Buffalo-Water 1, LLC v. Fidelity Real Estate Company, LLC

NOTICE: All slip opinions and orders are subject to formal

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SJC-12487

BUFFALO-WATER 1, LLC vs. FIDELITY REAL ESTATE COMPANY, LLC.

Suffolk. October 4, 2018. - November 26, 2018.

Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, &

Kafker, JJ.

Appraisal. Declaratory Relief. Practice, Civil, Declaratory

proceeding, Motion to dismiss. Contract, Implied covenant

of good faith and fair dealing.

Civil action commenced in the Superior Court Department on

May 23, 2017.

A motion to dismiss was heard by Janet L. Sanders, J.

The Supreme Judicial Court on its own initiative

transferred the case from the Appeals Court.

Richard E. Briansky for the plaintiff.

David J. Apfel for the defendant.

Timothy P. Burke & Nathaniel P. Bruhn, for Greater Boston

Real Estate Board, amicus curiae, submitted a brief.

Dawn Mertineit & Katherine E. Perrelli, for Appraisal

Institute & another, amici curiae, submitted a brief.

GANTS, C.J. In Eliot v. Coulter, 322 Mass. 86, 91 (1947),

this court held that, where parties agree that the fair value of

2

a property shall be determined by an appraiser, "the correctness

of the principles and methods of valuation adopted by [an]

appraiser[] cannot be inquired into by the courts, in the

absence of fraud, corruption, dishonesty or bad faith." Under

this common-law rule, a judge may not invalidate "the

determination of appraisers selected by agreement to resolve a

dispute" unless the appraisal process or decision was tainted on

one of these four grounds. Nelson v. Maiorana, 395 Mass. 87, 89

(1985). The issue on appeal is whether we should modify this

common-law rule and allow a judge to invalidate an appraisal

intended by the parties to provide a final, binding valuation of

a property where there is the appearance of bias, not on the

part of the individual who conducted the appraisal, but on the

part of the entity that employed the individual appraiser. We

conclude that the common-law rule established in Eliot properly

balances the need for fair valuations with the need for finality

in the appraisal process, and that an appearance of bias alone

is insufficient to invalidate an appraisal. Because the

allegations in the complaint, if proved, do not warrant a

finding of any violation of the agreements setting forth the

terms of the appraisal, or a finding of fraud, corruption,

dishonesty, or bad faith by the individual appraiser, or a

finding of breach of the implied covenant of good faith and fair

3

dealing by the defendant, we affirm the Superior Court judge's

order allowing the defendant's motion to dismiss.1

Background. When reviewing a motion to dismiss, we accept

as true all facts alleged in the plaintiff's verified complaint

and accompanying exhibits. See Revere v. Massachusetts Gaming

Comm'n, 476 Mass. 591, 595 (2017). The following facts are

drawn from that complaint and those documents.

In October 2004, the defendant, Fidelity Real Estate

Company, LLC (Fidelity), sold the Winthrop Building, a

commercial property located in Boston (property), to the

plaintiff, Buffalo-Water 1, LLC (Buffalo-Water), a subsidiary of

a national real estate company. Buffalo-Water then leased the

property back to Fidelity, and the parties entered into an

option to purchase agreement (option agreement) granting

Fidelity the option to buy the building back in the final year

of its lease. The option agreement stated that, if Fidelity

chose to exercise its option, the purchase price would be

$16,275,000 or ninety-five percent of the property's fair market

value, whichever is greater. The fair market value would be

determined by agreement of the parties, or by the following

appraisal process outlined in the option agreement: (1) each

1 We acknowledge the amicus briefs submitted by the

Appraisal Institute and Massachusetts Board of Real Estate

Appraisers, and by the Greater Boston Real Estate Board.

4

party appoints an appraiser who has at least ten years of

experience appraising Greater Boston property and is an MAI-

designated member of the Appraisal Institute2 or a member of the

American Society of Real Estate Counselors3 (or their successor

organizations); (2) if the two appointed appraisers cannot agree

on the fair market value but their appraisals fall within five

percent of one another, the fair market value shall be deemed to

be the average of the two appraisals; (3) if the difference

between the appraisals is greater than five percent, the two

appraisers shall appoint a third appraiser to decide the fair

market value. The option agreement provides that this final

valuation may not be greater than the higher or less than the

lower of the two previous appraisals.

In August 2016, Fidelity exercised its right under the

option agreement to purchase the property. Fidelity and

2 The Appraisal Institute, a professional association of

real estate appraisers, designates certain qualified

professionals as MAI-designated members. "MAI" is not

technically an acronym, but one of several designations used to

identify certain professionals as members of the Appraisal

Institute. To become an MAI-designated member, an appraiser

must have good moral character, receive credit for specialized

experience, pass an examination, and meet various other

requirements.

3 The Counselors of Real Estate is an international

organization of property professionals. It was formerly known

as the American Society of Real Estate Counselors. An

individual may become a member by invitation, or may apply for

membership after meeting certain experience requirements.

5

Buffalo-Water were unable to agree upon the property's fair

market value, and each retained an independent appraiser to

determine the appropriate purchase price. Buffalo-Water's

appraiser valued the property at $36 million; Fidelity's

appraiser valued it at $17 million.4 Because the two appraisals

differed by more than five percent, the parties agreed to retain

Cushman & Wakefield (Cushman), a real estate services company,

as a third appraiser.

Cushman outlined the terms of its appraisal services in a

letter of engagement (engagement agreement) signed by the

parties and by Robert Skinner, the Cushman professional selected

to perform the independent appraisal.5 On April 18, 2017,

Skinner submitted an appraisal valuing the property at $22.9

million. The valuation was accompanied by a "Certification of

Appraisal" signed by Skinner, which stated, "We have no present

or prospective interest in the property that is the subject of

this report, . . . no personal interest with respect to the

4 According to the complaint, Buffalo-Water's appraiser

evaluated the fair market value of the property as occupied, but

Fidelity's appraiser evaluated it as vacant. Because neither

party disputes the validity of these two initial appraisals, we

do not address this discrepancy here.

5 Robert Skinner may have had assistance in valuing the

property -- the engagement agreement retaining Cushman to

conduct the valuation lists a $475 hourly fee for Skinner, and a

$250 hourly fee for "Analysts/Appraisers." Skinner alone,

however, signed the engagement agreement and the certification

of appraisal attached to the final appraisal report.

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parties involved," and "no bias with respect to the property

that is the subject of this report or to the parties involved

with this assignment."

Soon after receiving the valuation, Buffalo-Water asked

Skinner to reconsider the appraisal in light of certain "factual

errors."6 In response, Cushman offered to meet with Buffalo-

Water and Fidelity to discuss the appraisal. Fidelity declined

this offer to meet in a letter that noted that neither the

option agreement nor the engagement agreement "contemplates

reconsideration of the appraisal at any time." Fidelity also

stated that Buffalo-Water was obliged under the option agreement

to honor the third appraiser's valuation and deed the property

to Fidelity.

After receiving Fidelity's letter, Buffalo-Water learned

that in December 2016, before Cushman was engaged to conduct the

appraisal, Fidelity had retained Cushman for a national

representation contract.7 Buffalo-Water communicated this

6 In an electronic mail message sent on April 21, 2017,

Stephen Scalione -- Buffalo-Water's executive director of

finance -- summarized the alleged factual errors. Scalione

claimed that Skinner had misreported the purchase price and net

rentable area of the property, that a certain deduction was

improper, that the building should not have been valued as

vacant, and that the over-all valuation was inaccurate.

7 Fidelity asserts that the national representation contract

was with Cushman & Wakefield U.S., Inc., not Cushman & Wakefield

of Massachusetts, Inc., which employed the appraiser who

performed the valuation. Because the complaint identifies only

7

information to Fidelity, claiming that Fidelity's preexisting

relationship with Cushman created an impermissible conflict of

interest. Fidelity declined to retain a new appraiser or to

extend the closing date in light of this alleged conflict.

The following week, Buffalo-Water filed a two-count

verified complaint against Fidelity in the Superior Court. The

first count seeks a judgment declaring that the appraisal is

invalid and nonbinding; the second count alleges a breach of the

covenant of good faith and fair dealing. Fidelity moved to

dismiss the complaint for failure to state a claim upon which

relief can be granted. Mass. R. Civ. P. 12 (b) (6), 365 Mass.

754 (1974). The judge allowed Fidelity's motion and dismissed

the complaint, concluding that the facts alleged by Buffalo-

Water did "not amount to the kind of bad faith, fraud or

corruption required for a court to invalidate an independent

appraisal agreed to by the parties." Buffalo-Water appealed,

and we transferred the case to this court on our own motion.

Discussion. We review the allowance of a motion to dismiss

de novo. Galiastro v. Mortgage Elec. Registration Sys., Inc.,

467 Mass. 160, 164 (2014). In considering whether a count in a

complaint survives a motion to dismiss under Mass. R. Civ. P.

12 (b) (6), we accept as true the factual allegations in the

one Cushman entity, and because our decision does not rest on

the distinction, we refer to Cushman as a single entity.

8

complaint and the attached exhibits, draw all reasonable

inferences in the plaintiff's favor, and determine whether the

allegations "plausibly suggest" that the plaintiff is entitled

to relief on that legal claim (citation omitted). Id. The

allegations must be more than "mere labels and conclusions," and

must "raise a right to relief above the speculative level"

(quotations and citations omitted). Id. at 165.

Buffalo-Water raises three arguments on appeal. First, it

claims that the judge improperly dismissed its claim for

declaratory judgment under rule 12 (b) (6) because courts are

obligated to declare the rights of the parties in every properly

brought action for declaratory relief. Second, it claims that

the appraisal should be invalidated due to Cushman's failure to

disclose its preexisting contractual relationship with Fidelity.

Third, Buffalo-Water claims that Fidelity committed a breach of

the covenant of good faith and fair dealing by taking advantage

of an appraisal process it knew to be biased. We address each

of these arguments in turn.

1. Declaratory relief. Buffalo-Water contends that the

judge erred in dismissing its claim for declaratory relief under

G. L. c. 231A, § 1, because, where the claim was properly

brought, Buffalo-Water is entitled to a declaration of the

rights of the parties. We hold that, where a party moves to

dismiss a properly brought declaratory judgment claim under rule

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12 (b) (6) and where the judge concludes that the facts alleged

in the complaint fail to state a claim upon which relief can be

granted, the judge has the option of dismissing the claim or of

declaring that, based on the facts alleged in the complaint, the

plaintiff is not entitled to the declaratory relief sought.

When evaluating a motion to dismiss a claim for declaratory

relief under rule 12 (b) (6), a judge must proceed in two steps.

First, the judge must determine whether the claim was "properly

brought." See Mscisz v. Kashner Davidson Sec. Corp., 446 Mass.

1008, 1010 (2006). A claim for declaratory relief is "properly

brought" where the plaintiff demonstrates that an actual

controversy exists, see G. L. c. 231A, § 1 (courts may issue

declaratory judgments where "an actual controversy has arisen

and is specifically set forth in the pleadings"); that the

plaintiff has legal standing to sue, see Massachusetts Ass'n of

Indep. Ins. Agents & Brokers, Inc. v. Commissioner of Ins., 373

Mass. 290, 292-293 (1977) (explaining standing requirement); and

that all necessary parties have been joined, see G. L. c. 231A,

§ 8 ("When declaratory relief is sought, all persons shall be

made parties who have or claim any interest which would be

affected by the declaration . . ."); Service Employees Int'l

Union, Local 509 v. Department of Mental Health, 469 Mass. 323,

338 (2014) (failure to join necessary parties under G. L. c.

231A, § 8, and Mass. R. Civ. P. 19, 365 Mass. 765 [1974] "may be

10

jurisdictional in a declaratory judgment action, thereby

precluding the court's consideration of the issue").8

Where the claim is "properly brought," as it is here, the

judge must proceed to the second step: determining whether the

facts alleged by the plaintiff in the complaint, if true, state

a claim for declaratory relief that can survive a defendant's

motion to dismiss.

Buffalo-Water contends that, even if the facts alleged in

its complaint fail to state a claim for declaratory relief, the

judge may not dismiss its properly brought claim but must

instead declare the rights of the parties. Buffalo-Water's

contention has considerable support in our case law. See Lynn

v. Lynn Police Ass'n, 455 Mass. 590, 599 (2010) ("In a properly

brought action for declaratory relief, there must be a

declaration of the rights of the parties even though relief is

denied to a plaintiff"); Cherkes v. Westport, 393 Mass. 9, 12

(1984) (same); Attorney Gen. v. Kenco Optics, Inc., 369 Mass.

412, 418 (1976) ("When an action for declaratory relief is

properly brought and relief is denied on the merits, the action

should not be dismissed. . . . The rights of the parties should

8 Where the relief sought through a declaratory judgment

claim involves administrative action, we further require the

plaintiff to show that all available administrative remedies

have been exhausted. See Villages Dev. Co. v. Secretary of the

Executive Office of Envtl. Affairs, 410 Mass. 100, 106 (1991).

11

be declared" [citation omitted]); Jewel Cos. v. Burlington, 365

Mass. 274, 277 (1974) ("a demurrer will not be sustained . . .

merely because the court is convinced the plaintiff will fail on

the merits but only where the bill on its face fails to state a

controversy proper for determination under the declaratory

procedure" [quotation and citation omitted]); Connery v.

Commissioner of Correction, 33 Mass. App. Ct. 253, 254 n.4

(1992), S.C., 414 Mass. 1009 (1993) ("Irrespective of the merits

of the case, dismissal of the case under Mass. R. Civ. P.

12 [b] [6] was not a correct disposition" because "[i]n an

action for declaratory relief . . . the court ought to declare

the rights of the parties"). But Massachusetts appellate courts

have also affirmed orders allowing motions to dismiss in

properly brought claims for declaratory relief. See State Room,

Inc. v. MA-60 State Assocs., L.L.C., 84 Mass. App. Ct. 244, 252

(2013) (affirming judgment dismissing claim for declaratory

relief under rule 12 [b] [6]). See also Harvard Crimson, Inc.

v. President & Fellows of Harvard College, 445 Mass. 745 (2006);

Wallerstein v. Board of Bar Examiners, 414 Mass. 1008 (1993).9

9 In Harvard Crimson, Inc. v. President & Fellows of Harvard

College, 445 Mass. 745, 748 n.5 (2006), and Wallerstein v. Board

of Bar Examiners, 414 Mass. 1008, 1009 (1993), this court

acknowledged that when "an action for declaratory relief is

properly brought and relief is denied on the merits, the action

should not be dismissed" (citation omitted) and the rights of

the parties should be declared. In both cases, however, the

court went on to affirm judgments granting motions to dismiss,

12

Our case law regarding whether courts may dismiss properly

brought claims for declaratory relief under rule 12 (b) (6)

therefore requires clarification.

Where a defendant has filed a motion to dismiss and the

judge concludes that the plaintiff has failed to state a claim

upon which relief can be granted, the claim is ripe for

disposition. If the plaintiff is not entitled to the

declaratory judgment sought even if all of the factual

allegations in the complaint are true, there can be no

justification for allowing the claim to proceed or for

permitting further discovery. If the judge were to declare the

rights of the parties, the declaration should simply be that the

plaintiff is not entitled to the declaratory relief sought based

on the ground that dismissal of a complaint under Mass. R. Civ.

P. 12 (b) (6), 365 Mass. 754 (1974), is not a decision on the

merits. See Harvard Crimson, Inc., supra; Wallerstein, supra.

At least for res judicata purposes, however, a dismissal under

Mass. R. Civ. P. 12 (b) (6) is considered an adjudication on the

merits. See Mass. R. Civ. P. 41 (b) (3), as amended, 454 Mass.

1403 (2009) ("any dismissal not provided for in this rule, other

than a dismissal for lack of jurisdiction, for improper venue,

or for failure to join a party . . . operates as an adjudication

upon the merits"); Mestek, Inc. v. United Pac. Ins. Co., 40

Mass. App. Ct. 729, 731 (1996) ("under Massachusetts law, as

elsewhere, a dismissal for failure to state a claim . . .

operates as a dismissal on the merits" [citation and alteration

omitted]). See also Federated Dep't Stores, Inc. v. Moitie, 452

U.S. 394, 399 n.3 (1981) (dismissal for failure to state claim

under Fed. R. Civ. P. 12 [b] [6], which is identical to Mass. R.

Civ. P. 12 [b] [6], is judgment on merits). We therefore find

the reasoning in support of the dismissals in the Harvard

Crimson, Inc. and Wallerstein cases to be unpersuasive.

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on the allegations in the complaint. Such a declaration,

however, is implicit in a judge's order to dismiss a declaratory

judgment claim under rule 12 (b) (6). Here, for instance, the

judge's allowance of the motion to dismiss implicitly declares

that, based on the allegations in its complaint, Buffalo-Water

is not entitled to the declaration that Skinner's appraisal is

invalid. Therefore, we see no convincing reason to prohibit a

judge from dismissing a properly brought declaratory judgment

count where it fails to state a claim under rule 12 (b) (6). We

also see no convincing reason to prohibit a judge from making

explicit through a declaration of rights what would be implicit

in a dismissal. To the extent that previous cases have held

that a judge may not dismiss a properly brought declaratory

judgment claim where it fails to state a claim under rule 12 (b)

(6), those cases are overruled.

2. Validity of appraisal. Parties that agree to be bound

by an appraisal are free to set forth contractual terms

regarding the appraiser's obligations and the grounds for

invalidating the appraisal. Therefore, in deciding whether to

invalidate an appraisal, we look first to determine whether

there are allegations that would support a finding of a material

breach of the contract terms governing the appraisal. Where

there is no such material breach, we then look to the common law

14

to determine whether the appraisal is invalid due to "fraud,

corruption, dishonesty or bad faith." Eliot, 322 Mass. at 91.

a. Contract terms. Because the engagement agreement

retaining Cushman to perform an appraisal for Buffalo-Water and

Fidelity sets forth the terms of the appraisal at issue here, we

look to its contents to determine whether the appraiser was

contractually obligated to disclose Cushman's contract with

Fidelity. Three provisions of the engagement agreement are

relevant: the discussion of conflicts of interest, the

requirement that the appraiser's prior services be disclosed,

and the commitment to "develop an appraisal in accordance with

[the Uniform Standards of Professional Appraisal Practice

(USPAP)10] and the Code of Ethics and Certification Standards of

the Appraisal Institute."

i. Conflicts of interest. The "Conflicts of Interest"

section of the engagement agreement states that "[Cushman]

adheres to a strict internal conflict of interest policy. If we

discover in the preparation of our appraisal a conflict with

this assignment we reserve the right to withdraw from the

assignment without penalty." This provision does not obligate

Cushman or its appraisers to disclose any conflicts or

10The Uniform Standards of Professional Appraisal Practice

(USPAP) are published by the Appraisal Foundation, which sets

standards and qualifications for real estate appraisers.

15

relationships. Instead, it exists to protect Cushman should it

choose to withdraw from an assignment to perform an appraisal

because of a conflict of interest. The provision is therefore

not applicable where, as here, the appraiser completed a

valuation without exercising the right to withdraw.

ii. Disclosure requirement. In a section entitled "Prior

Services Disclosure," the engagement agreement states that the

"USPAP requires disclosure of prior services performed by the

individual appraiser within the three years prior to this

assignment." The section goes on to affirm that the

"undersigned appraiser has not provided prior services within

the designated time frame." The relevant USPAP section is an

"Ethics Rule" explaining that "[i]f known prior to accepting an

assignment, and/or if discovered at any time during the

assignment, an appraiser must disclose to the client . . . any

current or prospective interest in the subject property or

parties involved; and any services regarding the subject

property performed by the appraiser within the three year period

immediately preceding acceptance of the assignment, as an

appraiser or in any other capacity." Appraisal Foundation,

USPAP 9 (2016-2017) (USPAP).

The relevant appraiser for the purposes of the contract is

Skinner, who signed the engagement agreement and went on to

perform the valuation at issue. Buffalo-Water's argument --

16

that Cushman is the relevant appraiser -- is belied not only by

the text of the engagement agreement, which clearly refers to

the "individual" and "undersigned" appraiser, but also by an

Ethics Rule comment clarifying that the Ethics Rule "specifies

the personal obligations and responsibilities of the individual

appraiser." Id. at 8. This is consistent with the "Assumptions

and Limiting Conditions" section of Skinner's completed

appraisal report, which explicitly defines "[a]ppraiser(s)" to

mean "the employee(s) of [Cushman] who prepared and signed the

Report" (emphasis added). Buffalo-Water's focus on Skinner's

employer is further refuted by the answer to one of the

"Frequently Asked Questions" that provide guidance regarding the

interpretation of the USPAP. The relevant question asks, "If

the firm that employs me as an appraiser has provided leasing or

property management services in the past three years for the

subject property, must this be disclosed?" Id. at 219. The

Appraisal Foundation responds, "[n]ot necessarily," as the

Ethics Rule only "requires disclosure of services provided by

the appraiser. However, if an appraiser believes that the

provision of a service by the appraiser's firm or other related

entity may be relevant, he or she should disclose that

information to a potential client" (quotation omitted).11 Id.

11We note that there is no allegation in the complaint that

Cushman provided any services for the Winthrop Building.

17

Buffalo-Water's complaint alleges no facts suggesting that

Skinner had any interest in the Winthrop Building or that he had

performed an appraisal of the Winthrop Building in the three

years prior to his acceptance of the assignment (or at any other

time). Nor does the complaint allege that Skinner even knew of

Fidelity's national representation contract with Cushman.

Without such knowledge, Skinner cannot be expected to have

disclosed that information to Buffalo-Water. Nor, for that

matter, could he have been influenced in his valuation of the

property by a Cushman contract with Fidelity that he is not

alleged to have known anything about. The "Prior Services

Disclosure" section of the engagement agreement therefore did

not require the disclosure of Cushman's contract with Fidelity.

iii. Incorporation of USPAP and Code of Ethics. In an

engagement agreement section entitled "USPAP Compliance,"

Skinner agreed to "develop an appraisal in accordance with USPAP

and the Code of Ethics and Certification Standards of the

Appraisal Institute." Here, the relevant incorporated standard

is rule 3-6 of the Code of Ethics, which provides that in the

absence of disclosure, "[i]t is unethical to provide a Service

if a valuer has any direct or indirect, current, or prospective

personal interest in the subject or outcome of the Service or

with respect to the parties involved in the Service."

18

The Code of Ethics specifically defines a "valuer" as

"[o]ne who is expected to provide Services in an unbiased and

competent manner" (emphasis added). Appraisal Institute, Code

of Professional Ethics and Explanatory Comments 6 (2015). In

this case, where Skinner was the "valuer," the relevant inquiry

is whether Skinner's actions violated rule 3-6 of the Code of

Ethics. The complaint alleges no facts tending to show that

Skinner had any personal interest in the Winthrop Building or in

the outcome of his valuation, or knew of the national

representation contract between Fidelity and Cushman. Code of

Ethics rule 3-6, as incorporated by the engagement agreement,

therefore created no obligation to disclose the existence of

that contract.

b. Common law. Finding no contractual breach, we move on

to consider whether the appraisal was invalid under

Massachusetts common law. Our common law has recognized that,

when parties enter into a contract providing that the valuation

established by an independent appraiser shall determine the

value of a property or business, they express their "shared

desire for finality" through a means other than adjudication by

a court or an arbitrator. State Room, Inc., 84 Mass. App. Ct.

at 249. See Eliot, 322 Mass. at 89 (parties agreed to valuation

"that would in the future prevent a resort to the courts or to

technical arbitration"). The common law also recognizes that

19

the need for finality does not override the need for the

appraisal process to be untainted by "fraud, corruption,

dishonesty or bad faith." See Eliot, supra at 91. By allowing

courts to invalidate appraisals only in these narrow

circumstances, the common-law test established in Eliot balances

the desire for finality with the need for integrity in the

appraisal process.

Buffalo-Water claims that the appearance of bias arising

from Cushman's national representation contract with Fidelity

suffices to invalidate Skinner's appraisal. In evaluating this

claim, we first consider whether the appearance of bias falls

within the existing rubric of "fraud, corruption, dishonesty or

bad faith." Because we find that it does not, we then consider

whether we should revise our common law to include it.

We begin by noting that, in determining whether to

invalidate an appraisal, we look to the conduct of the

individual appraiser or appraisers responsible for the

valuation, not to the conduct of their employer. This rule is

in keeping with the USPAP and the Code of Ethics. See USPAP,

supra at 1 (defining "appraiser" as "one who is expected to

perform valuation services competently and in a manner that is

independent, impartial, and objective" [emphasis added]); id. at

8 ("This [Ethics] Rule specifies the personal obligations and

responsibilities of the individual appraiser"); Appraisal

20

Institute, Code of Professional Ethics and Explanatory Comments

6 (2015) (defining "valuer" as "[o]ne who is expected to provide

Services in an unbiased and competent manner" [emphasis added]).

In arguing for the adoption of an "appearance of bias"

standard, Buffalo-Water relies in large part on the statement in

the United States Supreme Court's opinion in Commonwealth

Coatings Corp. v. Continental Cas. Co., 393 U.S. 145, 150 (1968)

that, under the Federal Arbitration Act, "any tribunal permitted

by law to try cases and controversies not only must be unbiased

but also must avoid even the appearance of bias." Putting aside

that this decision involved an arbitration rather than an

appraisal and that it interpreted a Federal arbitration statute,

the appearance of bias in Commonwealth Coatings Corp. arose from

the fact that the "third arbitrator, the supposedly neutral

member of the panel, conducted a large business . . . in which

he served as an engineering consultant" and one of the "regular

customers" of that business was a litigant in the arbitration.

Id. at 146. Thus, "the appearance of bias" arose from his

personal, "repeated and significant" business relationship with

the defendant, not simply the business relationship of his

employer.12 Id. Even the cases from other jurisdictions that

12We note that the two concurring Justices sought to limit

the breadth of the holding, stating that "it is enough for

present purposes to hold, as the Court does, that where the

arbitrator has a substantial interest in a firm which has done

21

were cited by Buffalo-Water in its discussion of appraiser bias

focus on the bias of individual appraisers, not their employer.

See, e.g., Gebers v. State Farm Gen. Ins. Co., 38 Cal. App. 4th

1648, 1652 (1995) (appraiser was separately retained by party as

expert witness in two pending court cases); Central Life Ins.

Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257, 261 (Iowa 1991)

("appraiser was interested because he had a direct financial

interest in the dispute").

Buffalo-Water alleges that there is an appearance of bias

in Skinner's appraisal because of a business relationship that

his employer, Cushman, has with Fidelity. Skinner is not

alleged to have known about this business relationship when he

made the valuation. The alleged appearance of bias does not

qualify as "fraud, corruption, dishonesty or bad faith." Eliot,

322 Mass. at 91.

At a minimum, a claim of fraud sufficient to invalidate an

appraisal must allege a misrepresentation, and there are no

allegations in the complaint tending to show that Skinner made,

or was even aware of, a false representation to Buffalo-Water.

See Balles v. Babcock Power Inc., 476 Mass. 565, 573 (2017)

(describing elements of fraud). To the extent that Buffalo-

more than trivial business with a party, that fact must be

disclosed." Commonwealth Coatings Corp. v. Continental Cas.

Co., 393 U.S. 145, 151-152 (1968) (White, J., concurring, joined

by Marshall, J.).

22

Water alleges that Cushman committed fraud by omission because

Buffalo-Water relied to its detriment upon a "material omission

by Cushman (i.e. its failure to disclose its relationship with

Fidelity)," this allegation also fails. To show fraud by

omission, the plaintiff must allege "both concealment of

material information and a duty requiring disclosure." Sahin v.

Sahin, 435 Mass. 396, 402 n.9 (2001). Here, Buffalo-Water has

not shown that Skinner concealed (or even knew of) the national

contract between Fidelity and Cushman, nor has it shown any duty

to disclose that contract.13

"Dishonesty" is a broader term than fraud, encompassing all

"behavior that deceives or cheats people," "untruthfulness," and

"untrustworthiness." Black's Law Dictionary 568 (10th ed.

2014). We need not decide here whether a dishonest act that

falls short of fraud will suffice under our common law to

invalidate an appraisal, because an appearance of bias alone

cannot reasonably be deemed an act of dishonesty where, as here,

the appearance of bias arises from a business relationship of

Cushman that Skinner is not alleged to have known existed.

A finding of "corruption" might be warranted where the

individual appraiser had an undisclosed personal interest --

13In view of this conclusion, we need not decide whether a

complaint seeking to invalidate an appraisal on the ground of

fraud must plead the allegation of fraud with "particularity."

See Mass. R. Civ. P. 9 (b), 365 Mass. 751 (1974).

23

financial or otherwise -- in the outcome of his or her

valuation. As earlier noted, rule 3-6 of the Code of Ethics

provides that it is unethical to provide services without

disclosure if the valuer has any "personal interest" in the

subject or outcome of the service or "with respect to the

parties involved." But we decline to characterize as

"corruption" the mere appearance of bias based on a business

relationship of the appraisal company rather than of the

individual appraiser, especially where there is no allegation

that the individual appraiser knew of that relationship.

Bad faith is a "general and somewhat indefinite term" that

goes beyond "bad judgment" or "negligence," suggesting "a

dishonest purpose or some moral obliquity," a "conscious doing

of wrong," or a "breach of a known duty through some motive of

interest or ill will." Spiegel v. Beacon Participations, Inc.,

297 Mass. 398, 416 (1937). See Commonwealth v. Frith, 458 Mass.

434, 441 (2010). Bad faith is not a statutory ground for

invalidating arbitrations under the Massachusetts Uniform

Arbitration Act for Commercial Disputes, G. L. c. 251, § 12 (a)

(MAA), but the MAA does require courts to vacate arbitration

awards where "there was evident partiality by an arbitrator

appointed as a neutral." G. L. c. 251, § 12 (a) (2).

"[E]vident partiality means a situation in which a reasonable

person would have to conclude that an arbitrator was partial to

24

one party to an arbitration" (quotation and citation omitted).

JCI Communications, Inc. v. Int'l Bhd. of Elec. Workers, Local

103, 324 F.3d 42, 51 (1st Cir. 2003). We recognize that

partiality, where it exists, is more likely to be evident in an

arbitration than in an appraisal because an arbitrator generally

conducts a hearing where evidence is offered, while an appraiser

generally renders a valuation without a hearing or the

presentation of evidence. See Palmer v. Clark, 106 Mass. 373,

389 (1871) (appraisal decision, unlike arbitration decision,

"may be made without notice to or hearing of the parties"). But

if evident partiality were proved in the context of an

appraisal, it would be sufficient to establish bad faith and to

invalidate an appraisal under our common law, much as it would

invalidate an arbitration award under the MAA. Evident

partiality, however, means "more than just the appearance of

possible bias," JCI Communications, Inc., supra, and therefore

cannot be established based on the allegations in Buffalo-

Water's complaint.

Arguably, an appraiser may also act in "bad faith" where he

or she acts in any other way that would justify vacating an

arbitration award under the MAA. See, e.g., G. L. c. 251,

§ 12 (a) (1) (arbitration award shall be vacated if procured by

undue means); G. L. c. 251, § 12 (a) (2) (arbitration award

shall be vacated if there was "misconduct prejudicing the rights

25

of any party"). Buffalo-Water, however, has alleged no facts

showing that Skinner's actions, if committed in an arbitral

context, might have been impermissible under the MAA. We

therefore need not address here to what extent "bad faith" under

our common law might encompass the various grounds for

invalidating an arbitration award under the MAA.

Having determined that the appearance of bias alone does

not support a finding of "fraud, corruption, dishonesty or bad

faith," Eliot, 322 Mass. at 91, we consider whether to add

"appearance of bias" as a separate common-law ground for

invalidating an appraisal. We decline to do so. For more than

seventy years, the common-law standard established in Eliot has

provided an appropriate balance between parties' desire for

finality and the need for integrity in the appraisal process.

Allowing appraisals to be invalidated based on the appearance of

bias alone would considerably diminish the finality of

appraisals without significantly improving their over-all

integrity. Cf. Katz, Nannis & Solomon, P.C. v. Levine, 473

Mass. 784, 794 (2016) ("[a]llowing parties to expand the grounds

for judicial review would undermine the predictability,

certainty, and effectiveness of the arbitral forum that has been

voluntarily chosen by the parties" [quotation and citation

omitted]).

26

When parties negotiate a contract that provides for a

binding appraisal, they are free to include provisions that

establish more stringent impartiality requirements than those in

our common law and specify that the appraisal will be invalid

where those requirements are not met. Here, just as the parties

required that the individual appraisers have at least ten years

of experience valuing Greater Boston property, they could have

required disclosure of any information concerning Cushman's

business dealings with Buffalo-Water or Fidelity that might

create an "appearance of bias," and agreed to invalidate the

appraisal if such a disclosure was not made. Where they did

not, we decline to expand our common law to require invalidation

on this ground alone.

Because the allegations in Buffalo-Water's verified

complaint, taken as true, do not "plausibly suggest" that the

appraisal was tainted by fraud, corruption, dishonesty, or bad

faith, and because the appearance of bias alone is not

sufficient to invalidate an appraisal, the motion to dismiss the

count of the complaint seeking invalidation of the appraisal was

properly allowed under Mass. R. Civ. P. 12 (b) (6).

3. Covenant of good faith and fair dealing. In a separate

count of the complaint, Buffalo-Water alleges that the defendant

violated the covenant of good faith and fair dealing by

insisting that Buffalo-Water sell the Winthrop Building despite

27

knowing that the valuation was tainted by Cushman's potential

conflict of interest with Fidelity.

The covenant of good faith and fair dealing "requires that

neither party shall do anything that will have the effect of

destroying or injuring the right of the other party to the

fruits of the contract" (quotation and citation omitted). T.W.

Nickerson, Inc. v. Fleet Nat'l Bank, 456 Mass. 562, 570 (2010).

Although "[e]very contract implies good faith and fair dealing

between the parties to it," the "scope of the covenant is only

as broad as the contract that governs the particular

relationship" (quotations and citations omitted). Id. at 569-

570. In other words, the covenant of good faith and fair

dealing "cannot create rights and duties not otherwise provided

for in the existing contractual relationship" (quotation and

citation omitted). Id. at 570.

Nothing in the contractual agreements entered into by

Buffalo-Water and Fidelity prohibits Fidelity from demanding a

sale based on the price established in Skinner's appraisal. The

option agreement clearly states that the property's value would

be determined through an appraisal process, every step of which

was followed here. It does not require the parties to refrain

from selecting an appraiser whose company had previously

contracted with one of the parties. Nor does the option

agreement or the engagement agreement require disclosure of

28

potential conflicts of interest that could create the appearance

of bias. Buffalo-Water may not insert these conditions into its

contract with Fidelity through the side door of the covenant of

good faith and fair dealing. Because Buffalo-Water has alleged

no facts tending to show that Fidelity injured its rights under

the option agreement or the engagement agreement, we conclude

that the judge properly dismissed the claim for breach of the

implied covenant of good faith and fair dealing.14

Conclusion. For the reasons stated above, we affirm the

order allowing the defendant's motion to dismiss the complaint.

So ordered.

14Buffalo-Water contends that it was error for the judge to

dismiss its claim for breach of the covenant of good faith and

fair dealing without specifically referencing this claim or

providing a basis for the dismissal. "Findings of facts and

conclusions of law," however, "are unnecessary on decisions of

motions under Rule[] 12 . . . ." Mass. R. Civ. P. 52 (a), as

amended, 423 Mass. 1402 (1996). Furthermore, because we review

decisions on motions to dismiss de novo, our analysis is not

affected by the judge's lack of explanation. See Gabbidon v.

King, 414 Mass. 685, 686 (1993) ("on appeal, we may consider any

ground apparent on the record that supports the result reached

in the lower court").