GOODWILL ENTERPRISES, INC. vs. CATHLEEN E. KAVANAGH, trustee, [Note 1] & another. [Note 2]

SULLIVAN, J. Goodwill Enterprises, Inc. (Goodwill), seeks to enforce a right of first refusal found in its lease with the nominee trust that holds title to the leased property. This appeal requires us to resolve whether the bankruptcy sale of a bankrupt beneficiary's fifty percent interest in the nominee trust triggered Goodwill's right

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of first refusal. Concluding that it did, we affirm the Land Court judgment entered in Goodwill's favor.

1. Background. This case was decided on cross motions for summary judgment based on undisputed facts. The 218 Andover Street Peabody Realty Trust (Peabody Realty), a nominee trust, holds title to property leased by Goodwill. Pursuant to its lease, Goodwill has a right of first refusal in the event of sale of the "[p]roperty, or any part thereof." Beginning in 2009, defendant William F. Garland and Daniel P. Corbett each owned fifty percent beneficial interests in Peabody Realty. Garland has also been the sole trustee of Peabody Realty since at least 2009.

In 2011, Corbett filed a voluntary Chapter 7 petition in bankruptcy under the United States Bankruptcy Code, at which point his beneficial interest in Peabody Realty became part of the bankruptcy estate. See 11 U.S.C. §§ 701 et seq. The Chapter 7 trustee sold Corbett's fifty percent interest to the defendant Cathleen E. Kavanagh, trustee of the April Realty Trust (April Realty). Notice of the impending sale was not provided to Goodwill in the manner specified in the lease provision setting forth the right of first refusal. [Note 3]

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After learning that Corbett's beneficial interest in Peabody Realty had been sold, Goodwill filed this action in the Land Court seeking to enforce its right of first refusal. Goodwill also filed a motion with the United States Bankruptcy Court for the District of Massachusetts (bankruptcy court) asking that the order authorizing the sale to April Realty be modified to reflect Goodwill's right of first refusal. The bankruptcy judge concluded that the Land Court had concurrent jurisdiction over the enforceability of Goodwill's right of first refusal and abstained, noting that "State law will be dispositive of the enforceability of the right of first refusal." In re Corbett, U.S. Bankr. Ct., No. 11-13667-JNF (Bankr. D. Mass. Oct. 26, 2015). A Land Court judge ruled that Goodwill's right of first refusal was enforceable, and April Realty appeals.

2. Discussion. a. The sale of Corbett's interest. April Realty contends that Corbett had a fifty percent personal property interest in Peabody Realty, not a fifty percent real property interest in the property held by Peabody Realty, and that the sale of Corbett's beneficial interest in Peabody Realty therefore did not trigger Goodwill's real-property-based right of first refusal. We look to the treatment of nominee trusts under Massachusetts law to determine whether Corbett's beneficial interest in Peabody Realty was an interest in personal property or real property.

A nominee trust is "an entity created for the purpose of holding legal title to property." Morrison v. Lennett, 415 Mass. 857, 860 (1993), quoting Johnston v. Holiday Inns, Inc., 595 F.2d 890, 893 (1st Cir. 1979). Nominee trusts have been described as "bare title-holding arrangement[s]." Birnbaum, The Nominee Trust in Massachusetts Real Estate Practice, 60 Mass. L.Q. 364, 367 (1976). Unlike other trusts, "the trustees of a nominee trust have no power, as such, to act in respect of the trust property, but may only act at the direction of . . . the beneficiaries." Morrison, supra, quoting Birnbaum, supra at 365. The trustees of a nominee trust "hav[e] only perfunctory duties" and "possess[] only the barest incidents of ownership" (citation omitted). Morrison, supra at 860, 861. Thus the trustees of a nominee trust are often viewed as agents for the convenience of the principals (i.e., the beneficiaries). See Roberts v. Roberts, 419 Mass. 685, 688 (1995); Apahouser Lock & Sec. Corp. v. Carvelli, 26 Mass. App. Ct. 385,

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388 (1988). [Note 4]

Given this background, "there is logic in treating the beneficiaries of a nominee trust 'as the true owners of the property for the purposes of liability as well as benefit.'" Morrison, 415 Mass. at 862, quoting Birnbaum, 60 Mass. L.Q. at 368. This is precisely how we have treated the beneficiaries of a nominee trust. For purposes of liability, Massachusetts courts have "disregarded the trustees' record ownership of the property and liability has been imposed directly on the beneficiaries." Morrison, supra. See Bellemare v. Clermont, 69 Mass. App. Ct. 566, 573 (2007) (trustee of nominee trust did not own property and was thus not liable under lead poisoning statute); Worcester v. Sigel, 37 Mass. App. Ct. 764, 768 (1994) (beneficiary of nominee trust could be liable for repairing sprinkler system at property). We have treated the beneficiaries of a nominee trust as the true owners of the trust's property in other contexts as well. See Druker v. State Tax Comm'n, 374 Mass. 198, 200-201 (1978) (taxpayer could deduct on his personal tax returns losses he incurred as beneficiary of nominee trust); Shamrock, Inc. v. Federal Deposit Ins. Corp., 36 Mass. App. Ct. 162, 166-167 (1994) (beneficiaries of nominee real estate trust held interest in real estate, not trustees, and creditors of trustees could not declare trust a sham); Rent Control Bd. of Cambridge v. Praught, 35 Mass. App. Ct. 290, 295 (1993) (where nominee trust held title to condominium unit, beneficiary of nominee trust "was quite capable of being regarded as the owner of [the unit] within the meaning of the rent control act").

Despite this precedent treating the beneficiaries of a nominee trust as the true owners of the trust's property, April Realty maintains that Corbett was not a true owner of the property because

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the terms of the trust require a majority vote to direct the trustee. Because Corbett had only a fifty percent interest, April Realty argues, he did not control Peabody Realty, and so did not have a real property interest. [Note 5] It is true that Corbett, as a fifty percent beneficiary of the nominee trust, wielded only the power to veto, not the unilateral power to direct, actions of its trustee. [Note 6] This argument fails to appreciate the clarity with which Massachusetts law treats the beneficiaries of nominee trusts. Here the two beneficiaries were the true owners who together held one hundred percent undivided interest in the trust. As a matter of law, the trustee acted as their agent, and ultimate control and authority resided at all times with the beneficiaries. See Roberts, 419 Mass. at 688; Apahouser Lock & Sec. Corp., 26 Mass. App. Ct. at 388. Corbett owned and exercised control over the real estate to the extent of his fifty percent undivided share in the real estate. In this respect he was no different than a coowner of property held as a tenancy in common. See Clapp v. Atwood, 300 Mass. 540, 542 (1938); Fiske v. Quint, 274 Mass. 169, 172 (1931). A beneficiary's vote may or may not be controlling under any particular set of facts and circumstances, but the beneficiary has an undivided interest in real estate nonetheless. [Note 7]

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April Realty's emphasis on control derives from a series of cases discussing the issue of control of trusts in the context of bankruptcy proceedings. See, e.g., In re Colbran, LLC, 475 B.R. 289, 298 (Bankr. D. Mass. 2012); In re Stoll, 330 B.R. 470, 478-480 (Bankr. S.D.N.Y. 2005); In re Eastmare Dev. Corp., 150 B.R. 495, 500 (Bankr. D. Mass. 1993) (Eastmare). These cases all have their genesis in In re Medallion Realty Trust, 103 B.R. 8 (Bankr. D. Mass. 1989) (Medallion). There, an entity described as a nominee trust was the debtor, and the bankruptcy court judge was called upon to decide whether that entity was one permitted to seek protection under Chapter 11 of the Bankruptcy Code. See id. at 9-10, citing 11 U.S.C. §§ 101(35) & 109(d). After a careful examination of the record, which disclosed that the beneficiaries of the trust had, in fact, run a business buying real estate, constructing mobile homes, and selling the completed homes and lots, id. at 9, the bankruptcy judge concluded that the entity should be treated as a partnership, not a nominee trust. Id. at 13 ("The right to participate in the control of the business is often referred to as indicative of a partnership interest"). Subsequently, in Eastmare, supra, the bankruptcy judge noted that the trust in Medallion was "in fact a partnership" and that "a partner's bankruptcy estate is comprised of his personal legal or equitable interest in partnership property, not real estate owned by the partnership." [Note 8] April Realty has not argued either here or in the Land Court that the entity in which Corbett held an interest was a partnership. That issue is not before us, and April Realty's reliance on this line of cases is misplaced. [Note 9] Guided by our common law, we conclude that Corbett as beneficiary of a nominee trust was properly treated as an owner of his percentage interest in the real property. Corbett's beneficial interest in Peabody Realty was an interest in real property.

b. The bankruptcy sale. April Realty also contends that the bankruptcy sale was an involuntary sale and that an involuntary sale does not trigger the right of first refusal. We note at the outset that the sale was the result of a voluntary petition for Chapter 7

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liquidation. In that sense, the sale was not involuntary in that the sale process was initiated by Corbett, rather than a third party. Contrast Huntington Nat'l Bank v. Cornelius, 80 A.D.3d 245, 249 (N.Y. App. Div. 2010).

Even if we were to treat any bankruptcy sale as involuntary, however, the result is no different. April Realty relies extensively on Tadros v. Middlebury Med. Ctr., Inc., 263 Conn. 235 (2003). In Tadros, the Connecticut Supreme Court looked to the language of the parties' agreement, which specified that the right of first refusal applied only if the owners "form[ed] the intention of offering the premises." [Note 10] Id. at 238 n.5. Relying on this language, the court concluded that the seller had to form an intention to sell the property and that no such intention was formed by virtue of foreclosure. Id. at 241-242. Other jurisdictions are in agreement that whether an involuntary sale triggers a right of first refusal should be guided by the terms of the parties' agreement. See, e.g., Pecora v. Berlin, 62 So. 3d 28, 34-35 (Fla. Dist. Ct. App. 2011) (sale by court-appointed receiver did not trigger right of first refusal which by its own terms was only triggered when owner "procured" buyer); Henderson v. Millis, 373 N.W.2d 497, 503 (Iowa 1985) ("elect to sell" indicates voluntary choice); Huntington Nat'l Bank, 80 A.D.3d at 249 (property was not being offered for sale in foreclosure context, where word "offer" in right of first refusal "was intended to cover a conscious and voluntary choice by the owner to make the property available for sale"); Draper v. Gochman, 400 S.W.2d 545, 547 (Tex. 1966) ("desire to sell" indicates voluntary choice); Colby v. Colby, 157 Vt. 233, 240 (1991) ("involuntary sales are not deemed to trigger repurchase options where the language of the options state that triggering occurs by a choice or a desire to sell"). We reject April Realty's broad contention that no involuntary sale, regardless of the language in the parties' agreement, may ever trigger a right of first refusal.

We therefore turn to the terms of the right of first refusal here to determine whether the bankruptcy trustee's sale of Corbett's fifty percent interest in the real property triggered Goodwill's right of first refusal. Unlike in Tadros, Colby, and Henderson, Goodwill's lease does not include general language indicating Goodwill's right of first refusal applies only if the owner decides

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to sell the property, procures a buyer, or offers the property for sale. Instead, the lease specifies only three types of transactions to which Goodwill's right of first refusal does not apply: "bona fide mortgages to recognized lending institutions," "sales or other proceedings for the foreclosure thereof," and "easements to any municipality or utility company required for the installation and/or maintenance of drainage, sewage, electric, gas, water and electric lines and appurtenance to and from the Property."

We interpret unambiguous contract language according to its plain meaning. A.L. Prime Energy Consultant, Inc. v. Massachusetts Bay Transp. Auth., 479 Mass. 419, 431 (2018). The term "foreclosure" is unambiguous. See Levin v. Century Indem. Co., 279 Mass. 256, 259 (1932) (with respect to the meaning of the term foreclosure contained in a bond, "[r]ead as a whole the instrument expresses a meaning which is plain and not doubtful in its application to the transaction"). "Foreclosure" means "[a] legal proceeding to terminate a mortgagor's interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property." Black's Law Dictionary 789 (11th ed. 2019). Corbett was not a lender, nor was the Chapter 7 trustee. Under the lease, a foreclosure does not include a sale by a bankruptcy trustee in a voluntary Chapter 7 liquidation proceeding filed by a beneficiary. Where the parties knew how to exempt certain types of sales from Goodwill's right of first refusal, and omitted bankruptcy sales from the short but highly specific list of exempted sales, we will not deviate from the terms of the parties' voluntary agreement. See Hamlen v. Rednalloh Co., 291 Mass. 119, 123 (1935) ("The principle of construction invoked, namely, that the expression by the parties in a written instrument of certain things indicates their intention to exclude other unmentioned things, applies where it may reasonably be inferred that if the parties intended to include subjects to which no reference is made in the instrument they would have done so by the addition of appropriate words"). [Note 11]

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April Realty also contends that, under the terms of the lease, only a sale by the landlord triggers Goodwill's right of first refusal, and that the bankruptcy trustee was not the landlord. This argument founders for the same reasons noted above, namely that Corbett and Garland were the true owners of the property and were thus co-landlords. The fact that the lease defines Garland, as trustee of Peabody Realty, as the landlord does not alter our analysis. Garland, as trustee, was simply the record owner of the property. Nothing in the lease indicates that Corbett and Garland, as the true owners, intended to confer any additional rights on or responsibilities to the trustee. When Corbett filed for bankruptcy, his beneficial interest in Peabody Realty became part of the bankruptcy estate. The bankruptcy trustee stepped into Corbett's shoes as landlord. See DiMaio Family Pizza & Luncheonette, Inc. v. Charter Oak Fire Ins. Co., 448 F.3d 460, 463 (1st Cir. 2006); In re Stoll, 330 B.R. at 480. [Note 12]

3. Conclusion. We conclude that Corbett's beneficial interest in Peabody Realty was an interest in real property. Moreover, where the parties did not exempt bankruptcy sales from Goodwill's right of first refusal, the bankruptcy sale of Corbett's fifty percent interest

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in the real property triggered Goodwill's right of first refusal.

Judgment affirmed.