It is not uncommon for parties entering into an agreement to transfer an asset to seek the input of an independent, third-party appraiser. Plainly, the parties to any such transaction desire an appraiser who will be unbiased and will not have any conflicts of interest. Further, one would assume that if such an appraiser’s company had a relationship with the opposing party, a court would step in to invalidate the appraisal. That assumption is not always correct, however–especially if the appraisal agreement does not specify what will disqualify the appraiser. Indeed, a Massachusetts Supreme Judicial Court judge recently confirmed this in Buffalo-Water 1, LLC v. Fidelity Real Estate Company, LLC.

In Buffalo-Water, an Appraisal Agreement only required the individual appraiser to disclose any prior appraisal services he rendered for either of the parties. The appraiser’s employer, Cushman & Wakefield, was not required to make any such disclosure, nor was it required to disclose conflicts of interest or relationships that could deem it to be biased. Further, and unbeknownst to Buffalo-Water, Cushman had previously been engaged by Fidelity to represent it in connection with a national contract.

Once Buffalo-Water became aware of the Fidelity-appraiser relationship, it filed suit, seeking to have the appraisal invalidated, and Fidelity moved to dismiss the complaint. Fidelity’s Motion was allowed, and Buffalo-Water appealed. In its opinion, the Supreme Judicial Court framed the issue as follows:

The issue on appeal is whether we should modify this common law rule and allow a judge to invalidate an appraisal intended by the parties to provide a final, binding valuation of a property, where there is the appearance of bias, not on the part of the individual who conducted the appraisal, but on the part of the entity that employed the individual appraiser.

In answering this question, the Court noted that Buffalo-Water’s complaint alleged no facts tending to suggest that the appraiser had any direct bias or conflicts of interest and also found that he had no indirect bias because he did not even know about Fidelity’s national representation by Cushman. Thus, the Court ruled that not only did the appraiser have no ability to disclose the Fidelity-Cushman relationship, but his appraisal could not have been tainted by that relationship. Ultimately, therefore, the Court refused to invalidate the appraisal or overturn dismissal of the action.

Buffalo-Water serves as a stark reminder to in-house counsel responsible for appraisal-agreements (and even other agreements, where appraisers are used) to think broadly as to what would disqualify an appraiser and specify any disqualifying circumstances in the agreement. As the Buffalo-Water Court noted:

When parties negotiate a contract that provides for a binding appraisal they are free to include provisions that establish more stringent impartiality requirements than those in our common law and specify the appraisal will be invalid where those requirements are not met.

Indeed, the last thing in-house counsel want to do is explain to their business counterparts that, despite the fact an appraiser’s company could be biased or lack impartiality, they can’t object to the use of a bad appraisal.