58 Swansea Mall Drive LLC v. Gator Swansea Property LLC

Filing 195

Judge Richard G. Stearns: ORDER entered granting in part and denying in part 164 Motion for Summary Judgment. Gator's motion for summary judgment (Dkt #164) is GRANTED as to Counts III and V. The motion is DENIED as to Counts I, II, and IV. (RGS, law1)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 15-13538-RGS
58 SWANSEA MALL DRIVE, LLC
v.
GATOR SWANSEA PROPERTY, LLC
PARTIAL ORDER ON DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT
August 25, 2017
STEARNS, D.J.
Defendant Gator Swansea Property, LLC, seeks summary judgment in
this lawsuit brought by plaintiff 58 Swansea Mall Drive, LLC, over a failed
effort by 58 Swansea to negotiate a loan secured by its lease on a shopping
center located (unsurprisingly) in Swansea, Massachusetts.

For the

following reasons, the motion is granted in part and denied in part.
BACKGROUND
The following facts are presented in the light most favorable to 58
Swansea as the nonmoving party.

58 Swansea leases a commercial

development in Swansea from Gator. 58 Swansea, in turn, subleases the
storefronts. Beginning in 2013, Gator made a series of demands that 58
Swansea make repairs to the property. 58 Swansea contested many of

Gator’s characterizations of the condition of the property, but agreed to make
most of the repairs.
To fund some of the repairs, 58 Swansea applied for a $2 million loan
from United Bank, secured by its interest in the property. The ground lease
permitted 58 Swansea to mortgage its leasehold under certain conditions.
Pertinent here is the requirement that 58 Swansea could not be “in default .
. . beyond the applicable grace periods.” Dkt #162-1, Art. 6, § 3. To satisfy
United Bank that this requirement was met, 58 Swansea invoked Article 14,
Section 4 of the lease, which obliges Gator to “deliver an estoppel certificate”
within ten days of request. The lease required that the estoppel certificate
verify that the lease remained “in full force and effect” and describe “any setoffs or defenses against the enforcement of any of the agreements, terms,
covenants or conditions of this Lease and any modifications of this Lease
upon the part of Tenant to be performed or complied with, and if so,
specifying the same.” Art. 14, § 2.
According to 58 Swansea, Gator’s initial estoppel certificate was
insufficient: it did not state that the lease was “in full force and effect” and it
identified defaults based on “maintenance” without providing sufficient
specificity about what 58 Swansea needed to do to cure the defaults. Gator
provided another estoppel certificate at the end of July of 2015 — over a
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month after 58 Swansea’s original request — but the replacement certificate
still listed defaults triggering maintenance obligations, now four in number.
58 Swansea contends that many of the defaults listed in both estoppel
certificates were pretextual.
Because the estoppel certificate Gator provided listed additional
maintenance tasks in default of the lease, United Bank requested
confirmation from Gator that it would provide the certification envisioned
by Article 6, Section 3(n) of the lease. That section provides that in the event
the tenant mortgages its leasehold interest, the landlord will “upon request,
execute, acknowledge and deliver to each Leasehold Mortgagee making such
request an agreement prepared at the sole cost and expense of the Tenant, in
form reasonably satisfactory to such Leasehold Mortgagee, between
Landlord, Tenant, and such Leasehold Mortgagee, agreeing to all of the
provisions of this Section.”
The 3(n) agreement proved to be less a solution than a new problem.
United Bank sent a draft 3(n) agreement and a copy of the mortgage to Gator
on August 18, 2015.

Over the ensuing two months, the parties never

managed to reach an acceptable 3(n) agreement. 58 Swansea argues that
this resulted from Gator’s attempt to force it to impose a lease of an outparcel
on the property to Chick-Fil-A. It points to an August 21, 2015 internal email
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from Gator’s CEO to the company’s general counsel, which 58 Swansea reads
as conditioning compliance with the 3(n) agreement on its willingness to
relinquish the outparcel. On August 31, Gator’s general counsel emailed
outside counsel for 58 Swansea with a proposal regarding the outparcel. 58
Swansea’s counsel responded the next day, asking about the status of the
3(n) agreement and stating that he would forward the proposal to his client.
Gator’s counsel responded that Gator was reviewing the relevant documents
and would respond soon.
Concerned with Gator’s hesitation, 58 Swansea and United Bank
agreed to a “dry closing,” meaning that the mortgage documents were signed
and the mortgage recorded, but that the mortgage itself would remain
unfunded until the 3(n) agreement was executed. The “dry closing” was
executed on September 8, 2015. On September 22, 58 Swansea again
requested that Gator comply with Section 3(n) of the lease. On September
24, Gator asked for a telephone conference with 58 Swansea’s CEO. 58
Swansea refused the request, stating that it believed litigation was likely if
the 3(n) agreement was not forthcoming. Gator responded by writing that it
preferred a call: “We made a proposal several weeks ago to your client . . .
concerning an outparcel to the property and have not yet heard a response.
I think that a conversation would be beneficial for both Gator and your
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client.” Dkt 82-16. 58 Swansea again rejected the request. On October 1,
Gator made another attempt, emailing about the outparcel and providing a
site plan. This lawsuit was filed the next day.
The filing of the lawsuit brought an end to discussions about the
outparcel, but not to disputes about the 3(n) agreement. On October 5, Gator
sent a notice of termination and default, purporting to terminate the ground
lease, and then two days later revoked its estoppel certificate. 58 Swansea
alleges that these actions were purely retaliatory steps taken in response to
its filing of this suit. On October 13, 58 Swansea sought a preliminary
injunction to block the termination and force Gator to sign the 3(n)
agreement. Gator wrote to 58 Swansea the following day, proposing a
solution and mentioning (apparently for the first time) the possibility that
the mortgage’s proposed division of insurance proceeds conflicted with the
lease. Gator expressed its willingness to sign a 3(n) agreement if it made
clear “that United Bank’s rights as mortgagee can in no way supersede Gator
Swansea’s rights under the Ground Lease, such as Gator Swansea’s right to
receive insurance proceeds and condemnation awards.” Dkt 166-4, Ex. 85 at
4. No resolution followed. The preliminary injunction was denied after a
hearing on October 15, at which Gator represented to the court that it had

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withdrawn both the lease termination and the revocation of the estoppel
certificate.
On October 16, Gator iterated concerns about the insurance provisions
of the mortgage. Over the ensuing week, Gator, United Bank, and 58
Swansea exchanged versions of a proposed 3(n) agreement. Although the
details differ, Gator’s desired changes attempted to specify that the lease’s
provisions controlled, particularly with respect to the distribution of
insurance proceeds. United Bank rejected Gator’s changes.
United Bank eventually set a deadline of 5 p.m. on October 22 to
receive an executed 3(n) agreement from Gator. On October 22, United Bank
rejected the most recent version of the 3(n) agreement proposed by Gator,
and the 5 p.m. deadline passed without any agreement.

United Bank

terminated the loan on October 28.
58 Swansea’s original Complaint limned four counts against Gator, a
number enlarged to six in an Amended Complaint filed in April of 2016.
Gator moved to dismiss, which was denied as to all counts except for Count
VI.1 After a lengthy and contentious discovery period, Gator has moved for

58 Swansea supplemented its Complaint in September of 2016,
adding two additional counts related to a notice of default issued during the
pendency of the litigation. Those counts (Counts VI and VII of the operative
Complaint) are dealt with by separate order.
1

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summary judgment. This Order addresses Counts I-V of the operative
Complaint (Dkt #86). The court heard argument on August 9, 2017.
DISCUSSION
Summary judgment is appropriate when the record, viewed in the light
most favorable to the nonmoving party, reveals “no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). A party seeking summary judgment must demonstrate to
the court the absence of genuinely disputed material facts by reference to the
record. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once that task is
accomplished, “the burden shifts to the nonmoving party, who must, with
respect to each issue on which she would bear the burden of proof at trial,
demonstrate that a trier of fact could reasonably resolve that issue in her
favor.” Borges ex rel. S.M.B.W. v. Serrano-Isern, 605 F.3d 1, 5 (1st Cir.
2010).
Count I
Count I of 58 Swansea’s Complaint asserts that Gator breached the
lease by failing to timely provide the 3(n) agreement.2 As Gator points out,

In its papers, 58 Swansea asserts an additional breach by Gator in
failing to provide an acceptable estoppel within the ten days allowed by the
lease. Even assuming this breach occurred, 58 Swansea does not explain how
it was harmed by the failure to provide the estoppel certificate when 1) an
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2

this raises an antecedent question: at what point did Gator have an obligation
to sign the 3(n) agreement? The terms of the lease describe it as an obligation
that arises only once a leasehold mortgage is “in effect,” further underscored
by the fact that the lease requires that a “true copy” of the mortgage and
recording information be delivered within thirty days of execution of the
mortgage to trigger the 3(n) obligation. Gator contends that because the
mortgage was never fully funded, the mortgage was not “in effect,” and,
moreover, it was never provided with a “true copy” of the mortgage because
it never received the letter agreement providing for a dry closing. Thus, it
says, neither condition precedent was met and no breach occurred.
Neither argument is persuasive.

In the absence of a contractual

definition, the ordinary meaning of a term controls in contract
interpretation. See Rogaris v. Albert, 431 Mass. 833, 835 (2000). “[A]
contract should be construed to give it effect as a rational business
instrument and in a manner which will carry out the intent of the parties.
‘Justice, common sense, and the probable intention of the parties are guides
to construction of a written instrument.’” Shane v. Winter Hill Fed. Sav. &
Loan Ass’n, 397 Mass. 479, 483 (1986) (internal citation omitted) (quoting

acceptable estoppel did eventually issue on July 30, 2015, and 2) the loan
remained open until October 28, 2015.
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Stop & Shop, Inc. v. Ganem, 347 Mass. 697, 701 (1964)). Here, the mortgage
was signed and recorded, and ordinary meaning and common sense say that
it was “in effect.” Nor was Gator deprived of a “true copy” of the mortgage.
It received the signed mortgage and the recording information in late
September. Nothing more was required.3
Gator also points to a third condition precedent: that 58 Swansea not
be “in default . . . beyond the applicable grace periods.” Gator asserts that
this condition was not satisfied because 58 Swansea had failed to name Gator
as an “additional named insured” under 58 Swansea’s insurance policies as
required by Article 4, Section 2 of the lease. Yet while 58 Swansea may have
been in default, Gator offers nothing that proves that this default was
“beyond the applicable grace period[].” Gator’s cited support consists of two
letters informing 58 Swansea that Gator had not received proof of insurance.
Neither letter, however, places 58 Swansea on notice of a default, as required

Moreover, 58 Swansea informed Gator that the funding of the loan
and the final interest rate were contingent on receiving the signed 3(n)
agreement. As neither provision appeared on the face of the mortgage, Gator
was on notice that 58 Swansea and United Bank had reached a side
arrangement with respect to those provisions. Yet Gator never expressed
concern that it did not have the details of that arrangement, nor did it request
documents related to it among its many other demands for documents
connected to the mortgage and the ground lease.
3

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by Article 12, Section 1(b)(ii) of the lease.4 Gator thus cannot prevail on this
argument.
Of greater weight is Gator’s contention that no breach occurred
because 58 Swansea (and United Bank) prevented it from signing the 3(n)
agreement and performing its obligations under the lease. See Winchester
Gables, Inc. v. Host Marriot Corp., 70 Mass. App. Ct. 585, 596 (2007).
Specifically, it contends that the terms of the mortgage were in conflict with
the provisions of the ground lease governing the distribution of insurance
proceeds. Section 4 of the mortgage provided:
Unless otherwise required by the Ground Lease and except as
hereinafter provided, the proceeds of any insurance resulting from
any loss with respect to the Property shall be paid to the Bank and,
after the occurrence of an Event of Default, at the option of the Bank,
shall be applied to the Obligations in such order as the Bank shall
determine; provided however that, notwithstanding any such Event
of Default if the Bank shall require restoration or repair of the
Property, the Bank may release all or any portion of such proceeds to
Mortgagor for such purpose, subject to such terms and conditions as
the Bank may reasonably require. Any insurance proceeds paid to
Mortgagor shall be held in trust for the Bank and promptly paid to it.
...

Gator contends that 58 Swansea deceptively prevented Gator from
learning of the insurance default in July of 2015 by providing false insurance
certificates. However, Gator has offered no evidence suggesting that 58
Swansea knew of the alleged gaps in insurance coverage at the time the
certificates were provided.
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4

This provision, Gator complains, went beyond the permissions embodied in
Article 6, Section 3(i) of the ground lease, which allowed 58 Swansea to add
United Bank “to the ‘Loss Payable Endorsement’ of any and all insurance
policies . . . on condition that the insurance proceeds are to be applied (either
by Tenant or by any such Leasehold Mortgagee) in the manner specified in
this lease.” In particular, Gator points to Article 5 of the lease, which lays out
requirements for the distribution of insurance proceeds, including the
requirement that the tenant must (under most circumstances) use the
proceeds for reconstruction of the premises or pay the proceeds to the
landlord.

Gator also had the right under the lease to mortgage its own

interest in the property, identifying its mortgagee as having priority to the
insurance proceeds.
The success of this argument turns on the interpretation of Section
3(n), which states that the landlord “shall, upon request, execute” an
agreement “prepared at the sole cost and expense of Tenant, in form
reasonably satisfactory to [the] Leasehold Mortgagee, between Landlord,
Tenant, and such Leasehold Mortgagee, agreeing to all of the provisions of
this section.” The court’s tentative view is that Section 3(n) describes a hard
and fast duty. In other words, Section 3 appears to provide pre-set, nonnegotiable contractual terms that bind landlord, tenant, and mortgagee. On
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this reading, Gator’s duty was simply to execute an agreement
acknowledging the provisions of Section 3 after being presented with the
mortgage and recording information.

This reading is in line with the

requirement that the agreement be “in form reasonably satisfactory to”
United Bank, as it is the mortgagee’s interests that Section 3 is chiefly
designed to protect.

See, e.g., § 3(e) (in the event the original lease

terminates, the landlord must enter into a new lease with the mortgagee); §
3(k) (the mortgagee has the right to exercise options to extend the lease term
in the event the tenant does not). It is also a sensible understanding of the
lease terms given that Section 3 envisions a signed and recorded mortgage
that is already in effect when the 3(n) agreement is requested and signed.
Not only would these pre-set terms provide a predictable framework for
negotiations between the tenant and mortgagee, but the facts of this case
readily demonstrate the risks and inefficiencies of bringing a third party into
the mortgage negotiations at a late date.
On the other hand, Section 3(n) describes an agreement “between
Landlord, Tenant, and . . . Leasehold Mortgagee” about the terms of the lease.
Section 3(n) is silent about what should happen in the event one party
believes that the mortgage violates the terms of Section 3 or conflicts with its
other rights under the lease. Under the circumstances, Gator contends, there
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could be no 3(n) agreement because United Bank and 58 Swansea would not
agree to abide by Section 3(i)’s rules about insurance. There is a certain
intuitive force to the idea that it would be illogical to expect a landlord to sign
a 3(n) agreement knowing that the mortgage contradicts the terms of the
lease, particularly where a condition precedent for the 3(n) agreement is the
landlord’s receipt of a “true copy” of the mortgage for review.
Under the circumstances, the court will treat the Section 3(n) language
as ambiguous. This conclusion, in combination with the disputed facts about
the reasonableness of Gator’s performance, precludes summary judgment.
See Seaco Ins. Co. v. Barbosa, 435 Mass. 772, 779 (2002) (where contractual
language is ambiguous, and no extrinsic aids resolve the ambiguity,
allegations of breach must go to the factfinder). In particular, if the court
concludes that the first reading of Section 3(n) controls, there is a fact
question about whether Gator performed within a reasonable time. See
Lubin & Meyer, P.C. v. Lubin, 427 Mass. 304, 310 (1998). At trial, the court
will hear evidence about the parties’ understanding of Section 3(n) in
addition to evidence regarding a potential breach under either of the
competing interpretations.5

Gator also suggests that 58 Swansea cannot prove any damages from
the breach. Its arguments on this point chiefly attack the conclusions of 58
Swansea’s damages expert. Gator, however, has not filed a Daubert motion
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5

Counts II and IV
In Count II, 58 Swansea charges Gator with a breach of the implied
covenant of good faith and fair dealing, invoking two separate theories. First,
it contends that Gator breached the covenant by sending baseless default
notices and demanding more expensive repairs than necessary to the
property. Second, it argues that Gator attempted to extort an unbargainedfor benefit (the concession of an outparcel on the property) in exchange for
its performance. The latter theory also forms the basis of Count IV, a claim
under the Massachusetts Consumer Protection Statute, Mass. Gen. Laws ch.
93A, § 11.
“The covenant of good faith and fair dealing is implied in every
contract.” Uno Rests., Inc. v. Bos. Kenmore Realty Corp., 441 Mass. 376,
385 (2004). The covenant requires parties to “deal honestly and in good faith
in both the performance and enforcement of the terms of their contract.”
Hawthorne’s, Inc. v. Warrenton Realty, Inc., 414 Mass. 200, 211 (1993). The
plaintiff need not prove bad faith, but merely “a lack of good faith,” which
“can be inferred from the totality of the circumstances.” T.W. Nickerson, Inc.
v. Fleet Nat’l Bank, 456 Mass. 562, 570 (2010).

to contest the reliability of the expert’s testimony, and on this record the
existence or amount of damages remains a disputed fact question.
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Gator argues that because it has not breached the lease, it cannot have
breached the covenant of good faith and fair dealing, citing the aphorism that
“[t]he covenant may not . . . be invoked to create rights and duties not
otherwise provided for in the existing contractual relationship.” Uno Rests.,
441 Mass. at 385. Gator insists that it had a right to enforce the provisions
of the lease, particularly those related to insurance obligations. Its conduct
in sending other default notices, Gator contends, was likewise in good faith
and cannot constitute a breach of the covenant.
Gator’s argument misses the point.

The relevant question is not

whether Gator had a right to enforce the provisions of the contract, but
whether Gator took advantage of those provisions either to avoid
performance or to coerce 58 Swansea into ceding unbargained-for benefits.
The covenant is breached by exploiting “a discretionary right . . . as a pretext”
to extract concessions, Anthony’s Pier Four, Inc. v. HBC Assocs., 411 Mass.
451, 473 (1991), or by “tak[ing] an extreme and unwarranted view of [a
party’s] rights under the contract” to justify a refusal to engage in good faith
efforts to resolve any concerns, Robert & Ardis James Found. v. Meyers, 474
Mass. 181, 191 (2016).
The record reveals genuine disputes of material fact about Gator’s good
faith in issuing default notices regarding maintenance at the property. The
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parties have generated dueling reports and testimony about the condition of
the property, the necessity of repairs, and the adequacy of the steps taken by
58 Swansea. There is thus a triable issue as to whether Gator’s default
notices and repair demands reflected good faith or an unjustifiably
aggressive view of its rights under the lease.
58 Swansea’s second theory of breach is that Gator attempted to hold
the 3(n) agreement hostage to a ransom of the outparcel. See Anthony’s Pier
Four, 411 Mass. at 473. Moreover, it contends, this conduct represented an
unfair act in violation of Mass. Gen. Laws ch. 93A, § 11. Under section 11,
“conduct ‘in disregard of known contractual arrangements’ and intended to
secure benefits for the breaching party constitutes an unfair act or practice.”
Id. at 474 (quoting Wang Labs., Inc., v. Bus. Incentives, Inc., 398 Mass. 854,
857 (1983)). Such conduct must be more than a mere breach of contract, but
must involve a breach with “an extortionate quality that gives it the rancid
flavor of unfairness.” Atkinson v. Rosenthal, 33 Mass. App. Ct. 219, 226
(1992).
These claims, too, survive summary judgment. Gator contends that no
evidence links the 3(n) agreement and the outparcel concession.

This

argument is based in part on timing: if Gator had truly wanted to extort the
outparcel, it says, it would have done so in response to 58 Swansea’s request
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for an estoppel certificate, which it represented as the last step necessary to
close on the loan. But record evidence suggests that negotiations with ChickFil-A about the outparcel became more serious after the estoppel certificate
was provided, and a reasonable inference from the summary judgment
record is that Gator took advantage of a new opportunity to leverage 58
Swansea over the outparcel.
Gator contends that the extortion theory lacks evidentiary support
because it never explicitly linked the 3(n) agreement and the outparcel in any
communication with 58 Swansea. The argument is not dispositive. The
record reflects that Gator received the draft mortgage and initial request for
a 3(n) agreement on August 18. Three days later, Gator’s CEO sent an email
that could be read as instructing his general counsel to pressure 58 Swansea
into agreeing to cede the outparcel as a condition of the 3(n) agreement.
Shortly thereafter, Gator made a proposal regarding the outparcel and
referenced it on several occasions in response to questions from 58 Swansea
about the 3(n) agreement.

Whether Gator intended to withhold its

compliance with the request for a 3(n) agreement in order to extract the
outparcel from 58 Swansea is thus a question for the factfinder.
Second, Gator contends that because it engaged in good faith efforts to
sign a 3(n) agreement, summary judgment should be granted in its favor.
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The efforts Gator points to, however, began only after 58 Swansea filed this
lawsuit alleging that the outparcel concession was being held out as a quid
pro quo for the 3(n) agreement. It was at that point that Gator stopped
referring to the outparcel in its conversations with 58 Swansea, turning
instead to its concerns about the insurance provisions of the mortgage. The
good-faith negotiation argument thus does not support summary judgment.6
Counts III and V
58 Swansea advances a second Chapter 93A claim (Count V) based on
Gator’s attempt to terminate the ground lease and revoke the estoppel
shortly after this suit was filed. Gator seeks summary judgment on this
count, and 58 Swansea has not offered any argument in opposition.
Summary judgment will therefore be allowed on Count V.

The good faith (or lack thereof) of Gator’s negotiating stance might
be relevant to 58 Swansea’s damages. If Gator did negotiate in good faith
and the collapse of the 3(n) agreement was attributable to legitimate
concerns, then 58 Swansea’s damages might be limited to the costs it
incurred resisting the unjustified demands for the outparcel. See Siegel v.
Berkshire Life Ins. Co., 64 Mass. App. Ct. 698, 703 (2005) (“If a [Chapter]
93A violation forces someone to incur legal fees and expenses that are not
simply those incurred in vindicating that person’s rights under the statute,
those fees may be treated as actual damages in the same way as other losses
of money or property.”).
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6

Count III seeks specific performance, compelling Gator to provide a
signed 3(n) agreement. As the loan has been terminated, this count is now
moot.
ORDER
Gator’s motion for summary judgment (Dkt #164) is GRANTED as to
Counts III and V. The motion is DENIED as to Counts I, II, and IV.
SO ORDERED.
/s/ Richard G. Stearns
__________________________
UNITED STATES DISTRICT JUDGE

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