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Boston Redevelopment Authority v. Boston Private Bank and Trust Co.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

November 6, 2018

BOSTON REDEVELOPMENT AUTHORITY dba Boston Planning and Development Agency
v.
BOSTON PRIVATE BANK AND TRUST COMPANY et al., Trustee of 21 Warren Street Realty Trust

          DECISION AND ORDER REGARDING DEFENDANTS’ MOTIONS TO DISMISS (DOCKET ENTRY NOS. 19.0 AND 20.0), AND PLAINTIFF’S MOTION FOR LEAVE TO FILE SECOND AMENDED VERIFIED COMPLAINT (DOCKET ENTRY NO. 23.0)

          Brian A. Davis, Associate Justice of the Superior Court

          This action arises out of the foreclosure of a condominium unit in Charlestown, Massachusetts (the "Property") by defendant Boston Private Bank and Trust Company ("Boston Private Bank" or the "Bank"). The pleadings allege that non-party Elizabeth Gastevich ("Ms. Gastevich") purchased the Property on February 28, 2014, and simultaneously executed a first mortgage on the Property in favor of Boston Private Bank, her mortgage lender. Because Ms. Gastevich acquired the Property under an affordable housing program administered by plaintiff Boston Redevelopment Authority d/b/a Boston Planning and Development Agency ("BRA"), the property deed issued to Ms. Gastevich included a "Deed Rider Covenant for Affordable Housing" (the "Covenant"). The Covenant gives the BRA the right and option to purchase the Property from the Property owner upon receipt of notice of any form (including notice by newspaper publication) of an impending foreclosure against the Property. The Covenant, however, also grants the following rights to mortgagees of the Property over and above those possessed by the BRA:

Other provisions of this Covenant notwithstanding, a mortgagee may hold a mortgage or security interest in the Premises and may acquire title to the Premises by foreclosure or instrument in lieu of foreclosure; upon either such acquisition, the covenants, restrictions and options contained in this Covenant shall terminate and have no further effect ...
Other provision of this Covenant notwithstanding, this Covenant shall be subordinate in all respects to any mortgage or security interest ...

         Covenant, ¶ 11.[1]

         Ms. Gastevich died on November 18, 2015, and her estate subsequently failed to make the required mortgage payments on the Property. On January 18, 2017, Boston Private Bank notified the BRA that it intended to commence foreclosure proceedings. The BRA received the foreclosure notice, but made no effort to purchase the Property so as to protect the Covenant.

         A public foreclosure auction of the Property was held on December 6, 2017, at which it purportedly was announced that the Property "was being conveyed subject to the Covenant ..." Complaint, ¶ 23. The high bidder at the public auction was non-party Mikhail Starikov ("Mr. Starikov"). Mr. Starikov and Boston Private Bank thereupon entered into a written agreement that set forth the terms of the sale of the Property (the "Memorandum of Sale"). Mr. Starikov, however, never actually purchased the Property. Rather, he defaulted on the Memorandum of Sale, purportedly because he did not wish to acquire the Property while it remained subject to the BRA Covenant.

         Following Mr. Starikov’s default, Boston Private Bank did not conduct another public foreclosure auction. Instead, it deeded the Property to itself on January 18, 2018, which act, according to Boston Private Bank, terminated the Covenant. See Covenant, ¶ 11, supra. Approximately two weeks later, the Bank conveyed the Property to defendant Janet Blake ("Ms. Blake" or, collectively with the BRA, "Defendants"), Trustee of 21 Realty Trust, free and clear of the Covenant, for the same price that Mr. Mikhail, the highest bidder, had agreed to pay at the December 2017 foreclosure auction. The BRA contends that Ms. Blake works with Mr. Starikov and effectively acted as his straw in purchasing the Property.

          The BRA commenced this action in May 2018 seeking, most importantly, an order voiding the sale of the Property to Ms. Blake and reinstating the Covenant. See, e.g., Complaint, Prayers I and II. The BRA’s Complaint contains eight counts. Half of the counts (alleging violation of power of sale (Count I); breach of contract (Count II); breach of the implied covenant of good faith and fair dealing (Count III); violation of G.L.c. 244, § 35B (Count IV)) are asserted only against Boston Private Bank, while the remaining half (alleging violation of G.L.c. 184, § 32 (Count V); unjust enrichment (Count VI); and for declaratory judgments under G.L.c. 240, §§ 6, 10 (Count VII), and G.L.c. 231A, § 1 (Count VIII)) are asserted against both Defendants.

         The case came before the Court most recently on Boston Private Bank and Ms. Blake’s motions to dismiss pursuant to Mass. R. Civ. 12(b)(6), and on the BRA’s motion for leave to further amend its Complaint pursuant to Mass. R. Civ. 15(a). The gist of Defendants’ motions to dismiss is that the BRA, having received prior notice of Boston Private Bank’s plans to foreclose on the Property and having declined to exercise its option to purchase the Property in response, is legally precluded from "resurrect[ing] the validly-terminated Covenant." Memorandum in Support of Boston Private Bank’s Motion to Dismiss at 1. The BRA opposes Defendants motions to dismiss, arguing, in part, that Boston Private Bank breached its power of sale and violated its common law duty to protect the Covenant in the course of any foreclosure proceeding. See Sandler v. Silk, 292 Mass. 493, 496 (1935) ("[A] mortgagee in executing a power of sale contained in a mortgage is bound to exercise good faith and put forth reasonable diligence ... This duty and obligation as to good faith and reasonable care extends for the benefit and is available for the protection not only of the mortgagor but of those claiming in his right, including those holding junior encumbrances or liens. The mortgagee is a trustee for the benefit of all persons interested") (citations omitted).

         By means of its motion to amend, the BRA seeks to add two additional defendants (i.e., Mr. Starikov and Fred Starikov) and two additional claims (i.e., civil conspiracy and intentional interference with contractual relations) to this action. Defendants oppose the BRA’s motion to amend.

         The Court conducted a hearing on Defendants’ motions to dismiss and the BRA’s motion to amend on October 3, 2018. Upon consideration of the written submissions of the parties and the oral arguments of counsel, Defendants’ motions to dismiss will be DENIED IN PART and ALLOWED IN PART, and the BRA’s motion to amend will be ALLOWED, for the reasons discussed below.[2]

         Defendants’ Motions to Dismiss

         A. Violation of Power ...


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