IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
PECAN VILLAGE TX 2016, LP, )
SHADY ACRE GA 2016, LLC, )
YELLOW ROSE TX 2017, LP, )
DRUID OAKS GA 2017, LLC, and )
WESTWOOD GA 2017, LLC, )
) C.A. No. N20C-06-040
Plaintiffs/Counterclaim ) PRW CCLD
Defendants, )
)
v. )
)
SW MH HOLDINGS, LLC, )
Defendant/Counterclaim Plaintiff. )
Submitted: November 10, 2020
Decided: February 3, 2021
MEMORANDUM OPINION AND ORDER
Upon Defendant SW MH Holdings, LLC’s Motion for Judgment on the Pleadings,
DENIED.
Chad J. Thoms, Esquire, Kaan Ekiner, Esquire, WHITEFORD TAYLOR
PRESTON, LLP, Wilmington, Delaware; Stephen M. Faraci, Sr., Esquire, Patrick
D. Houston, Esquire, WHITEFORD TAYLOR PRESTON, LLP, Richmond,
Virginia, Attorneys for Plaintiffs/ Counterclaim Defendants Pecan Village TX 2016,
LP, Shady Acres GA 2016, LLC, Yellow Rose TX 2017, LP, Druid Oaks GA 2017,
LLC, and Westwood GA 2017, LLC.
Joseph Grey, Esquire, CROSS & SIMON, LLC, Wilmington, Delaware; Gavin J.
Rooney, Esquire, Craig Dashiell, Esquire, LOWENSTEIN SANDLER, LLP, New
York, New York, Attorneys for Defendant/ Counterclaim Plaintiff SW MH Holdings,
LLC.
WALLACE, J.
Plaintiffs Pecan Village TX 2016, LP, Shady Acres GA 2016, LLC, Yellow
Rose TX 2017, LP, Druid Oaks GA 2017, LLC, Westwood GA 2017, LLC
(collectively “Sellers”) bring this action against Defendant SW MH Holdings, LLC
(“SW”), asking the Court to clarify a contractual dispute regarding the proper
termination of an asset purchase agreement (the “APA”) between them. The parties
also request that the Court determine which party is entitled to the escrow deposit
under the APA. Now before the Court is Defendant SW’s Motion for Judgment on
the Pleadings.
Because various material issues of fact preclude entry of judgment as a matter
of law now, SW’s motion is DENIED.
I. FACTUAL BACKGROUND
On November 27, 2019, Sellers entered into the APA with SW, under which
SW agreed to purchase, from Sellers, parcels of real property for $33,000,000.1 The
parties amended the APA several times through four written amendments beginning
in January 2020 through February 2020.2 Pursuant to the APA, SW deposited a total
of $1,200,000 with Lincoln Land Services, LLC (the “Escrow Agent”) as an agent
1
Compl., at ¶ 8, June 3, 2020 (D.I. 1); see Compl., Ex. A (Asset Purchase Agreement).
2
Id., at ¶ 10. See generally Compl., Exs. B (January 10, 2020 Letter Amendment to APA), C
(January 16, 2020 Second Amendment to APA), D (January 23, 2020 Third Amendment to APA),
and E (February 6, 2020 Fourth Amendment to APA).
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for First American Title Insurance Company (the “Title Company”).3 The deposit
was to be made within three business days after the execution of the APA and
required an initial deposit of $1,000,000 and an additional deposit of $200,000 when
SW elected to adjourn the Closing Date pursuant to Section 6.1 of the APA.4
Section 4 of the APA required that the Sellers convey good and marketable
title to the subject Georgia and Texas properties and provided SW with the option to
object to title based upon a title search or other diligence. 5 On January 10 and 15,
2020, SW provided Sellers with letters providing notice of objections regarding
various title matters (“Title Objection Letters”) with respect to the Georgia and
Texas properties pursuant to Section 4.2 of the APA.6 In these letters, SW objected
to multi-million dollar liens on five of the properties and asked for them to be cured
before the close of the transaction.7 On January 14 and 16, 2020, Sellers provided
3
Id. at ¶ 11; Ex. A, at § 2.2.
4
Id.
5
Def.’s Mot. for J. on the Pleadings, at 5, August 7, 2020 (D.I. 10) (“Def.’s Mot.”).
6
Def.’s Answer, at ¶ 10, July 6, 2020 (D.I. 4). See Def.’s Answer, Ex. D (January 15, 2020
Purchaser’s Title Objection Letter) and Ex. E (January 10, 2020 Purchaser’s Title Objection
Letter).
7
Id.
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letters in response to each of the objections informing SW that they agreed to cure
the objections raised.8 The parties set the Closing Date for March 23, 2020.9
On March 20, 2020, SW sent Sellers a written notice attempting to terminate
the APA, explaining:
[Sellers] have failed to cure, remove, or satisfy all Objections
within five (5) business days prior to Closing date to the
reasonable satisfaction of [SW] in accordance with Section 4.2
of the Agreement. [Seller] is in breach of Section 8.2 of the
Agreement which obligates [Sellers] as a condition precedent to
[SW]’s consummating Closing to have performed all
undertakings and obligations and complied with all conditions
required by the Agreement to be performed by [Sellers] on or
before the Closing date. In accordance with Section 8 of the
Agreement, [Sellers] are exercising its option to terminate the
Agreement in whole (without prejudice to [SW]’s rights under
Section 10.2 of the Agreement).10
Sellers responded on March 24, 2020, explaining that SW was in default of
its obligations under the APA because “failure to tender performance on or before
March 23, 2020, constitutes a default under the Purchase Agreement” and demanded
it cure its default within ten (10) business days or Sellers would terminate the APA.11
Sellers further claimed that such a default entitles Sellers to the escrow deposit
8
Id.
9
Compl., at ¶ 14.
10
Id. at ¶ 15; Def.’s Answer, at ¶ 15; Compl., Ex. F (March 20, 2020 Letter).
11
Compl., at ¶ 17; Compl., Ex. G (March 24, 2020 Letter).
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because they fully tendered performance on the Closing Date as required by the
APA.12
SW responded to the Sellrs on March 25, 2020, explaining that it had validly
exercised its termination rights under the APA, excusing it from performance at
Closing.13 In this letter, SW claims that Sellers failed to “cure, remove, or satisfy all
Objections . . . in accordance with Section 4.2 of the Agreement and, therefore,
[Sellers] breached Section 8.2 of the Agreement and [SW] was entitled to terminate
the Agreement in whole pursuant to Section 8 of the Agreement, which it did
pursuant to such termination notice.”14
On April 9, 2020, Sellers sent a letter to SW electing to terminate the APA,
contending SW failed to properly do so as required by the APA.15 Sellers explain
that they provided SW with notice of default on March 24, 2020, and since it was
not cured within ten (10) days of such notice, Sellers were free to terminate the
Agreement.
12
Compl., Ex. G.
13
Id. at ¶ 18; Compl., Ex. H (March 25, 2020 Letter).
14
Compl., Ex. H, at 1.
15
Id. at ¶ 19; Compl., Ex. I (April 9, 2020 Letter); Def.’s Answer at ¶ 19.
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II. PARTIES’ CONTENTIONS
A. PROCEDURAL BACKGROUND
Sellers filed their Complaint in June 2020. Count I of their Complaint is a
breach-of-contract claim asserting that SW failed to perform its obligations under
the APA and, as a result, the Sellers suffered damages.16 Sellers contend proper
damages include recovery of the escrow deposit due to SW’s default under the
APA.17
In response to Sellers’ breach-of-contract claim, SW contends that it properly
terminated the APA because Seller failed to assure clear title and failed to satisfy the
conditions precedent to SW’s obligations to close.18 Therefore, according to SW,
Sellers breached their obligations and are barred from seeking a remedy under the
APA.19 SW seeks a judgment, by the Court, declaring that it is entitled to the
immediate return of the escrow deposit.20
In its counterclaims, SW puts forth two counts. First, it contends that Sellers
breached the APA by failing to cure SW’s Objections no later than five days prior
16
Compl., at ¶ 24.
17
Id. at ¶ 25.
18
Id.
19
Id.
20
See Def.’s Answer, at 16-17.
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to closing and for refusing to authorize the Escrow Agent to return the escrow
deposit to SW after its valid termination of the APA.21 In its second count, SW
requests declaratory judgment in its favor arguing that SW had not breached any of
its obligations under the APA and had no obligation to close the transaction after
Sellers failed to perform.22
SW immediately filed this present Motion for Judgment on the Pleadings and
the Court has heard the parties’ arguments thereon.
B. SW’S MOTION FOR JUDGMENT ON THE PLEADINGS
SW moves for judgment on the pleadings contending that sufficient key facts
have been established to enter judgment in its favor. SW asserts that the language
of the APA is clear and unambiguous and that it validly exercised the option to
terminate the APA by serving Sellers with written notice.23 SW suggests Section
4.2 is controlling because it allows SW to object to “any matters of title or surveys”
by serving the Objections to the Sellers.24 Next, SW interprets Section 8.2 of the
APA to required Sellers to “cure, satisfy, or remove” the Title Objections, to SW’s
satisfaction, no later than five business days prior to the March 23, 2020 Closing—
21
Def.’s Countercl. at ¶ 25, 27.
22
Id. at ¶ 31.
23
Def.’s Mot. at 11.
24
Id. at 17.
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that is, by March 16, 2020.25 SW says that satisfying the Title Objections was a
condition precedent to SW’s obligation to close and since not met, there was no
obligation to close the transaction.26 According to SW the APA is clear and
unambiguous and enough key facts have been established to resolve the entire
dispute via this motion.
III. STANDARD OF REVIEW
A party may move for judgment on the pleadings via Superior Court Civil
Rule 12(c).27 “The standard for a motion for judgment on the pleadings is ‘almost
identical’ to the standard for a motion to dismiss.”28 In determining a Rule 12(c)
motion, the Court assumes the truthfulness of all well-pleaded allegations of fact in
the complaint,29 takes those well-pleaded facts as admitted,30 and then views those
facts and draws inferences therefrom in the light most favorable to the non-moving
party. 31 The Court accords a party opposing a Rule 12(c) motion the same benefits
25
Id., at 12.
26
Id., at 14-15.
27
Del. Super. Ct. Civ. R. 12(c).
28
Silver Lake Office Plaza, LLC v. Lanard & Axilbund, Inc., 2014 WL 595378, at *6 (Del. Super.
Ct. Jan. 17, 2014).
29
Almah LLC v. Lexington Ins. Co., 2016 WL 369576, at *4 (Del. Super. Ct. Jan. 27, 2016).
30
Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1205
(Del. 1993).
31
Id.
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as a party defending a dismissal motion under Rule 12(b)(6).32 A moving party is
entitled to judgment on the pleadings only when there are no material issues of fact
and the movant is entitled to judgment as a matter of law.33 The questions before
this Court here are questions of fact and therefore are not ripe for decision.
IV. DISCUSSION
SW argues that the unambiguous language of the APA establishes Sellers’
breach by failing to cure the expressed Title Objections five days before the Closing
Date, and therefore entitling SW to a return of the deposit.34 Alternatively, Sellers
argue that their reasonable interpretation of the APA supports that SW failed to
properly terminate the APA and that it should retain the escrow deposit as
damages.35 Now, the Court must decide the proper avenue of termination as
contemplated by the APA, and which party is entitled to the deposit.
When interpreting a contract, the Court will give priority to the parties’
intentions as reflected in the four corners of the agreement.36 Delaware courts adopt
32
See Ki-Poong Lee v. So, 2016 WL 6806247, at *2 (Del. Super. Ct. Nov. 17, 2016).
33
Desert Equities, Inc., 624 A.2d at 1205; Alcoa World Alumina LLC v. Glencore Ltd., 2016 WL
521193, at *6 (Del. Super. Ct. Feb. 8, 2016).
34
Def.’s Mot. at 12.
35
Pls.’ Opp’n. to Def.’s Mot. for J. on the Pleadings, at 11, September 14, 2020 (D.I. 19) (“Pls.’
Opp’n.”).
36
Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 145 (Del. 2009).
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the following well-established contract interpretation techniques:
To determine what contractual parties intended, Delaware courts
start with the text. When the contract is clear and unambiguous,
we will give effect to the plain-meaning of the contract’s terms
and provisions, without resort to extrinsic evidence. To aid in
the interpretation of the text’s meaning, Delaware adheres to the
objective theory of contracts, i.e. a contract’s construction should
be that which would be understood by an objective, reasonable
third party. The contract must also be read as a whole, giving
meaning to each term and avoiding an interpretation that would
render any term mere surplusage. But general terms of the
contract must yield to more specific terms.37
“[W]here reasonable minds could differ as to the contract’s meaning, a factual
dispute results and the fact-finder must consider admissible extrinsic evidence.”38
The Court will interpret clear and unambiguous terms according to their ordinary
meaning.39 A contract is not rendered ambiguous simply because the parties do not
agree upon its proper construction.40 “Rather, a contract is ambiguous only when
the provisions in controversy are reasonably or fairly susceptible of different
interpretations or may have two or more different meanings.”41
37
Sunline Commercial Carriers, Inc. v. CITGO Petroleum Corp., 206 A.3d 836, 846 (Del. 2019).
38
GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 779 (Del. 2012).
39
Id.
40
Id.
41
Rhone-Poulenc Basic Chems. Co. v. Am. Motorist Ins. Co., 616 A.2d 1192, 1196 (Del. 1992).
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SW contends that proper termination starts with Section 4.2 of the APA,
labeled “Title Examination,” which states in relevant part:
With respect to all Objections which Sellers have elected to cure,
Sellers shall have until the date that is five (5) business days prior
to the Closing date, excluding any extensions, to cure, remove or
satisfy same at its sole cost and expense, to the reasonable
satisfaction of Purchaser in its sole discretion.42
SW interprets this language to create a deadline of March 16, 2020, for Sellers
to cure all objections made in its January 10 and 15 letters as that is five business
days before the scheduled closing date of March 23, 2020.
SW also relies on Section 8.2 as support that satisfaction of the Objections
was a condition precedent to Closing, and since not met, SW was free to terminate
the APA. Section 8 is titled “Conditions Precedent to Purchaser’s Consummating
Closing” and specifically, 8.2 provides:
There shall have been no breach of any of the representations or
warranties made by Sellers herein, all such representations and
warranties shall be true and correct as of the date of this
Agreement and as of the Closing date, and each Seller shall have
performed all undertakings and obligations and complied with all
conditions required by this Agreement to be performed or
complied with by each Seller on or before the Closing date.43
42
Compl., Ex. A at § 4.2
43
Id. at § 8.2.
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Conversely, Sellers request that the Court consider the contract in its entirety
and give priority to the parties’ intentions.44 Sellers posit that the Court should also
consider the industry custom and suggest it is customary practice to satisfy
outstanding liens at Closing.45 Sellers contend that proper contractual interpretation
begins with Section 4.3 which states that:
[i]f any Seller fails or is unable or unwilling to cure, satisfy or
remove any Objection or Supplemental Objection, then
Purchaser shall have the option of extending the Closing date for
up to five (5) business days and then the further option to: . . .
(iii) if the applicable Seller has agreed to cure such Objection or
Supplemental Objection and fails to do so by the Closing date,
exercise its remedies under Section 10.2 hereof.”46
If this provision applies, Sellers say, then SW is limited to remedies detailed in
Section 10.2 which states:
[i]f Sellers default in performing any of their obligations under
this Agreement, or if any of Sellers’ representations or warranties
contained herein are not true in all material respects as of
Closing, and such default continues for more than ten (10)
business days after written notice from Purchaser, and provided
that Purchaser is not in default hereunder, then Purchaser shall
have the right either to: (i) terminate this Agreement by written
notice to Sellers and receive from the Title Company a return of
the Deposit whereupon this Agreement shall become null and
void and of no further force or effect, except as expressly
provided herein.47
44
Pls.’ Opp’n., at 11, 15.
45
Id. at 15.
46
Id., Compl., Ex. A at § 4.3.
47
Compl., Ex. A, at § 10.2.
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Sellers assert these sections of the APA should be applied instead of Sections
4.2 and 8.2 because they contain more specific language.48 Sellers argue SW failed
to conform with the proper termination procedure under the APA, which required
SW to provide notice of the purported default and give Sellers ten days to cure the
default.49
In Delaware, “judgment on the pleadings is a proper framework for enforcing
unambiguous contracts because there is no need to resolve material disputes of
fact.”50 But here there are two possible interpretations of the APA that create
ambiguity that cannot properly be decided on a motion for judgment on the
pleadings. At this point in the civil action, it is improper to decide competing
contractual interpretations because it gives rise to a dispute of material fact. The
APA, under the judgment pleading examination applicable here, ambiguous because
there are “provisions in controversy that are reasonably or fairly susceptible of
different interpretations or may have two or more different meanings.”51 Under the
48
Pls.’ Opp’n., at 18.
49
Id. at 17.
50
Aveta Inc. v. Bengoa, 2008 WL 5255818, at *2 (Del. Ch. Dec. 11, 2008) (quoting Lillis v.
AT & T Corp., 904 A.2d 325, 330 (Del. Ch. 2006)).
51
See Lillis v. AT & T Corp., 904 A.2d at 330 (quoting Rhone-Poulenc Basic Chems., 616 A.2d
at 1196).
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APA, there are seemingly two different avenues that allow a party to terminate the
contract and receive the deposit. But at this stage, it is unclear which provisions
should apply. Thus, in these circumstances, the required contractual interpretation
denatures to a question of fact irresolvable on this motion.
V. CONCLUSION
For the foregoing reasons, SW’s Motion for Judgment on the Pleadings must
be DENIED.
IT IS SO ORDERED.
______________________
Paul R. Wallace, Judge
Original to Prothonotary
cc: All Counsel via File and Serve
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