State Room, Inc. v. Ma-60 State Assocs., L.L.C.

• Decision Date: 13 September 2013
• Docket Number: No. 12–P–1915.,12–P–1915.
• Citation: 84 Mass.App.Ct. 244,995 N.E.2d 807
• Court: Appeals Court of Massachusetts
• Parties: STATE ROOM, INC. v. MA–60 STATE ASSOCIATES, L.L.C., & others.

84 Mass.App.Ct. 244
995 N.E.2d 807

STATE ROOM, INC.
v.
MA–60 STATE ASSOCIATES, L.L.C., & others.¹

No. 12–P–1915.

Appeals Court of Massachusetts,
Suffolk.

Argued May 10, 2013.
Decided Sept. 13, 2013.

[995 N.E.2d 808]

Colleen C. Cook, Boston, for the plaintiff.

Lawrence G. Green (Alexandra Capachietti with him), Boston, for the defendants.

Present: GRASSO, SIKORA, & MALDONADO, JJ.

SIKORA, J.

[84 Mass.App.Ct. 244]This appeal presents a dispute between the parties of a long-term commercial tenancy at a downtown Boston high-rise office building. The landlord parties consist of three corporations and a real estate investment trust identified in the margin; ² we shall refer to them collectively as the landlord. The tenant is State Room, Inc. (State Room), a Massachusetts corporation. In 1990 and 1994, the parties' predecessors in interest executed [84 Mass.App.Ct. 245]the governing lease documents (lease). Sixty State Street is a building of thirty-eight rentable floors. The space at issue occupies portions of the thirty-third and thirty-fourth floors. Over time it has served as a restaurant and as an event venue (i.e., as function rooms for business and social events).

The principal issue on appeal is the enforceability of the current rental rate for the extension of the tenancy through the ten years from May 1, 2010, through April 30, 2020. In accordance with the terms of the lease, when the parties could not agree upon that figure, they submitted it to an appraisal process. In 2009, the designated appraisers calculated rates for the oncoming

[995 N.E.2d 809]

decade. In 2010, State Room objected to the rates as the product of mistaken information and flawed application of the appraisal criteria prescribed by the lease. When the appraisers declined to reconsider their computation, State Room brought suit in Superior Court seeking a judgment declaring the invalidity of the resulting rates and an order compelling a new appraisal. A judge of that court entered a judgment of dismissal in favor of the landlord. For the following reasons, we now affirm.

Background. In review of a dismissal pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974), we draw our facts from the allegations of the complaint and from its appended materials incorporated by reference. See Schaer v. Brandeis Univ., 432 Mass. 474, 477, 735 N.E.2d 373 (2000); Vranos v. Skinner, 77 Mass.App.Ct. 280, 282 n. 3, 930 N.E.2d 156 (2010).

1. Lease terms. Under the original 1990 lease, the predecessor tenant rented an area of 19,126 square feet. By the related lease of 1994, the tenant assumed an additional area of 13,366 square feet. Under both instruments the initial term expired at the close of April 30, 2010. The tenant received the right to extend for two successive ten-year terms upon proper notice and the determination of the rental rate.

The landlord was to propose a fair market rental value for the extension period; the tenant could object. Each party would then appoint a qualified independent appraiser; those two would appoint a third qualified appraiser. Each appraiser would make a separate determination of the fair market rental value; they would average the three values, exclude the figure farthest from [84 Mass.App.Ct. 246]that average, and then average the two remaining figures for the resulting fair market rate.

The critical language of the lease directed that “[e]ach appraiser shall consider the following factors (but shall not be limited to such factors) in reaching his determination.” The factors included (i) inflationary data, (ii) “fair market rental values for other first-class restaurant facilities in Boston with comparable sales per square foot and comparable average billing per person served”; and (iii) “the special circumstances of the location, ... in particular its special views and ambiance.”

Both the 1990 and 1994 leases defined as “permitted uses” of the premises “[r]estaurant and related facilities: [f]irst-class restaurant, cocktail lounge, luncheon club and private dining rooms, and uses directly related thereto ... and such other uses as [l]andlord in the future may approve....”

2. Tenancy developments. From 1990 until early 1994, the original tenant (Bay Tower, Inc.) operated as a restaurant, cocktail lounge, and event venue. In late 2003, it filed a petition under Chapter 11 of the United States Bankruptcy Code. As part of the resulting reorganization approved by the United States Bankruptcy Court, State Room paid a substantial volume of Bay Tower, Inc.'s back rent, received Bay Tower, Inc.'s rights under the lease, and thereafter employed the space exclusively as an event venue.

3. Prior litigation. In late 2007, State Room informed the landlord of its intention to extend the tenancy through the 2010–2020 period. In early 2008, the landlord sent State Room a notice of default by reason of its alleged “abandonment” of the use of the premises as a restaurant, cocktail lounge, and private dining area, and in March of that year rejected State Room's formal notice of extension upon the ground of that default. State Room brought an action in Superior Court for, inter alia, a judgment declaring its right to use the premises exclusively as an event venue. A

[995 N.E.2d 810]

judge of the Superior Court entered summary judgment on the issue in favor of State Room. She reasoned that the “permitted use” clause of the lease authorized exclusive use as an event venue, and that the landlord had effectively [84 Mass.App.Ct. 247]known of, and approved of, that exclusive use since the bankruptcy reorganization.³

4. Extension rent. Meanwhile friction continued through the rent-fixing process for the period of 2010 through 2020. The landlord proposed a figure; State Room objected. Each then nominated an appraiser; ⁴ those nominees selected a third appraiser.⁵ The appraisers had access to the decision of the Superior Court ⁶ validating the exclusive use of the premises as an event venue. Each appraiser prepared a report. In accordance with the process required by the lease, they excluded the figure farthest from the three-member average (the proposal of the landlord's appraiser) and as a result reported the average of the remaining two calculations as the binding outcome: $39 per square foot for the first five years of the lease extension, and $43.50 per square foot the second five years.⁷

The appraisers reported their decision in August of 2009. State Room began regular monthly payments of the increased rate from the beginning of the extension period of May 1, 2010, onward. On November 30, 2010, its counsel forwarded a letter to all three appraisers. State Room alleged that it had commissioned a review of the appraisers' respective reports and uncovered multiple errors resulting in an inflated computation of the extension rent. It proposed reconsideration and modification of the reports.

Counsel for the landlord objected to any reconsideration. By a joint letter, the three appraisers responded that the governing [84 Mass.App.Ct. 248]lease clause did not authorize reconsideration and declined any reappraisal in the absence of a “judicial command.”

In early October, 2011, State Room brought the present action in Superior Court for a declaration of the invalidity of the rental rate and an order compelling a reappraisal. It alleged that the appraisers had committed serious errors in their computations, especially (1) the mistaken assumption of the rental area as only the 19,126 square feet defined by the 1990 lease document rather than the 32,792 square feet actually rented under the combined leases of 1990 and 1994; and (2) the incorrect use of first-class, smaller, ground-level, Boston-area restaurants as facilities “comparable” to its event venue operation.

A judge of the Superior Court allowed the landlord's motion to dismiss pursuant to Mass.R.Civ.P. 12(b)(6) on independent alternative grounds of (i) the unreviewability of the appraisal result, and (ii) State

[995 N.E.2d 811]

Room's waiver of its claim by reason of its payment of the increased rate from May 1, 2010, to November 30, 2010, without objection to the appraisal reports rendered in August of 2009, fifteen months earlier.

Analysis. 1. Standard of review. An appellate court reviews de novo a rule 12(b)(6) dismissal. See Lopez v. Commonwealth, 463 Mass. 696, 700, 978 N.E.2d 67 (2012); Curtis v. Herb Chambers I–95, Inc., 458 Mass. 674, 676, 940 N.E.2d 413 (2011). We accept as true all well pleaded allegations of the complaint, plausible information of incorporated exhibits, and reasonable inferences. See Schaer v. Brandeis Univ., 432 Mass. at 477, 735 N.E.2d 373;Vranos v. Skinner, 77 Mass.App.Ct. at 282 n. 3, 930 N.E.2d 156. However, the appearance on the face of the complaint or its incorporated materials of information constituting a conclusive affirmative defense will justify dismissal. See, e.g., Woodcock v. American Inv. Co., 376 Mass. 169, 173–174, 380 N.E.2d 624 (1978) (statute of limitations); Bagley v. Moxley, 407 Mass. 633, 637–638, 555 N.E.2d 229 (1990) (issue preclusion); Daniels v. Contributory Retirement Appeal Bd., 418 Mass. 721...