has properly raised it on appeal. Ordinarily, in Massachusetts contract interpretation is for the court, unless disputed issues of fact bear upon the interpretation of ambiguous language. Liberty Mut. Ins. Co. v. Greenwich Ins. Co., 417 F.3d 193, 197 (1st Cir. 2005) (citing Fishman v. LaSalle Nat'l Bank, 247 F.3d 300, 303 (1st Cir. 2001)). We have explained that judges construe contracts, if only the words need be considered, and the jury does the job under instructions if evidentiary issues have to be resolved. Fishman, 237 F.3d at 303 (citations omitted). Here, there are no evidentiary questions to resolve; rather, we must decide, as a matter of law, whether the liquidated damages provision, by operation of law, was made applicable to the Town and the Trust. For the reasons that follow, we believe that the Supreme Judicial Court (SJC) would hold that the liquidated damages provision inures to the benefit of the Trust and the Town. Although there is scant case law interpreting Mass. Gen. Laws ch. 61 8, we may look to case law decided under the nearly identically-worded ROFR provision of agricultural and horticultural lands, Mass. Gen. Laws ch. 61A 14. See Comm. v. Smith, 728 N.E.2d 272, 276 (Mass. 2000) (noting that it is most appropriate to use construction of one statute to inform construction of another when the two statutes relate to the same class of things or share a similar purpose) (citation omitted). At the time that Kunelius entered into the transaction with Cohousing, the SJC had not decided any cases under either statute, but that court has since decided at least two cases under ch. 61A 14. In Town of Sudbury v. Scott, a divided SJC, after reviewing the various features of Chapter 61A, including the conveyance tax, the roll-back tax, and the ROFR, held that in order for parties to the sale of lands certified under Chapter 61A to avoid a municipality's ROFR, the putative purchaser must not have the intent to convert the land to non-agricultural or non-horticultural purposes at the time of purchase. 787 N.E.2d at 544. The court therefore vacated summary judgment in favor of the purchaser and remanded the case for a determination of the purchaser's intent at the time of the purchase. Id. at 546-47. In Town of Franklin v. Wyllie, a unanimous SJC held that a developer's offer to purchase undeveloped land subject to Chapter 61A was bona fide, even though the final purchase price was contingent on the number of lots ultimately approved for development. 819 N.E.2d 943, 948 (Mass. 2005). The court went on to conclude that since the offer was bona fide, had the Town of Franklin chosen to exercise its ROFR it would have been obliged to determine how many lots would be approved for development to fix the purchase price, in order to purchase the property on substantially the same terms and conditions as those struck between the non-municipal buyer and the seller. Id. at 950 (citing Stone v. W.E. Aubuchon Co., 562 N.E.2d 852 (Mass. App. Ct. 1990)). [8] Thus, neither Scott nor Wyllie addresses the precise question at issue here. Nevertheless, the appellees make much of the fact that in both decisions the SJC suggested more broadly that the statutory ROFR conferred on a municipality under C. 61A 14 and C. 61 8 ripen[s] into an option to purchase according to the terms of the offer. Wyllie, 819 N.E.2d at 949 (citing Greenfield Country Estates Tenants Ass'n v. Deep, 666 N.E.2d 988, 993 n.14 (Mass. 1989)); see also Wyllie, 819 N.E.2d at 949 (There is no indication, however, that the Legislature intended that a municipality's `first refusal option' to purchase would encompass the right to purchase such land on different terms and conditions than [those] set forth in the `bona fide offer.' (emphasis added) (citing Scott, 787 N.E.2d at 544 n. 14))). From this language, the appellees argue that they should be obliged to take on no more risk or offer no more certainty that their transaction would close than Cohousing offered in its bona fide offer. The plaintiff's position is that she was able to offer a streamlined liquidated damages clause to Cohousing because she had established a considerable amount of mutual trust and understanding with ScottHansen, and because she felt comfortable that Cohousing's development was properly financed and Chapter 40B approvals would be forthcoming. Consequently, the argument goes, it would be grossly unfair to give the Town and the Trust these same concessions, particularly in light of the fact that the Trust's ability to close was tenuous from the beginning and its statements to the contrary were disingenuous. Embedded in this argument is the policy concern that granting municipalities and nonprofits added leverage to disrupt transactions involving certified land would tilt the statutory structure too far toward the municipality and would therefore reduce the number of landowners willing to participate in the scheme. These arguments are not without some appeal, although the most obvious response is that Kunelius understood herself to be bargaining in the shadow of the Town's ROFR. She therefore also should have understood the desirability of accounting for the fact that any deal she struck would be available to the Town, or to any non-profit conservation organization to which the Town might choose to assign the lease. She may well have been able to negotiate terms that would have better protected her in the event that less reliable counterparties, such as the Town and the Trust, would become parties to this transaction. Whether or not such terms ultimately would have protected her, we must decide the case on the facts as they are. Despite her knowledge that the ROFR lurked in the weeds, Kunelius in fact did not include any language in the contract to limit her risk in the event of the exercise of the known ROFR. In addition to Kunelius's control over the drafting of her contract, the cases at common law (which applies to statutory ROFRs, see Scott, 787 N.E.2d at 543 n.12), cut against her legal position. Most common law courts do not appear to have focused carefully on this question, and thus have not addressed the specific concerns that the appellant identifies, but most have generally stated that once a seller receives a bona fide offer, the ROFR ripens into an option to purchase the property at the price and otherwise on the terms stated in the offer. T.W. Nickerson, Inc. v. Fleet Nat. Bank, 898 N.E.2d 868, 878 (Mass. App. Ct. 2009) (quoting Frostar Corp. v. Malloy, 823 N.E.2d 417 (Mass. App. Ct. 2005) (emphasis added)); see also Gleason v. Norwest Mortgage, Inc., 243 F.3d 130, 139 n. 5 (3d Cir. 2001) (applying Minnesota law) (citing Allison v. Agribank FCB, 949 S.W.2d 182, 186 (Mo. Ct. App. 1997)); Henry Simons Lumber Co v. Simons, 44 N.W.2d 726, 727 (Minn. 1950). As a result, the holder of an ROFR must have knowledge of the terms and conditions of the entire offer so that the holder may decide if she wishes to meet the offer. T.W. Nickerson, 898 N.E.2d at 878 (citing Gyurkey v. Babler, 651 P.2d 928 (Idaho 1982)); see also Uno Rest., Inc. v. Boston Kenmore Realty Corp., 805 N.E.2d 957, 962-63 (Mass. 2004); Miller v. LeSea Broadcasting, Inc., 87 F.3d 224, (7th Cir. 1996) (applying Wisconsin law) (noting that requirement that holder of ROFR exactly match a bona fide offer is in fact a protection for the grantor of the ROFR). Requiring that the holder of an ROFR have access to such terms would serve little purpose if the holder of the ROFR were not required to meet them. Thus, the decisions interpreting the statutory ROFR at issue in this case (or more precisely, its twin), as well as decisions dealing with common law rights of first refusal more generally, all suggest that the holder of an ROFR must meet all of the terms and conditions of the offer, including subsidiary terms such as the liquidated damages clause at issue here. Many courts do, however, make an exception for immaterial terms with which the holder of an ROFR need not comply, [9] e.g., W. Tex. Transmission, L.P. v. Enron Corp., 907 F.2d 1554, 1556 (5th Cir. 1990); John D. Stump & Assocs., Inc. v. Cunningham Mem'l Park Inc., 419 S.E.2d 699, 705 (W. Va. 1992); Brownies Creek Collieries, Inc. v. Asher Coal Mining Co., 417 S.W.2d 249, 252 (Ky. 1967), and even those that do not make a materiality exception generally make three exceptions to the rule of exact matching. First, the grantor can waive exact matching by agreeing that certain terms should not apply to the holder of an ROFR. Miller, 87 F.3d at 227; see also State Dept. of Transp. v. Providence and Worcester R.R. Co., 674 A.2d 1239, 1243-44 (R.I. 1996) (state, acting pursuant to a statutory ROFR, did not void the ROFR by pointing out that seller was not required to undertake onerous action that would have been required had the bona fide offer been accepted). Second, it is of course clear that the names of the parties will not exactly match the proper names contained in the bona fide offer when the holder of an ROFR exercises it. Miller, 87 F.3d at 227; Providence and Worcester R.R. Co., 674 A.2d at 1243-44 (noting that name of buyer should be changed to the state). Finally, courts will relax the rule of perfect matching in the presence of bad faith. Wyllie, 819 N.E.2d at 949 n. 8; Miller, 87 F.3d at 228 (citing Or. RSA No.6, Inc. v. Castle Rock Cellular of Or., L.P., 76 F.3d 1003, 1007 (9th Cir. 1996)). Aside from these exceptions, however, most courts hold that the terms of the bona fide offer become binding on the holder of an ROFR. This authority persuades us that the SJC likely would adopt a similar rule. In an argument faintly reminiscent of the third exception noted above, the appellant asserts that the Trust acted in bad faith such that the Trust should not be entitled to rely on the liquidated damages provision. As examples of that bad faith, the appellant points to the Trust's unwillingness to allow her to make a charitable donation of the 42.1 acres, its refusal to proceed under Chapter 40B, and its attempt to lower the purchase price. While declining to proceed with a Chapter 40B application was entirely proper, the Trust's other actions may suggest the possibility of a violation of Chapter 93A, a breach of the implied covenant of good faith and fair dealing, or the Trust's anticipatory breach of its contract with the appellant (the first two of which we address later, and the last being a cause of action that has not found much hospitality under Massachusetts law, see generally Daniels v. Newton, 114 Mass. 530 (1874)). We fail to see, however, in what way these action support an argument for varying the terms under which the Trust could accept the contract. Accordingly, this argument does not disturb our conclusion that the liquidated damages provision applies to the Trust and the Town.