Tuesday, September 3, 2019

Amendments to Condominium Bylaws Must Be Reasonable

Thom Aylesworth

Prior articles from this office have addressed the importance of the preparation and organization needed for a condominium trust or association to amend its condominium documents—i.e., the master
deed and declaration of trust (or the bylaws that typically are included in the declaration of trust). But what happens when a carefully crafted amendment is approved by the required vote of unit owners and then is challenged in court by a dissenting unit owner? Under Massachusetts law, it is not enough that the condominium board strictly follow the amendment procedures set forth in the condominium documents. To survive a court challenge, the amendment must also satisfy the standard imposed by the courts when an amendment is challenged. That standard is “equitable reasonableness.”

Under Massachusetts law, it is not enough that the condominium board strictly follow the amendment procedures set forth in the condominium documents. To survive a court challenge, the amendment must also satisfy the standard imposed by the courts when an amendment is challenged. That standard is “equitable reasonableness.”

What does the term “equitable reasonableness” mean? The explanation from the courts does not give much guidance. According to the Massachusetts Supreme Judicial Court (borrowing the definition used by Florida courts), it means “[i]f a rule is reasonable the association can adopt it; if not, it cannot.” Noble v. Murphy, 34 Mass. App. Ct. 452, 457 (1993) (citation omitted). The Court further explained, again borrowing from Florida law, that amendments imposing restrictions on unit owners are reasonable only when they are “reasonably related to the promotion of the health, happiness and peace of mind of the unit owners.” Id. (citation omitted). Furthermore, the amendment is invalid if it “violate[s] a right guaranteed by any fundamental public policy or constitutional provision.” Board of Managers of Old Colony Village Condo v. Preu, 80 Mass. App. Ct. 728, 730 (2011). Presumably, a condominium board that proposes a bylaw or other amendment believes it to be reasonable. The key point, however, is that in a court challenge, the person who decides whether an amendment is reasonable is the judge.

An interesting decision about a condominium bylaw amendment was recently issued by the Massachusetts Superior Court in the matter of JAH Realty, LLC v. Trustees of The 25 Channel Center Condominium Trust. At issue was a bylaw amendment that applied only to the condominium’s sole commercial use unit. After purchasing the commercial unit, the owner leased it to a child daycare business. Upon learning of this new commercial use, the insurance carrier for the condominium trust indicated it would not renew the condominium’s insurance policy without an indemnification agreement from the commercial unit owner. The condominium board was unable to reach an agreement with the commercial unit owner and instead proposed an amendment to the condominium bylaws that, among other things, required the commercial unit owner to indemnify the condominium trust against liability arising from the use of the commercial unit. The amendment was properly ratified by the unit owners.

The commercial unit owner filed a lawsuit, seeking to annul the bylaws amendment. The judge ruled in the board’s favor, finding that such an amendment satisfied the reasonableness test. The judge reasoned that commercial businesses, and particularly daycare operations, create legitimate liability concerns that do not exist with residential units, and therefore the indemnification amendment was valid. The judge was not swayed by the commercial unit owner’s argument that the indemnification obligation was imposed only after it had invested hundreds of thousands of dollars to remodel the unit to accommodate the daycare business. The judge concluded that the new daycare business use created the need for indemnification, and therefore it was not unreasonable for the condominium to adopt the amendment imposing the new obligation. Likewise, the judge was not persuaded by the fact that the commercial unit owner carried substantial insurance for the benefit of the condominium and board of trustees. The judge determined that, absent the indemnification amendment, the condominium would be at risk of losing its own insurance, and that consideration outweighed the large insurance benefits offered by the commercial unit owner. Last, the judge agreed with the board that the commercial unit owner’s concern as to a negative impact on the market value of its unit was outweighed by that owner’s knowledge, when purchasing its unit, that the board was obligated to maintain insurance for the condominium, and that it was reasonable for the board to “fulfill its mandate and protect the residential unit owners” by obtaining the amendment to avoid losing the condominium’s insurance policy.

But it was not a complete victory for the condominium board. The judge ruled in favor of the commercial unit owner and struck down certain provisions of the bylaws amendment, including a provision that gave the trustees sole discretion to charge the commercial unit owner for any increase in insurance premiums incurred by the trust in providing adequate insurance for the condominium. The judge suggested, however, it would be reasonable to adopt an amendment limiting such obligation to increased costs incurred by the trust as a direct consequence of the daycare facility use in the commercial unit.

When faced with the task of amending any of the governing documents of a condominium, it is critically important to follow the procedures as laid out in the documents. It is equally important to consider whether the proposed amendment will pass the reasonableness test if it is challenged in court. The analysis involves a broad spectrum of factors, and condominium boards considering an amendment are well advised to seek the advice of an attorney to learn more about whether the proposed amendment might survive such a challenge.

A copy of the court decision in JAH Realty LLC v. Trustees of The 25 Channel Center Condominium Trust may be found here at this link.

Originally posted August 17, 2019on tlawmtm.com.

Associated with the Braintree firm of Moriarty, Troyer & Malloy, Thom Aylesworth has over twenty years of practice experience in Massachusetts and New Hampshire. He represents condominiums, corporations, and individuals in a wide range of matters with a primary focus on complex real estate litigation. His specific areas of practice include construction defects, condominium enforcement, zoning and land use litigation, beach rights, and other property disputes.  His email address is taylesworth@lawmtm.com

Thursday, August 22, 2019

Can a Fence Establish Intent to Abandon an Easement?


How does the existence of a fence affect whether or not an easement has been abandoned?  The mere fact that a fence exists is
insufficient to prove abandonment.  Rather, specific evidence regarding the circumstances surrounding the erection of the fence –
including when the fence was erected and by whom – must be submitted to the court.  Ultimately, the inquiry turns on whether there was an intent to abandon the easement, and the party asserting abandonment bears the burden of proof on the issue. 

A Fence Erected on a Dominant Estate Usually
Signifies an Intent to Abandon an Easement

The existence of a fence sometimes can tip the scale when the continued validity of an easement is at issue.  To determine if an easement has been abandoned, courts evaluate whether there was an intent to abandon that easement, based on the surrounding circumstances and the conduct of the parties.  Carlson v. Fontanella, 74 Mass. App. Ct. 155, 158 (2009).  Mere nonuse or ignorance of an easement are insufficient to demonstrate an intent to abandon; an affirmative act by the dominant estate owner (i.e., the easement holder) evidencing such intent is required.  Id.; Dubinsky v. Cama, 261 Mass. 47, 57 (1927). 

When a dominant estate owner erects a fence that blocks its own access to the easement, courts typically will find this constitutes an affirmative act sufficient to show an intent to abandon the easement.  For example, in Lasell Coll. v. Leonard, 32 Mass. App. Ct. 383, 390-91 (1992), the Appeals Court held that the plaintiff had abandoned his easement and intended “never again to make use of the easement”, in large part because he had constructed a fence separating his property from the disputed portion of the way which, together with another fence constructed by defendants’ predecessors in title, blocked access from plaintiff’s property to the disputed easement area.

Note, however, that not all fences are created equally and the nature and quality of the fence in question may detract from an abandonment argument.  For example, in a 2008 Land Court case, Judge Scheier determined that installation of a wooden fence was insufficiently permanent to establish abandonment of an easement where the fence rails were easily removable and allowed passage through the fence, and the fence itself was entirely removable.  Thompson v. White, No. 06 MISC. 327234 (KFS), 2008 WL 352459, at *6 (Mass. Land Ct. Feb. 11, 2008). 

Accordingly, when using a fence as evidence in an easement abandonment case, it is important to consider both the impact of the fence on use of the easement area and the type of fence that has been installed. 


An Easement Holder’s Failure to Object to a Fence Erected on a Servient Estate also Evidences an Intent to Abandon an Easement

Where a servient estate owner blocks the easement making its use impossible, and the easement holder fails to object or protest the obstruction, courts also will infer an intent to abandon an easement.  Carlson, 74 Mass. App. Ct. at 158-59.  This is especially true when there was a failure to object combined with long-term nonuse of the easement.  In Sindler v. William M. Bailey Co., 348 Mass. 589, 593 (1965), the Supreme Judicial Court held that an easement was abandoned where a disputed easement area was on the other side of a brook, the bridge over the brook disappeared and was not replaced, the easement was not used for 35 years, and the dominant estate owner acquiesced to a high chain link fence being built around the disputed area.  Similarly, in Carlson, the Appeals Court held that an easement was abandoned where easement holders exclusively used different routes for ingress and egress, took no steps to remove a stone wall or stockade fence blocking access to the easement, and did not object to plaintiffs’ use of the easement area as a lawn or driveway.  Thus, long-term acquiescence by the easement holder to a fence on a servient estate that blocks access to the easement is material in making an abandonment argument.

The Party Asserting Abandonment Bears the Burden of Demonstrating an Intent to Abandon

Whether or not an easement has been abandoned – by erection of a fence or otherwise –
is a question of fact, determined on a case-by-case basis.  Lund v. Cox, 281 Mass. 484, 492 (1933).  The mere existence of a fence is insufficient to show an intent to abandon.  Rather, a party asserting abandonment has the burden of demonstrating that the party who constructed the fence intended to abandon the easement.  Proulx v. D’Urso, 60 Mass. App. Ct. 701, 704 n.2 (2004). 

A party seeking to use the presence of a fence to prove abandonment must provide a court with specific facts regarding the circumstances of the fence’s construction.  The following questions will be particularly relevant to the court’s inquiry:

·         Who erected the fence?
·         When was the fence erected?
·         Where is the fence located relative to the easement route?
·         How effective is the fence in preventing passage along the easement route?  (For example, does the fence include a gate, and if so, is the gate locked?)
·         Did anyone object when the fence was erected?
·         Does the easement holder use the easement area that is blocked by the fence?

See Parlante v. Brooks, 363 Mass. 879 (1973).  In addition to witnesses’ personal knowledge, photographs, plans, and permit applications are helpful resources to consult to answer these questions.

Conclusion

The existence of a fence on either a dominant or servient estate often signifies the easement holder intended to abandon the easement, assuming the party seeking abandonment can carry its burden to prove the circumstances related to the erection and maintenance of the fence.


Johanna W. Schneider is counsel at Hemenway & Barnes LLP. She advises clients on real estate development permitting and land use and environmental disputes. Johanna represents public and private clients in real estate disputes at all stages of litigation, including mediations and appeals. Johanna can be reached at jschneider@hembar.com.  Donna A. Mizrahi is a litigation associate at Hemenway & Barnes LLP, focusing on real estate and probate disputes, as well as guardianship and conservatorship matters.  Donna regularly handles easement, adverse possession, and other residential real estate disputes.  Donna can be contacted at dmizrahi@hembar.com.



Thursday, August 8, 2019

MY COUSIN VINNIE SETS UP SOME GROUND RULES FOR FAMILY MEMBERS.


My cousin Vinnie, the suburban real estate attorney swung by my office today. He was agitated and he was looking for some moral support.

“Paulie, remember what President Lincoln said; ‘A lawyer’s time and advice are his stock in trade’, right?”  I told Vinnie that I was
not present when Lincoln said those words, but I agreed that those words have been attributed to Lincoln. “Then, Paulie, why do our relatives expect me to provide my stock in trade without renumeration?” I asked him to clarify. “Our cousin Georgie, the dentist, for example. Does he perform free dentistry for you and your family; no he does not. But when he decided it was time to buy a big beach house in Chatham, he expected me to provide my stock in trade for free.”

“Vinnie, Vinnie, Vinnie, it’s expected that we work for free for our closest relatives, at least to the degree that we can. It’s the eleventh commandment.”    I said, and Vinnie replied: “Yeah, I know, but I decided it was time to set up some ground rules.”  All I could say is “Oh, oh, what did you do now?”

Vinnie picked up his iphone 4 and showed me an email that he sent to cousin Georgie, DMD. “Paulie,  I sent this email to Georgie, and I saved the language so that I can share it with my siblings, in laws,  and our other relatives.” It said:

“Cousin. So glad that you and Natalie are upgrading to an oceanside beach house. I love you and I am here for you, but I need some assistance from you. Here are some suggested Do’s and Don’ts going forward:

·         Do not hide the Offer to Purchase from me until the day before the P&S is supposed to be signed.

·         Do get the Offer and the proposed P&S to me as soon as you can. I would like to extend a family discount to you, so it would be helpful if I have some flexibility in scheduling when I work on your P&S; perhaps while eating my sandwich at my desk, or after 6:30 in the evening.

·         Do not do what your brother Louie did to me,  who told me on a Friday night that he had to sign a P&S on Saturday, which meant that I had to work on the P&S from my cabin on the lake where all I have for office equipment is a 7 year old computer with DSL internet, and a combination copier, scanner, printer, coffee-maker. So while the rest of the family was out in the leaky boat, I was waiting for documents to download. I then edited the P&S and sent it back to Lou and sat by my old computer waiting for comments. Meanwhile, my sons ran through the house to get my credit card so that they could fill the old Glastron with gas and outboard motor oil. At lunch time I got edits back and sent the P&S to the Seller’s attorney and the brokers and sat around waiting for their comments. Meanwhile, I received pictures via text messages from my wife and kids enjoying lunch at that lake front bar that you like so much.

·         Do not think you are doing me a favor by not interrupting my work week with your deal.

·         Do contact me at my office during business hours. At the office I have a building full of people and a leased printer, scanner, copier worth $10,000.00, which is connected to fiber-optic high-speed internet. I have a computer server with 33 years of addenda, forms and contracts. My paralegal can check the Registry of Deeds to verify the title references and conduct a preliminary check for any issues, like a pending foreclosure or that the property was in a trust. I can prepare a buyer’s addendum using the format that I have developed over the years, rather than having to type one from scratch. I can send my documents to you and the Seller’s attorney and resumed my other work while you and the attorney reviewed my drafts. I would have had the opportunity to work on your contract at times that work best for me.

·         Do avoid calling me at home or on weekends unless there is a real estate emergency.  Thank you for your understanding.”

I read it again. “Vinnie, that was a little harsh. Forward it to me so that I can use it too.”

A former REBA president, Paul Alphen currently serves on the association’s executive committee and co-chairs the long-range planning committee.  He is also a member of the Executive Committee of the Abstract Club. He is a partner in the Westford firm of Alphen & Santos, P.C. and concentrates in residential and commercial real estate development, land use regulation, administrative law, real estate transactional practice and title examination .As entertaining as he finds the practice of law, Paul enjoys numerous hobbies, including messing around with his power boats and fulfilling his bucket list of visiting every Major League ballpark.  Paul can be contacted at palphen@alphensantos.com

Wednesday, August 7, 2019

Appeals Court Holds that Unit Owner Does Not Have Express Easement or Easement by Necessity to Gain Access to Fire Escape


Last week, the Massachusetts Appeals Court issued a decision in Chamberlain v. Badaoui, 2019 WL 3334700 (“Chamberlain”) reversing the lower court’s judgments, holding that a condominium master deed does not contain an express easement permitting a unit owner to gain access to a fire escape through another owner’s unit, nor did the unit owner have an easement by necessity through the other owner’s unit to accommodate such access. (A copy of the Chamberlain decision can be found by clicking on this link.)

On appeal, the Appeals Court began its analysis by quoting from G.L. c. 183A, § 3, stating that “[a] unit owner is entitled to exclusive ownership and control over his unit ‘as if it were sole and entirely independent of the other units in the condominium of which it forms a part.’”

In Chamberlain, the parties were all unit owners of a condominium located on Boylston Street in Copley Square in the City of Boston.1 The plaintiffs, Walter Chamberlain and Yin Kau Ho, as co-trustees of the Walter Chamberlain Revocable Trust (the “Plaintiffs”), were the owners of a unit on the second floor of the building located at the front of the building facing Copley Square (“Unit 201”). The defendants, Byblos Investments International, LLC (“Byblos”) and Charles M. Badaoui, a member and the manager of Byblos, were the owners of another unit which is located in the basement, ground, first and second floors at the rear of the building (“Unit 101”).2 Byblos leased Unit 101 to Wendy’s Old Fashioned Hamburgers of New York Inc. (“Wendy’s”). The fire escape at issue was attached to the rear exterior wall of the building, and, from the second floor, only accessible from inside the second-floor portion of Unit 101.

The Plaintiffs brought an action seeking declaratory relief, damages for the defendants’ refusal to honor an easement, and damages under G.L. c. 93A. Specifically, the Plaintiffs argued that they had a right to open the door to the second-floor portion of Unit 101 to access the fire escape. The Superior Court granted the Plaintiffs’ partial motion for summary judgment as to their declaratory relief count, and denied the defendants’ cross motion, holding that Unit 201 enjoys both an express easement and easement by necessity through the second-floor portion of Unit 101 to access the fire escape. The remaining counts were decided at a bench trial, in which the trial judge found that the defendants violated the Plaintiffs’ rights as owners of Unit 201 and caused damages by blocking Unit 201’s access to the fire escape, making Unit 201 “unrentable” as a matter of fact and law. Additionally, the trial judge concluded that the defendants violated G.L. c. 93A and awarded the Plaintiffs double damages ($742,126.43) and attorney’s fees and costs ($93,513.46). The defendants appealed the lower courts’ determinations on all counts.

On appeal, the Appeals Court began its analysis by quoting from G.L. c. 183A, § 3, stating that “[a] unit owner is entitled to exclusive ownership and control over his unit ‘as if it were sole and entirely independent of the other units in the condominium of which it forms a part.’” The Appeals Court further added that “[s]uch control ‘is subject only to the limitations set forth in the master deed and the condominium bylaws.’”3

Next, the Appeals Court held that the master deed did not create an express easement granting Unit 201 a right of way through Unit 101 to access the fire escape stairs for emergency egress. The Appeals Court recited the following principle:

An express easement can be created only by a writing signed by the party to be bound, and the writing ‘must identify with reasonable certainty the easement created and the dominant and servient tenements.’ . . . Where an easement is created by deed, its meaning, ‘derived from the presumed intent of the grantor, is to be ascertained from the words used in the written instrument, construed when necessary in the light of the attendant circumstances.’4

Ultimately, the Appeals Court found that the master deed granted Unit 201 an express "exclusive right and easement . . . to use . . . the fire escape stairs located on the Building for the purpose of providing access and emergency egress to such Units;" however, the master deed was facially defective in that it did not provide Unit 201 access to the fire escape from the second floor. Furthermore, the Appeals Court concluded that the second-floor plans did not show words or symbols indicating that Unit 201 could access the fire escape through Unit 101, in contrast to the plans for the other floors in the building, which marked a means of egress for using the fire escape.

Moreover, the Appeals Court noted that the easement was subject to the obligations and restrictions contained in the Master Deed, the By-Laws, the Rules and Regulations of the Condominium Trust, and Chapter 183A. As such, the Appeals Court looked to the governing documents, and found that the exclusive possessory interests in the units take precedence over the easement to use the fire escape because units are defined first, and then common areas are defined. The Appeals Court further noted that where the master deed provided an easement in favor of one unit for the benefit of another, it did so explicitly.5 Thus, the Appeals Court concluded that master deed and plans did not grant Unit 201 an express easement to pass through Unit 101's second-floor space to access the fire escape.

Next, the Appeals Court held that Unit 201 did not have an easement by necessity through Unit 101 to access the fire escape for emergency egress. To create an easement by necessity, the party claiming it has the burden of establishing that the parties intended to create an easement that is not expressed in the deed.6 The Appeals Court rejected the Plaintiffs’ argument that Unit 201 possessed an easement by necessity because access through Unit 101 was necessary for the reasonable enjoyment of Unit 201's easement to use the fire escape stairs, and because the initial owner of Units 101 and 201 (who was also the condominium declarant), intended to create such an easement. The Appeals Court repeated the principle that condominium unit owners are entitled to exclusive possession of their unit, and that upon execution of the master deed, a unit owners’ rights and limitations are found exclusively within the condominium documents. As such, the Appeals Court again held that the master deed failed to demonstrate the declarant’s intent that Unit 201 possess any rights to a portion of the building that the master deed designated as exclusively owned by Unit 101. To read such an easement into the master deed, the Appeals Court explained would “infringe upon Byblos's exclusive use and possession of unit 101, and ‘[o]ur law simply does not sanction this type of private eminent domain.’”7

In its final remarks, the Appeals Court acknowledged the negative effect its decision would have on the owners of Unit 201. However, the Appeals Court adamantly stated:

[W]e cannot disregard the legal instruments that created the condominium and units, and neither can the trustees. In considering who must bear the consequences of the scope and limitations of the rights of a particular unit, they must fall on the purchaser of the unit rather than on another unit owner in the building.

Ultimately, the Appeals Court entered a new judgment and reversed the order granting partial summary judgment and the final judgment for the Plaintiffs’ claim for monetary damages and damages stemming from a violation of G.L. c. 93A, as they were premised on the existence of a valid easement.

Chamberlain should serve as a critical reminder of the importance of including easements, particularly ones that provide access during a fire or other emergency, in condominium documents at the outset. Although the issue between the Unit owners in Chamberlain could presumably be resolved through negotiation, there is no guarantee that such negotiations would be successful. Furthermore, although it was not addressed by the parties, it is worth noting that, pursuant to the Massachusetts State Building Code, 780 Code Mass. Regs. § 1006.2.1 (1997), "[a]n exit access shall not pass through a room subject to locking", and 780 Code Mass. Regs. § 1017.4.1 (1997), with some exceptions, "egress doors shall be readily openable from the side from which egress is to be made without the use of a key or special knowledge or effort."

Originally posted July 26, 2019 on tlawmtm.com.

1 The owner of the building, Molded Antennas for Telecommunications, Inc., converted the building into a five-unit condominium and executed and recorded a master deed prior to either party owning their respective units in the building.
2 The space on the second floor of Unit 101 is used as a mechanical room. For this proposition, the Appeals Court cited 39 Joy St.
3 For this proposition, the Appeals Court cited 39 Joy St. Condominium Ass'n v. Board of Appeal of Boston, 426 Mass. 485, 487 (1998).
4 Quoting from Parkinson v. Assessors of Medfield, 395 Mass. 643, 645 (1985), S.C., 398 Mass. 112 (1986) and Patterson v. Paul, 448 Mass. 658, 665 (2007).
5 For example, the Appeals Court noted that the master deed provided that "[e]ach Unit shall have an easement to use, maintain, repair, operate, and replace all HVAC Equipment serving such Unit located in the Common Elements or in any of the other Units, and each Unit shall be subject to such easement in favor of the other Units,” and that "[e]ach Unit shall be subject to an easement in favor of the owners of all other Units to use all pipes, wires, flues, ducts, conduits, plumbing lines and other portions of the common areas and facilities serving such other units and located in such unit."
6 Kitras v. Aquinnah, 474 Mass. 132, 139 (2016).
7 Quoting Goulding v. Cook, 422 Mass. 276, 278 (1996).

Should you have any questions regarding this article, please do not hesitate to contact Michelle Rosin at 781-817-4900 or by email at mrosin@lawmtm.com

Tuesday, August 6, 2019

The Standing Requirement Remains an Open Question but Still a Valid Defense to Cyber Claims


In litigation proceeding in the Federal Courts, it has always been necessary for a successful plaintiff to in some manner establish that the harm sought to be remedied by a federal lawsuit falls within the
authority of the courts to hear and decide such cases. Put another way, Article III of the Constitution limits the authority of Federal Courts to decide only those cases where the claimant has “standing” –  a cognizable interest in the dispute. That interest must be demonstrated by a showing of  1. A concrete injury, 2. The injury is attributable to the defendant’s actions and 3. The injury can in some way be addressed by a favorable decision in the case. Given the fact that in many cases claimants have demonstrated that a cyber breach has occurred for which a target defendant is responsible, only to be denied standing -and hence denied recovery- where no actual “harm” or loss has been established, just what constitutes that harm is an often-litigated issue that has been in many lawsuits a powerful defense to those parties alleged to have committed some type of cyber misstep. Several recent Supreme Court actions have both done little to clarify that issue – what type of “harm’ must be demonstrated for standing to be proven – but the actions have simultaneously served to preserve standing as a significant hurdle for cyber claim plaintiffs to clear in most states.

Specifically, on March 20, 2019, in reviewing the Frank v. Gaos decision decided by the Ninth Circuit which had approved the class action settlement between Google and a group (class) of Google users, the Supreme Court ordered the Ninth Circuit court to determine if the plaintiffs in that case had suffered a concrete injury before any settlement could be approved. But, in reaching that result, the Court did not give any guidance on how a court need decide if an injury- in- fact had occurred. Less than a week later, in denying certiorari to the parties in Zappos v. Stevens, the Court similarly declined to give any clarity to the injury in fact standard. In effect by refusing to resolve the split among the circuit courts where some have determined that simply identifying theft of information or cyber fraud and the THREAT of future misuse is sufficient to confer standing ( as the Sixth, Seventh, Ninth and D.C. Circuits have done) while others (the First, Second, Third, Fourth and Eighth Circuits) have held that simply alleging the threat of future harm is not enough to establish an actual harm sufficient for standing purposes, the Court has left that issue to the lower courts to continue to resolve on a piecemeal basis.

The Supreme Court’s inaction comes at a time when state legislatures are focusing on the injury -in- fact issue by enacting statutes that attempt to eliminate any requirement that a claimant must establish actual harm to succeed on cyber liability based lawsuit. California’s Privacy Act of 2018, Massachusetts Senate Bill 120 and the Illinois Biometric Privacy Act each either clearly state or simply suggest (in the case of the Illinois act)  that no injury apart from being subject to a theft or disclosure is needed to establish standing. Nevertheless, in those states that have NOT passed such legislation and in those states that are not within the jurisdictions of the Circuit Courts that have watered down the Article III requirement that a concrete injury be established to confer standing, defendants in cyber lawsuits – and their insurers and attorneys – can continue to focus on the lack of provable harm to defeat such claims.

Chair of construction and design law practice section of the national law firm of Freeman Mathis & Gary, Jeff is a partner in the firm’s Boston office. For over two decades, he has been a nationally recognized A&E attorney who has tried cases throughout New England defending an array of construction and design professionals. Jeff can be contacted by email at jalitz@fmglaw.com.

Jeff also serves on the roster of neutrals of REBA’s affiliate, REBA Dispute Resolution.  For more about Jeff’s dispute resolution experience, or to schedule an arbitration or mediation with Jeff, go to adr@reba.net.   For more about REBA/DR, go to www.disputesolution.net.

Thursday, August 1, 2019

A Farewell to Libor


What could be more titillating in the middle of a gorgeous Boston summer than…yes…a review of recent developments relating to LIBOR. Most of our lender and borrower clients know that LIBOR
(the “London Inter-bank Offered Rate”) is a popular index underlying many variable rate credit facilities, including residential and commercial real estate mortgages and secured and unsecured business loans and lines of credit, similar to the prime rate and other published index rates.

For many years, LIBOR, as a reflection of the cost of money charged among those thought to know the most on the subject, was considered to be a stable index and an accurate reflection of the health of the financial system in major world markets.

LIBOR is essentially an interest rate average calculated daily based on the rates large, international banks based in London charge each other for short term inter-bank loans. LIBOR rates are published daily in five different currencies and for seven borrowing periods ranging from overnight to one year, and are typically aggregated with a margin for purposes of calculating the interest rate applicable from time to time under credit facilities indexed to LIBOR.

For many years, LIBOR, as a reflection of the cost of money charged among those thought to know the most on the subject, was considered to be a stable index and an accurate reflection of the health of the financial system in major world markets. In theory, when times are good and LIBOR reporting banks feel more confident about the health of the world’s financial system, those banks report a lower inter-bank lending rate; and when times worsen and confidence weakens, those banks report a higher inter-bank lending rate.

Either way, rates reported by LIBOR reporting banks for inter-bank loans are supposed to be the actual rates those banks charge each other, in order to provide an accurate reflection of the actual health of the financial system. Unfortunately, dating back at least two decades, certain LIBOR reporting banks began to manipulate LIBOR by fraudulently reporting hypothetical inter-bank lending rates, primarily to hedge against impending fears in derivatives markets. Although these banks were able to hide their often collusive activity for decades, by 2014 many of those banks operating in the United States had been prosecuted and held accountable for illegally manipulating LIBOR.

Although confidence in the integrity of LIBOR as a world interest rate benchmark subsequently diminished, many banks operating in the United States continued to rely upon LIBOR as an index of choice in pricing variable rate loans, inserting into their promissory notes fairly generic rate substitution language which would apply in the event LIBOR ceased to be published during the term of the loan. However, in late 2014, as concerns over LIBOR manipulation deepened, the Federal Reserve Board and the Federal Reserve Bank of New York (collectively, the “Fed”), announced the creation of the Alternative Rates Reference Committee (“ARRC”) to assess the continued integrity of LIBOR and a viable replacement index. Recently, ARRC recommended the discontinuation of LIBOR as a published rate index, and the Fed adopted that recommendation to become effective no later than the end of 2021.

The discontinuance of LIBOR will affect any loan in place at the time publication of LIBOR ceases. Unfortunately, the generic index substitution language that made its way into many existing promissory notes following early concerns over LIBOR’s continued viability are now considered to be inadequate for purposes of assuring an accurate and meaningful replacement of LIBOR as the index applicable to those loans. Accordingly, most banks are implementing procedures not only to modify documentation of new loans, but also to seek modification of existing loans, to include LIBOR replacement provisions consistent with the actual LIBOR substitution policies adopted by the Fed.

While the intention of any index substitution provision – either existing generic provisions or new provisions intended to reflect the Fed’s replacement policies – is to provide an applicable borrowing rate reasonably equivalent to the rate which would have resulted under the original index, any proposed index replacement – particularly one arising in connection with a requested loan modification – should be carefully reviewed by both lender and borrower. MTM is available to assist our lender and borrower clients with any proposed LIBOR rate substitution in an efficient and informed manner.

Dan is Of Counsel to Braintree and Boston based law firm of Moriarty, Troyer & Malloy LLC, representing buyers, sellers, investors, developers and lenders in the acquisition, financing, development, leasing and disposition of real estate across every asset class. Dan can be contacted by email at dcasey@lawmtm.com.