United States Court of Appeals
For the First Circuit
No. 07-1146
IN RE NORTHWOOD PROPERTIES, LLC,
Debtor
SIDNEY BOURNE; CLAUDIO M. DELISE; RALPH S. TYLER,
Plaintiffs, Appellees,
v.
NORTHWOOD PROPERTIES, LLC,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Torruella, Circuit Judge,
Campbell, Senior Circuit Judge, and
Lynch, Circuit Judge.
Jeffrey D. Ganz and Riemer & Braunstein LLP on brief for
appellant.
Robert J. Galvin, Christopher J. Marino, and Davis, Malm &
D'Agostine, P.C. on brief for the Abstract Club and the Real
Estate Bar Association for Massachusetts, Inc., amici curiae.
Sidney Bourne, Claudio M. Delise, and Ralph S. Tyler on
brief pro se.
November 30, 2007
LYNCH, Circuit Judge. In this case we interpret
Massachusetts General Laws chapter 183A, section 5, which governs
condominium owners' rights and powers vis-à-vis the phased
development of condominium projects. We reverse the district
court, In re Northwood Props., LLC, 356 B.R. 81 (D. Mass. 2006),
because its statutory interpretation was in error.
Northwood Properties, LLC, ("Northwood") is the developer
of Northwood at Sudbury, a partially completed condominium project.
Northwood is currently attempting to reorganize under Chapter 11 of
the Bankruptcy Code. At every turn, its reorganization has been
opposed by three individuals: Sidney Bourne, Claudio Delise, and
Ralph Tyler. Bourne and Delise are residents of Northwood at
Sudbury; all three are creditors of Northwood. Bourne and Delise
vigorously oppose Northwood's attempt to extend its rights to
finish developing Northwood at Sudbury, rights which were set by
the original master deed to expire in 2005. Without the extension
of these rights, Northwood's efforts at reorganization will likely
fail.
This discrete dispute turns on a provision in the
Massachusetts condominium statute which provides that a condominium
owner constructively consents to the addition of further units "if
the master deed at the time of the recording of the unit deed . . .
made possible an accurate determination of the alteration of each
unit's undivided interest that would result therefrom." Mass. Gen.
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Laws ch. 183A, § 5(b)(1). This provision has yet to be interpreted
by the Supreme Judicial Court or the Massachusetts Appeals Court.
Further, Bourne, Delise, and Tyler all oppose Northwood's
reorganization plan, offering their own in its place. Under their
plan, they would take control of the reorganized development
company, Bourne and Delise would be paid for their consent to
further development, and Tyler would receive a large settlement for
his long-running litigation against Northwood at Sudbury. The
three appellees also argue that Northwood's final plan denied them
a vote in its confirmation by leaving their rights as creditors
unimpaired.
The bankruptcy court held that Northwood had successfully
extended its development rights; rejected Bourne, Delise, and
Tyler's voting complaint; and confirmed Northwood's plan. The
district court, sitting as an intermediate appellate court,
interpreted section 5 of chapter 183A to hold that Northwood had
not successfully extended its development rights. In re Northwood
Props., 356 B.R. at 89. Because it remanded the issue of
confirmation of Northwood's plan for reconsideration in light of
this ruling, it did not consider the voting argument. Id.
We hold that we have jurisdiction over both disputes,
hold that the district court's interpretation of the condominium
statute was in error, reverse the district court's ruling on the
validity of Northwood's development rights, find the district
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court's remand moot on the grounds stated, and affirm the
bankruptcy court's confirmation of the reorganization plan.
I.
Northwood at Sudbury was originally envisioned as a six-
building complex that would offer residential care to the residents
of its sixty-six condominium units. The master deed for the
condominium was recorded on December 9, 1998, following the
completion of the first phase of development, which consisted of
one twelve-unit building. As the Massachusetts Appeals Court has
explained, "[i]n a phased condominium development, groups or stages
of units are completed over a period of several years and become
part of the condominium by successive amendments to the master
deed. 'Phasing' is not a statutory term, but is a usage that has
grown out of the general enabling provisions" of the condominium
statute. Podell v. Lahn, 651 N.E.2d 859, 860 n.3 (Mass. App. Ct.
1995). The deed allowed for four additional phases of construction
to complete the project, but it set those development rights to
expire on December 9, 2005.
The master deed was amended on May 20, 2002, to account
for the completion of the second phase, which consisted of another
twelve-unit building and a clubhouse. Bourne and Delise each
purchased a unit built in this second phase. No further phases
have yet been undertaken.
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In advance of the expiration of its development rights,
Northwood negotiated an extension of those rights with the
condominium unit owners' association ("Association") in exchange
for $700,000. Even though Northwood had filed for bankruptcy in
the interim, twenty unit owners approved the extension, two
abstained, and two -- Bourne and Delise -- voted against it. This
eighty-three percent approval was more than sufficient under the
master deed to extend the development rights until December 9,
2010.
When Northwood filed for bankruptcy in September 2005,
there were five unsecured claims held by non-insider creditors: (1)
$50.00 owed to NStar; (2) $50.00 owed to KeySpan; (3) $305.92 owed
to GZA GeoEnvironmental; (4) $622,270 allegedly owed to Ralph
Tyler; and (5) approximately $1.5 million owed to the Association.
Northwood disputed the debt claimed by Tyler; the legitimacy of
that claim is still pending before the bankruptcy court.1
Bourne and Delise filed a Phasing Rights Motion in
Northwood's bankruptcy proceedings in February 2006, seeking a
determination that the extension of development rights was not
valid without their consent. In March 2006, Bourne, Delise, and
Tyler each purchased, respectively, the NStar debt, the GZA
GeoEnvironmental debt, and the KeySpan debt. By becoming creditors
1
The alleged debt is related to ongoing legal battles over
zoning and permitting stretching back to the initiation of the
Northwood at Sudbury development in 1998.
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of Northwood, they improved their ability to oppose Northwood's
Chapter 11 reorganization plan and gained the opportunity to submit
their own.
Northwood filed its first proposed reorganization plan in
May 2006. Under this plan, the five unsecured, non-insider claims
were grouped together and would initially receive approximately
five percent of the allowed amount of those claims. Proceeds from
either future condominium sales or the sale of Northwood's
development rights would then be distributed pro rata among the
claims. As relevant here, a claim is impaired under a
reorganization plan if the plan does not "leave[] unaltered the
legal, equitable, and contractual rights to which such claim . . .
entitles the holder of such claim." 11 U.S.C. § 1124(1). Because
their interests were impaired under this plan, Bourne, Delise, and
Tyler had a controlling vote over the plan's confirmation, which
they opposed.
Northwood then submitted a revised version of its plan in
July 2006. This version grouped the NStar, KeySpan, and GZA
GeoEnvironmental debts into a convenience class; these claims,
including interest, would be paid in full immediately. Tyler's
original claim was placed in its own class and would be paid in
full with interest once a final, non-appealable order allowing the
claim was entered. This left the Association's claim in its own
class, to be paid over time by Northwood's future earnings as under
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the first proposed plan. Because the interests of Bourne, Delise,
and Tyler were no longer impaired under this plan, their votes were
not required for the plan's confirmation. The Association, whose
interests remained impaired, voted to accept the plan.
In July 2006, the bankruptcy court denied Bourne and
Delise's Phasing Rights Motion, rejecting their argument that,
despite the vote of the Association, no development rights could be
extended without their specific consent. The court then conducted
a confirmation hearing on Northwood's revised plan and approved it.
Bourne, Delise, and Tyler objected to the reclassification of
claims under the revised plan, arguing that it impermissibly
nullified their votes. The court rejected this argument, however,
because the revised plan fulfilled all their interests as
creditors. Bourne, Delise, and Tyler moved for reconsideration,
primarily of the phasing rights issue; the court denied the motion.
They then appealed to the district court, which took a different
view of the matter than did the bankruptcy court.
Before the district court, Bourne, Delise, and Tyler
argued that their Phasing Rights Motion should have been granted
and that the revised plan should not have been confirmed. On the
confirmation question, they argued in part that the plan was
infeasible if Northwood did not have legitimate development rights
and in part that Northwood's reclassification of their claims was
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an impermissible "gerrymander" meant to deprive them of a say in
Northwood's reorganization.
The district court held a hearing on November 16, 2006,
which focused on the appellees' Phasing Rights Motion. The court
issued its order three weeks later, essentially granting the
Phasing Rights Motion and holding that Northwood's development
rights had not been legitimately extended. In re Northwood Props.,
356 B.R. at 89. It vacated the confirmation of the plan on the
grounds that the plan was not feasible without the development
rights. Id. In so concluding, the court interpreted the
condominium statute as demanding a great degree of precision. That
is the first merits issue before us.
Because the court found the revised plan not feasible and
thus vacated the plan's confirmation on that ground, the court did
not address the reclassification argument. Id. That is the second
issue before us.
The district court suggested that Northwood could
successfully extend its development rights with less than unanimous
consent of the unit owners if the Association first agreed that the
percentage interests of the opposed unit owners (Bourne and Delise)
in the condominium's common areas would remain unchanged. This, of
course, would necessitate a greater decrease in the percentage
interests of the remaining owners. Id. at 88.
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Upon Northwood's motion, the district court modified its
order, remanding the plan confirmation to the bankruptcy court so
that Northwood could pursue this suggestion for curing the problem
found by the district court. Northwood has appealed to this court
both the district court's ruling on the Phasing Rights Motion and
its remand of the plan confirmation to the bankruptcy court.
II.
A. Standard of Review
In an appeal from district court review of a bankruptcy
court order, this court independently examines the bankruptcy
court's decision, reviewing findings of fact for clear error and
conclusions of law de novo. Official, Unsecured Creditors' Comm.
v. Stern (In re SPM Mfg. Corp.), 984 F.2d 1305, 1310-11 (1st Cir.
1993). The district court decision is given no deference. Id. at
1311.
B. Phasing Rights Motion
1. Appellate Jurisdiction
Appeals in bankruptcy proceedings are governed primarily
by 28 U.S.C. § 158, although in Connecticut National Bank v.
Germain, 503 U.S. 249 (1992), the Supreme Court clarified that
jurisdiction under § 158 was in addition to, not in lieu of, the
normal appellate jurisdiction provided by 28 U.S.C. §§ 1291-1292.
Id. at 253. Sitting as an intermediate appellate court, the
district court exercised jurisdiction under § 158(a)(1) in
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reviewing the "final judgments, orders, and decrees" of the
bankruptcy court. Both of the bankruptcy court's decisions --
denying the Phasing Rights Motion and confirming the revised plan
-- were final as required by § 158(a)(1).
The circuit courts have further appellate jurisdiction
over "all final decisions, judgments, orders, and decrees" issued
by the district court sitting in its appellate capacity in
bankruptcy proceedings. 28 U.S.C. § 158(d)(1); see also 28 U.S.C.
§ 1291. This limitation on our appellate jurisdiction recognizes
that "the 'finality' of a bankruptcy court's decision may be
affected by the district court's disposition of the appeal."
Bowers v. Conn. Nat'l Bank, 847 F.2d 1019, 1022 (2d Cir. 1988).
Requiring the bankruptcy court's decision to be truly final, which
requires the district court's appellate review to be final, avoids
piecemeal appellate review before this court, thereby conserving
judicial resources. In re St. Charles Pres. Investors, Ltd., 916
F.2d 727, 729 (D.C. Cir. 1990). However, "because bankruptcy cases
typically involve numerous controversies bearing only a slight
relationship to each other, 'finality' is given a flexible
interpretation in bankruptcy." In re G.S.F. Corp., 938 F.2d 1467,
1473 (1st Cir. 1991), abrogated on different grounds by Conn. Nat'l
Bank, 503 U.S. 249.
The district court's ruling on the Phasing Rights Motion
is a final determination under § 158(d). "To be final, a
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bankruptcy order need not resolve all of the issues in the
proceeding, but it must finally dispose of all the issues
pertaining to a discrete dispute within the larger proceeding."
Perry v. First Citizens Fed. Credit Union (In re Perry), 391 F.3d
282, 285 (1st Cir. 2004); see also In re G.S.F. Corp., 938 F.2d at
1473; In re Saco Local Dev. Corp., 711 F.2d 441, 444 (1st Cir.
1983). The Phasing Rights Motion is essentially a declaratory
action, seeking a judicial determination as to whether Northwood's
development rights have been legitimately extended. Although the
motion does not finally resolve all disputes between Northwood and
Bourne and Delise, it does resolve a discrete dispute that was
instigated before Bourne and Delise became creditors of Northwood.
That is, it definitively resolves Bourne and Delise's rights as
condominium owners, even if not their rights as creditors.2 We
have jurisdiction over this question under § 158(d).
2. The Condominium Statute
2
Although the district court remanded the bankruptcy
court's ruling on the Phasing Rights Motion, that remand pertained
to a purely ministerial task, the entry of an order granting the
motion. This does not affect the finality of the district court's
determination. See In re Gould & Eberhardt Gear Mach. Corp., 852
F.2d 26, 29 (1st Cir. 1988) ("When a remand leaves only ministerial
proceedings, . . . then the remand may be considered final [in
terms of § 158(d)]."); see also, e.g., Aegis Specialty Mktg. Inc.
v. Ferlita (In re Aegis Specialty Mktg. Inc. of Ala.), 68 F.3d 919,
921 (5th Cir. 1995) (considering "the entry of an order by the
bankruptcy court in accordance with the district court's decision"
to be only a ministerial proceeding such that the district court's
remand was a final order).
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Condominiums are governed in Massachusetts by chapter
183A of the Massachusetts General Laws. Chapter 183A "is
essentially an enabling statute, setting out a framework for the
development of condominiums in the Commonwealth, while providing
developers and unit owners with planning flexibility. Such
flexibility is particularly important with respect to phased
condominium developments where long-term financial and market
conditions may be uncertain." Queler v. Skowron, 780 N.E.2d 71, 77
(Mass. 2002) (citation omitted); see also Tosney v. Chelmsford
Vill. Condo. Ass'n, 493 N.E.2d 488, 490 (Mass. 1986); Barclay v.
DeVeau, 429 N.E.2d 323, 326 (Mass. 1981).
Phasing allows developers to sell units as they are
built, which in turn eases construction costs and financing
arrangements. The flexibility to revise plans as market and
financing conditions change also greatly assists condominium
development. The state legislature significantly revised the
condominium statute in 1998, adding the key provision in question
here and increasing the powers of unit owners' associations vis-à-
vis individual unit owners. It did so in recognition of "a
shortage of affordable housing stock based upon the expiration of
the right to add additional condominium units and land in numerous
condominiums created pursuant to chapter 183A." 1998 Mass. Adv.
Legis. Serv. 242 (LexisNexis).
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We turn to section 5 of chapter 183A with these policy
concerns in mind. Because neither the Supreme Judicial Court nor
the Massachusetts Appeals Court has interpreted the relevant
provisions of section 5 since it was last amended in 1998, we
address the question ab initio. As with all statutory
interpretation questions, we focus on the language of the statute
itself.
Section 5(b)(2) describes the authority and powers of a
condominium's unit owners' association, which includes the power to
"[e]xtend, revive or grant rights to develop the condominium,
including the right to add additional units or land to the
condominium." Mass. Gen. Laws ch. 183A, § 5(b)(2)(iii). It is not
disputable that the Association's extension of Northwood's
development rights met the requirements of section 5(b)(2)(iii).
As required by that provision, the master deed authorized
additional units, and the eighty-three percent approval rate by the
Association's members of the extension surpassed the seventy-five
percent set by the statute as a default percentage. See id.
The extension of the time to exercise development rights,
however, is distinct from the ability to exercise those rights
under the statute. The addition of units reduces the percentage
interest each unit owner holds in the condominium's common areas.
State law provides some protection for unit owners in this context.
Under section 5(b)(1), a unit owner's percentage interest in the
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common areas cannot be "materially affected" without his or her
consent.
Northwood broadly argues that section 5(b)(2)(iii)
operates independently from section 5(b)(1) and that unit owners
have necessarily waived their rights under section 5(b)(1) through
their acceptance of any master deed. We disagree in light of the
language in section 5(b) that "[i]n the event of any conflict
between the provisions of this subsection and of the master deed,
. . . this subsection shall control."
Nonetheless, state law also provides that the requisite
consent can be inferred from the unit owner's acceptance of the
master deed if, at the time the unit deed was recorded, the master
deed (1) provided for the additional units and (2) "made possible
an accurate determination of the alteration of each unit's
[percentage] interest that would result" from the construction of
the additional units. Id. § 5(b)(1). The master deed in this case
clearly provided for additional units. The ability of Northwood to
exercise its development rights thus hinges on the interpretation
of this second clause, particularly the phrase "an accurate
determination of the alteration of each unit's [percentage]
interest."
The district court interpreted this phrase too narrowly.
On its reading, an "accurate determination" is the same as "precise
calculations." In re Northwood Properties, 356 B.R. at 87.
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Because the master deed did not make it possible for Bourne and
Delise "to calculate precisely what their new percentage interests
would be following the completion of any additional phases," the
court concluded, Northwood must obtain their express consent before
constructing any further units. Id. at 89 (emphasis added).
To impose a requirement of precise calculations of what
the new percentage interests would be upon development, however,
runs counter to the statute's underlying policies of flexibility
and pragmatism as well as the language of related provisions. It
is also inconsistent with the approach taken by the state courts in
interpreting this statute.
As a matter of statutory construction, section 5(a) is
closely related to the provision in dispute here, and that section
states that a unit owner's percentage interest "shall be in the
approximate relation that the fair value of the unit . . . bears to
the . . . aggregate fair value of all the units" at the time the
unit deed is recorded. Mass. Gen. Laws ch. 183A, § 5(a). Terms
like "approximate" and "fair value" reflect a statutory approach of
allowing developers flexibility within a reasonably limited range,
not an approach requiring absolute precision. We see no reason why
greater requirements for precision would be imposed under section
5(b)(1).
Further, in practice, the district court's reading would
tie the hands of developers, making it impossible for them to
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respond to changing market conditions. This would seriously
jeopardize developers' ability to secure financing to complete
projects. This in turn could have an adverse impact on present
owners of units. And it implicates the legislature's concern about
removing impediments to developing more housing in the
Commonwealth. Thus we read the key phrase, "made possible an
accurate determination," as not requiring the degree of precision
the district court posited.
Our reading is more consistent than that of the district
court with the approach taken by state courts in interpreting
Chapter 183A. That statute as a whole is an enabling statute.
Tosney, 493 N.E.2d at 490. It sets forth minimum requirements but
also provides for flexibility. Included in that flexibility, and
meant for the benefit of both unit owners and developers, is the
ability to adapt the size and scope of a project in response to
market conditions by phasing the development over some years. See
Queler, 780 N.E.2d at 77; Podell, 651 N.E.2d at 860 n.3.
We need not determine here the bare minimum a master deed
need include to satisfy the constructive consent provision of
section 5(b)(1). And it is better for the state courts to
themselves articulate the correct standard to apply. What was in
the master deed in this case, in our view, was enough.
The master deed stated how the percentage interests would
be calculated. It explained that the original schedule of
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percentage interests had been calculated "in conformance with
Chapter 183A, upon the approximate relation which the fair market
value of each Unit . . . bears to the aggregate fair market value
of all the Units"; that is, the deed treats "conformance with
Chapter 183A" as equivalent to the standard set by section 5(a).
In the same paragraph, the master deed states that "such percentage
interests [shall be] modified in conformance with Chapter 183A"
following the construction of additional phases. Thus Bourne and
Delise knew that their percentage interest would continue to track
the approximate ratio of the value of their units to the value of
all the units.
The master deed also provided enough information about
future phases to allow a reasoned and reasonable approximation of
what the aggregate fair value might be. There would be at most
sixty-six units, the construction of which would be of equal
quality to the existing units. The blueprint of the proposed full
development, included with the master deed, showed that two
additional buildings would have the same footprint as the two
existing buildings and that the remaining building would be
slightly larger; this implies that the future units would not be
grossly disproportional in size to the existing units. The master
deed, by definition, cannot precisely predict the future at the
time of its execution. It can, however, set forth reliable and
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accepted methodologies and provide an accurate description of
planned development.
This amount of information is sufficient to allow both
the Association and Bourne and Delise to accurately determine how
their percentage interests would be affected. They were not caught
by surprise or unfairly treated. Bourne and Delise argue that the
fact that Northwood and the Association offered two different
predictions of their future percentage interests in itself proves
that no "accurate determination" was possible, but the very small
range between Northwood's prediction of 1.52% and the Association's
prediction of 1.43% -- a 0.09% difference -- does not mean that no
"accurate" determination was possible.
The master deed "made possible an accurate determination
of the alteration of each unit's [percentage] interest that would
result" from the completion of further phases. As such, Bourne and
Delise consented to the future alteration of their percentage
interests when they recorded their unit deeds. Northwood may thus
exercise the development rights legitimately extended by the
Association under section 5(b)(2)(iii).
C. Confirmation of the Reorganization Plan
We have jurisdiction, in these circumstances, to reach
the issue of the confirmation of Northwood's plan. The district
court did not consider two other objections made by Bourne, Delise,
and Tyler to that confirmation. As our review of these issues is
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de novo and on the record from the bankruptcy court, we can and do
resolve them ourselves. See Advanced Testing Techs., Inc. v.
Desmond (In re Computer Eng'g Assocs., Inc.), 337 F.3d 38, 45 (1st
Cir. 2003) ("Our review of the district court's decision amounts to
review of the bankruptcy court's decision in the first instance.");
In re SPM Mfg. Corp., 984 F.2d at 1310-11 ("In an appeal from
district court review of a bankruptcy court order, the court of
appeals independently reviews the bankruptcy court's decision . .
. .") (emphasis added). Given the lengthy history of this dispute
and the need to avoid piecemeal litigation, we decline to remand to
the district court, with the attendant expense and delay, to
address issues fully briefed before us that we can resolve. We
turn to the two other objections.
We reject the claim that there has been a violation of
the Statute of Frauds. No separate written document was needed as
this dispute concerns no sale of real property. See Mass. Gen.
Laws ch. 259, § 1 ("[n]o action shall be brought . . . [u]pon a
contract for the sale of lands, tenements . . . or of any interest
in or concerning them" unless the contract is in writing and signed
by the party to be charged).
The appellees' second objection is that they were
erroneously grouped into an artificial convenience class in the
revised plan in order to orchestrate acceptance of the plan. The
bankruptcy court found that "the reclassification improves the
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financial position of Bourne, Delise, and Tyler by providing for
full payment of their claims and, hence, does not adversely affect
them." There was no error, much less clear error, in this finding.
Once their interests as creditors are fully protected, Bourne,
Delise, and Tyler have no legitimate grounds for objecting to the
reorganization plan.
III.
We reverse the decision of the district court, affirm
the bankruptcy court's confirmation of the reorganization plan,
and remand the case to that court for any further proceedings
consistent with this opinion. Costs are awarded to Northwood.
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