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CC&F Wells-First Managing Member, LLC v. RCG LLP 135 Wells, LLC

Superior Court of Massachusetts, Suffolk, Business Litigation Session

April 6, 2017

CC& F Wells-First Managing Member, LLC
v.
RCG LLP 135 Wells, LLC No. 136866

          Filed April 7, 2017

          MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION

          Mitchell H. Kaplan, Justice

         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.

         ADDITIONAL BACKGROUND FACTS

         The following facts are set out in summary fashion sufficient to explain the court's reasoning. They are drawn from the verified amended complaint, affidavit, 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 ...


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