Summary
examining whether executive vice president of defendant had apparent authority to bind defendant in contract with plaintiff
Summary of this case from CNE Direct, Inc. v. Blackberry Corp.Opinion
No. 11–P–1821.
2013-04-9
MURPHY & McMANUS, LLC. v. CBR INSTITUTE FOR BIOMEDICAL RESEARCH, INC. & another.
By the Court (GRAHAM, VUONO & HANLON, JJ.).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
This case involves a contract between Murphy & McManus, LLC(M & M), through its founder and principal, Robert Murphy, and the CBR Institute for Biomedical Research, Inc.(CBR), through its former executive vice president, Michael Lanner. The central issue is the enforceability of an “exclusive representation agreement” (contract) that Lanner signed, on behalf of CBR, purporting to engage Murphy for a one-year period as the exclusive broker to locate and acquire suitable property intended to house CBR's new consolidated headquarters.
Background. The plaintiff, M & M, is a commercial real estate brokerage firm founded by Robert Murphy and Peter McManus; it provides real estate consulting, real estate brokerage services and construction management, with a particular concentration in the Longwood Medical area. The defendant CBR is a charitable corporation affiliated with the Harvard Medical School. The defendant Michael Lanner was the executive vice president, chief administrative officer and a member of CBR's board of trustees from March, 1999, until April, 2005; he was responsible for the day-to-day management oversight of CBR's physical facilities.
In June, 2004, CBR devised a strategic plan to expand and consolidate its research facilities into one location, either through renovating and expanding its existing headquarters at 800 Huntington Avenue, or through the purchase or lease of property at a different location. Lanner was the point person for the project. CBR had previously contracted with M & M to provide real estate brokerage services, for specified time periods.
On August 1, 2004, Lanner and Murphy entered into a contract providing that CBR would engage M & M to be its exclusive agent for a period of twelve months beginning as of the date of the agreement. The contract described M & M's duties under the engagement, specified upon what conditions and in what amounts M & M would be compensated, and also provided that M & M exclusively would engage with potential property owners, thus restricting CBR from any direct contact with them. The contract provided that CBR could terminate the agreement at any time for cause and that, in that event, M & M would be compensated “for any transaction that CBR may enter into subsequent to the termination with an entity that [M & M] had documented as a potential prospect prior to such termination.” Lanner signed the contract without disclosing to anyone at CBR that he had done so. Thereafter, Murphy pursued various possibilities for locating an appropriate property. In particular, Murphy presented thirteen potential sites to a meeting of CBR's real estate committee on August 30, 2004. The committee then narrowed its choices to four and Murphy provided more detail about the four in a presentation on September 29, 2004.
On April 1, 2005, the new president of CBR, Dr. John Baldwin, fired Lanner. Shortly thereafter, Theodore Cronin, CBR's chief financial officer (CFO), learned of the contract with Murphy and brought it to Baldwin's attention. Responding in an e-mail message, Baldwin instructed Cronin not to renew M & M's contract when it expired. Baldwin also showed the agreement to the chairman of CBR's board of trustees and to CBR's scientific director, who was also a board member. Baldwin did not believe that Lanner had the authority to sign the agreement, but he did not so inform M & M. Murphy thereafter continued to work on CBR's consolidation/relocation project, while Baldwin made independent efforts to locate appropriate space and facilities for the new headquarters, thus replacing Lanner as CBR's point person for the project.
In May, 2006, CBR entered into a lease with the owners of the Blackfan property, one of the thirteen properties that Murphy had presented to CBR's real estate committee at the August and September, 2004, power-point presentations. Also in May, 2006, CBR entered into a sale and lease back agreement of CBR's 800 Huntington Avenue property with Beal Companies, LLP. CBR, and specifically Baldwin, did not include Murphy in any of these negotiations or agreements, nor did Murphy receive any compensation as a result of these transaction, both of which closed after the M & M/CBR brokerage contract expired by its own terms.
Summary of proceedings. After M & M filed suit in 2006, the parties filed cross-motions for summary judgment. The motion judge granted summary judgment for the defendant CBR on those parts of M & M's claims pertaining to the sale of CBR's existing headquarters at 800 Huntington Avenue. After a jury-waived trial before a different judge on the remaining issues, the trial judge found that Lanner did not have authority to bind CBR without approval from CBR's board of trustees, especially in light of CBR's nonprofit status; he also found that CBR had not ratified the agreement through the actions of its officers or board members. As a result, he concluded that CBR did not breach the agreement when it failed to pay the plaintiff a commission on its new lease. The trial judge also found the plaintiff's alternative theory of Lanner's individual liability for breach of warranty of authority lacked merit and that there was insufficient evidence on which to determine reliance damages.
The plaintiff now appeals, arguing that the judge erred in failing to find a breach of the contract, because Lanner had actual or, at least, apparent authority to enter into the agreement on behalf of CBR, and, also, that actions by the president, CFO, and certain trustees of CBR subsequently had ratified the contract. Murphy also contends the judge erred in refusing to enforce the contract for lack of specificity for a damages determination, declining to award benefit of the bargain damages, and failing to find that CBR's activities supported a chapter 93A claim. We reverse so much of the judgment as relates to the breach of contract and covenant of good faith and fair dealing claims as they pertain to CBR's lease of the Blackfan property; the remainder of the judgment is affirmed.
a. Summary judgment. M & M argues that the motion judge deprived it of a commission to which it was entitled under the terms of the contract when she granted partial summary judgment for the defendants with regard to the sale of CBR's existing property at 800 Huntington Avenue. The motion judge ruled that “[t]he [a]greement does not expressly and unambiguously indicate that CBR must pay a commission even if it itself sells or rents its current premises” nor does it “grant [the plaintiff] an ‘exclusive right to sell or lease’ 800 Huntington [Avenue].”
After review of the contract, it appears that a unilateral agreement was created pertaining to 800 Huntington Avenue whereby consideration would be paid to the plaintiff upon performance of the stated condition—providing a ready, willing, and able buyer to purchase the property. See Bartlett v. Keith, 325 Mass. 265, 267, 90 N.E.2d 308 (1950). Based on the foregoing, the defendants were free to terminate the agency regarding this property upon procurement of a buyer themselves. Ibid.
The contract appointed M & M as the exclusive agent of the defendants but it did not create for the plaintiff an exclusive right to sell the property.
“[T]he term ‘exclusive’ did not deprive the defendant of the power to revoke the agent's authority and sell the property [itself] without liability to pay a commission to the broker if the purchaser was not procured by him.” Des Rivieres v. Sullivan, 247 Mass. 443, 446, 142 N.E. 111 (1924). “To create an exclusive brokerage, particularly one under which the owner must pay a commission if, within the fixed term, the owner himself sells the property, the parties must expressly and unambiguously indicate such an intent in the contract.” Bump v. Robbins, 24 Mass.App.Ct. 296, 304, 509 N.E.2d 12 (1987). Since this language was absent from the contract, we see no error in the motion judge's grant of partial summary judgment with regard to the sale of 800 Huntington Avenue.
The pertinent contractual language provided: “CBR hereby engages Murphy & McManus, LLC to be its exclusive agent (or ‘broker’) for a period of [twelve] months commencing as of the date of this letter.... In the event that Murphy & McManus secures a buyer for CBR's facilities, CBR shall pay Murphy & McManus a fee of [four percent] of the sale price(s) at the date of sale.... CBR may terminate this [a]greement at any time for cause.”
b. Breach of contract for the lease for the Blackfan property. 1. Actual or apparent authority. The plaintiff first argues that Lanner had actual, or at least apparent, authority to execute the contract and to bind CBR to its terms. Moreover, in its view, the plaintiff reasonably inferred that authority based upon its previous dealings with Lanner, along with actions by officers and members of the board of trustees promoting Lanner as the “point person” for CBR's real estate opportunities. The defendants respond that Lanner knew he lacked authority to bind CBR, and that he had responsibility only for general day-to-day operations. In addition, the defendants contend that board approval was necessary for “any major transaction involving a commitment of significant corporate assets” especially because of the “heightened public interest in the affairs of charitable organizations.” They argue that Lanner lacked apparent authority as his corporate position with CBR did not constitute representation of authority and, finally, that Lanner was the only employee or trustee at CBR that knew of the existence of the agreement.
We agree with the trial judge that Lanner “had no actual authority to have contractually bound CBR in the manner which the plaintiff seeks to assert.” See Boston Young Men's Christian Assn. v. Royal Indem. Co., 289 Mass. 391, 395, 194 N.E. 125 (1935); Stoneman v. Fox Film Corp., 295 Mass. 419, 425, 4 N.E.2d 63 (1936). However, after review of the entire record, we are persuaded that Lanner did have the ability to bind CBR to the terms of the contract under the principles of apparent authority.
“The test for apparent authority is how the person dealing with the agent reasonably interprets the agent's authority.” Varney Bros. Sand & Gravel, Inc. v. Champagne, 46 Mass.App.Ct. 54, 59–60, 703 N.E.2d 721 (1998). As evidence of apparent authority here, the plaintiff reasonably relied on actions by Lanner and several officers and members of CBR. Specifically, Lanner had previously signed at least two other broker agreements with the plaintiff for prior transactions dating back to 2000; CBR paid $30,000 to the plaintiff based on work performed under a February, 2001, agreement signed by Lanner; and the plaintiff knew, through his contact with Lanner and also from Lanner's article in CBR's 2004 annual report, that Lanner was “leading the real estate effort” for CBR. Finally, members of the CBR real estate committee had full knowledge of the plaintiff's active involvement in locating potential properties for CBR's new headquarters, including the Blackfan property that Murphy showed them during his August and September, 2004, presentations.
“Apparent authority, is ‘created as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third party to believe that the principal consents to have the act done on his behalf by the person purporting to act for him.’ “ Theos & Sons, Inc. v. Mack Trucks, Inc., 431 Mass. 736, 745, 729 N.E.2d 1113 (2000), quoting from Restatement (Second) of Agency, § 27 (1958). “A principal may ... make a manifestation [of authority] by placing an agent in a defined position in an organization or by placing an agent in charge of a transaction or situation.” Restatement (Third) of Agency, § 3.03 comment b (2006). See Linkage Corp. v. Trustees of Boston Univ., 425 Mass. 1, 16, 679 N.E.2d 191 (1997).
Here, the plaintiff successfully demonstrated Lanner's apparent authority by identifying specific words or conduct by which CBR's consent to Lanner's authority was either manifested or could be implied. Cf. Normandin v. Eastland Partners, Inc., 68 Mass.App.Ct. 377, 385, 862 N.E.2d 402 (2007) ( “[P]laintiffs have failed to identify any specific words or conduct by which [the corporation's] consent was either manifested or could be implied”).
2. Ratification/good faith and fair dealing. As noted, when Baldwin learned of the contract, he circulated copies to Dr. Alt (board trustee) and Alan Strassman (chairman of the board). Although they believed that Lanner did not have the authority to sign the contract, no one from CBR informed the plaintiff that CBR considered the contract to be invalid. “[R]atification of unauthorized acts of an agent is readily inferred where, after knowledge, the principal makes no effort to repudiate them.” Varney Bros. Sand & Gravel, Inc., supra at 60, 703 N.E.2d 721.
Unlike Linkage Corp. v. Trustees of Boston Univ., supra at 11, 679 N.E.2d 191, in this case not one person at CBR informed the plaintiff that the contract was invalid. To the contrary, during May, 2005, Cronin, the CFO, continued to work with Murphy, even requesting that he write to Children's Hospital in order to obtain a written proposal for CBR to enter into a new property lease with Children's.
The trial judge found that, rather than informing Murphy that the contract was invalid, “CBR personnel at the instance of its president and chief executive officer attempted to ‘run out the clock’ on the one year time period referenced in the agreement, to attempt to insulate CBR from any claim for compensation for its efforts which [the plaintiff] might assert.” In addition, CBR attempted to “zero out any role that [the plaintiff] might seek to play” in the potential transaction with Children's Hospital by notifying Murphy that a meeting scheduled with the Children's Hospital on October 13, 2005, had been cancelled—“as a ruse to preclude his attendance.” However, the trial judge stopped short of finding ratification by CBR's board, which he concluded was the only “entity with full authority to have bound CBR” to the terms of the contract. We disagree.
“Where an agent lacks actual authority to agree on behalf of his principal, the principal may still be bound if the principal acquiesces in the agent's action, or fails promptly to disavow the unauthorized conduct after disclosure of material facts.” Linkage Corp., supra at 18, 679 N.E.2d 191. Based on the sequence of events after the contract was brought to the attention of Cronin and Baldwin, it was error for the trial judge not to find that the agreement had been ratified.
Based on our determination that Lanner had apparent authority to enter into the contract, thus binding the defendants, we are satisfied that their conduct, in attempting to stall until the agreement expired, while rebuffing Murphy's ongoing attempts to present potential transactions, was a clear violation of the covenant of good faith and fair dealing. CBR's actions “destroy[ed] or injur[ed] the right of [the plaintiff] to the fruits of the contract.” T.W. Nickerson, Inc. v. Fleet Natl. Bank, 456 Mass. 562, 570, 924 N.E.2d 696 (2010). Accordingly, M & M is entitled to damages, specifically “the benefit of [its] bargain, i.e., [to] be placed in the same position as if the contract had been performed .” Pierce v. Clark, 66 Mass.App.Ct. 912, 914, 851 N.E.2d 450 (2006).
c. Chapter 93A. The plaintiff further argues that, although CBR is a nonprofit corporation, its activities in relation to the contract fell under the auspice of trade or commerce. The trial judge found, and we agree, that “CBR's actions in seeking new space for its facilities ... was related directly to the promotion of the activities of its core charitable mission rather than toward a profit-oriented goal.” Given that, CBR was not engaged in trade or commerce as required under the statute. G.L. c. 93A, § 11. See Hubert v. Melrose–Wakefield Hosp. Assn., 40 Mass.App.Ct. 172, 175, 661 N.E.2d 1347 (1996) (where a charitable corporation is acting for purposes directly related to its mission at the time of the conduct at issue, it is not acting in a business context and hence is not subject to c. 93A liability).
d. Lanner's implied warranty of authority. The plaintiff finally argues that, if Lanner lacked authority to bind CBR to the contract then it is entitled to benefit of the bargain damages for a breach of warranty of authority. Because we have already determined that CBR is bound to the terms of the agreement by way of Lanner's apparent authority, we decline to reach the merits of this argument.
After review of the entire record, we are persuaded that M & M adequately demonstrated Lanner's apparent authority to bind CBR to the contract; that CBR breached the contract when it entered into the lease for the Blackfan property and also violated an implied covenant of good faith and fair dealing in that transaction.
Accordingly, we reverse the judgment as to counts I and II as they relate to the lease of the Blackfan property, and remand solely for a determination of damages in accordance with this opinion. The remainder of the judgment is affirmed.
Although the trial judge found in the defendant's favor as to the plaintiff's claim for intentional interference with advantageous relations (count III), the plaintiff concedes the issue is not being raised on appeal and, therefore, it is waived.
So ordered.