Municipal Board Members’ Ethical Breaches Must be Adjudicated with the State Ethics Commission

In Nantasket Beachfront Condominiums, LLC vs. Hull Redevelopment Authority, the Massachusetts Appeals Court ruled that the allegation of municipal board members’ individual ethical breaches must be adjudicated with the State Ethics Commission.

A Land Disposition Agreement (the “LDA”) for the purchase of land and the development of seventy-two housing units was executed between the Hull Redevelopment Authority (the “redevelopment authority”) and Nantasket Beachfront Condominium, LLC (the “developer”). Neighborhood opposition led to delays and appeals of the developer’s zoning permit. The redevelopment authority alleged that the developer defaulted, and the redevelopment authority retained liquidated damages. The developer’s subsequent action in the Superior Court was dismissed on summary judgment in the redevelopment authority’s favor; the developer appealed. The developer alleged that the redevelopment authority’s decision to terminate the LDA was tainted because two of the redevelopment authority board members had serious conflicts of interest.

After the Hull Zoning Board of Appeal issued a special permit for the developer, individuals against the project filed an action to appeal the permit (the “permit action”). Two of the individual plaintiffs named in the permit action eventually were elected as redevelopment authority board members. Even after they were elected to the redevelopment authority board, they continued as plaintiffs individually in the permit action. The “interested” redevelopment authority board members continued as parties in an appeal when the original action was dismissed.

Once the permit appeal was dismissed, the project still faced obstacles. The developer and the redevelopment authority made an effort to renegotiate the LDA, but the “interested” board members remained on the redevelopment authority board. The developer requested that the “interested” board members recuse themselves from all redevelopment authority matters concerning the project.

When the renegotiations broke down, the redevelopment authority terminated the LDA by a vote of four to zero. Both of the “interested” board members voted to terminate the agreement, and the redevelopment authority retained $857,500.00 in liquidated damages.

The developer filed a complaint against the redevelopment authority, in part alleging that the redevelopment authority’s termination of the LDA was tainted because of the “interested” board members’ serious conflicts of interest. After the Superior Court ruled in the redevelopment authority’s favor on summary judgment, the developer filed an appeal. In resolving the contract-based claims, the Appeals Court noted that the redevelopment authority was the contracting party in the LDA, not the individual board members. The Court notes that, “in the context of a private corporation, individual board members’ conflicts of interest are not imputed to actions taken pursuant to a valid vote of the board.” See Estate of Moulton v. Puoplo, 467 Mass. 478, 482, 488-489 (2014). The Appeals Court concluded that without evidence of bad faith by the redevelopment authority, the developer’s claim against the redevelopment authority for a bad faith breach of contract should be dismissed.

The developer should have filed a complaint with the State Ethics Commission (the “commission”) for violations of M. G. L. c. 268A. The developer could then argue that because of the “interested” board members’ conflicts of interest and their direct and substantial economic stake in the project’s success or failure, the redevelopment authority violated M. G. L c. 268A §6A and §19. In this context, the State Ethics Commission was the proper agency to pursue the “interested” board members’ alleged violations of conflicts of interest law. Doe v. State Ethics Comm., 44 Mass 269, 271 (2005). Here, the developer failed to follow the statutorily prescribed procedure to address ethics violations of public officials; therefore, the developer’s allegations of ethical breaches of the contract against the redevelopment authority were improper.