Windsor I, LLC v. CWCapital Asset Management LLC ( 2017 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
ANDRE G. BOUCHARD Leonard L. Williams Justice Center
CHANCELLOR 500 N. King Street, Suite 11400
Wilmington, Delaware 19801-3734
Date Submitted: July 25, 2017
Date Decided: July 31, 2017
Michael C. Hochman, Esquire Daniel A. O’Brien, Esquire
Monzack Mersky McLaughlin Venable LLP
and Browder, P.A. 1201 N. Market Street, Suite 1400
1201 N. Orange Street, Suite 400 Wilmington, DE 19801
Wilmington, DE 19801
RE: Windsor I, LLC v. CWCapital Asset Management LLC
Civil Action No. 12977-CB
Dear Counsel:
This letter constitutes the Court’s decision on the motion of defendant
CWCapital Asset Management LLC (“CWCAM”) to dismiss the Complaint for
Specific Performance, Injunctive, and Other Equitable Relief (the “Complaint”)
filed by plaintiff Windsor I, LLC (“Windsor”). For the reasons explained below,
the motion to dismiss is granted.
I. Background1
Windsor is the owner of a commercial property located at 2201 Farrand
Drive, Wilmington, Delaware (the “Property”). CWCAM is a special servicer that
handles the default side of loan servicing for its affiliate, CWCapital LLC.
1
The facts recited herein come from the Complaint and the documents appended thereto.
Windsor I, LLC v. CWCapital Asset Management LLC
C.A. No. 12977-CB
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On or about December 27, 2006, Windsor and CWCapital entered into a
Mortgage and Security Agreement in the principal amount of $7.4 million (the
“Loan”) to refinance the existing debt on the Property. The maturity date of the
Loan was January 1, 2017.
On July 20, 2015, Windsor sent a letter to CWCapital, requesting that the
Loan be transferred to special servicing because “Windsor is currently facing
imminent default and will be unable to support its own debt service
requirements.”2 Windsor was anticipating a default because the sole tenant for the
Property for the past twenty years, a Best Buy store, was expected to leave the
Property. On August 31, 2015, Windsor was notified that the Loan had been
transferred to CWCAM as special servicer.3
From November 21, 2015, to February 9, 2016, Windsor and CWCAM
negotiated the terms of a pre-negotiation agreement, the final version of which is
dated February 9, 2016, and which was fully executed by March 23, 2016 (the
“Pre-Negotiation Agreement”).4 From March to November 2016, Windsor and
CWCAM engaged in a series of email exchanges, during which CWCAM
requested certain information from Windsor and Windsor made two offers to
2
Compl. ¶ 19 & Ex. D.
3
Compl. ¶ 23 & Ex. E.
4
Compl. ¶¶ 26-40, 48-49 & Exs. F, H-N, T.
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purchase the Loan.5 On November 28, 2016, CWCAM rejected Windsor’s most
recent offer and made a counter-offer.6
On December 12, 2016, Windsor filed the Complaint asserting two claims.
Count I seeks specific performance of the Pre-Negotiation Agreement. Count II
seeks injunctive relief to enjoin CWCAM from foreclosing on the Property “until
after meaningful, good faith negotiations” occur under the Pre-Negotiation
Agreement.7
On February 3, 2017, CWCAM filed a motion to dismiss the Complaint in
its entirety under Court of Chancery Rule 12(b)(6) for failure to state a claim for
relief. Oral argument was held on July 25, 2017.
II. Analysis
The standards governing a motion to dismiss for failure to state a claim for
relief are well settled:
(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are “well-pleaded” if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the non-moving party; and (iv) dismissal is inappropriate
5
Compl. ¶¶ 50-52, 55-60, 71-75, 81-83 & Exs. U, W-BB, EE, FF, GG, II-KK. Windsor
also made an offer to purchase the Loan in December 2015, before the parties finalized
the Pre-Negotiation Agreement. Compl. ¶ 31 & Ex. G.
6
Compl. ¶¶ 84-85 & Ex. LL.
7
Compl. ¶ 112.
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unless the “plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of proof.8
The Court is not required, however, to accept mere conclusory allegations as true
or make inferences unsupported by well-pleaded factual allegations.9 The Court
also “is not required to accept every strained interpretation of the allegations
proposed by the plaintiff.”10
The Pre-Negotiation Agreement contains a Maryland choice of law
provision.11 Accordingly, as the parties agree, Maryland law governs the
substantive aspects of the claims in this case.12
“Maryland courts follow the law of objective interpretation of
contracts, giving effect to the clear terms of the contract regardless of what the
parties to the contract may have believed those terms to mean.”13 As the Court of
Appeals of Maryland has stated:
8
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (internal citations
omitted).
9
In re Lukens Inc. S’holders Litig., 757 A.2d 720, 727 (Del. Ch. 1999), aff’d sub nom.
Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) (TABLE).
10
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
11
Compl. Ex. T (Pre-Negotiation Agreement) ¶ 16.
12
SIGA Techs., Inc. v. PharmAthene, Inc., 67 A.3d 330, 342 (Del. 2013) (law of the state
chosen by the parties governs unless “the chosen state lacks a substantial relationship to
the parties or transaction or applying the law of the chosen state will offend a
fundamental policy of a state with a material greater interest”).
13
Towson University v. Conte, 862 A.2d 941, 946-47 (Md. 2004).
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A court construing an agreement under [the objective theory] must
first determine from the language of the agreement itself what a
reasonable person in the position of the parties would have meant at
the time it was effectuated. In addition, when the language of the
contract is plain and unambiguous there is no room for construction,
and a court must presume that the parties meant what they expressed.
In these circumstances, the true test of what is meant is not what the
parties to the contract intended it to mean, but what a reasonable
person in the position of the parties would have thought it meant.14
Count I fails to state a claim for relief for three separate reasons.
First, contrary to Windsor’s contention, there is no “obligation to negotiate”
under the Pre-Negotiation Agreement, and thus no obligation for CWCAM to
specifically perform. Windsor identifies the following provision in the Pre-
Negotiation Agreement as support for the alleged binding obligation to negotiate:
The Parties acknowledge that they are about to commence
negotiations (the “Negotiations”) concerning the obligations owed to
Holder by the Borrower and that they intend to discuss various
courses of action which will include those that they believe may be in
their mutual interests, with a view to a compromise and settlement by
the parties.15
The plain and unambiguous meaning of the provision quoted above does not
support the existence of a binding obligation to negotiate.
14
Dennis v. Fire & Police Empls.’ Ret. Sys., 890 A.2d 737, 747 (Md. 2006).
15
Compl. Ex. T (Pre-Negotiation Agreement) ¶ 1. Windsor is defined as the “Borrower."
CWCapital LLC is defined as the “Original Holder,” and the current holder of a
promissory note evidencing the Loan is defined as the “Holder.” CWCAM was acting
solely in its capacity as “Special Servicer” on behalf of Holder.
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The parties’ intention not to create a binding obligation to negotiate is made
even more clear when the Pre-Negotiation Agreement is read in its entirety in
accordance with Maryland law.16 In particular, paragraphs 4, 6, and 8 of the Pre-
Negotiation Agreement provide, in relevant part, that:
Borrower specifically acknowledges and agrees that Holder has
made no promise, commitment, or representation whatsoever, nor
has Holder any obligation to Borrower to modify the terms of the
Loan, offer any discounted payoff of the Loan, refinance the Loan,
grant any forbearances, extend the payment terms of the Loan or
extend any other financial accommodation to Borrower.
...
Since the Parties recognize that these Negotiations may not produce a
mutually acceptable resolution of the overall problem, Borrower must
be and is responsible for operating its business in a manner it deems
appropriate. . . . Borrower acknowledges and agrees that Borrower
may not in any way rely on, or claim reliance on, the Negotiations.
...
Any party shall have the right to terminate the Negotiations at any
time upon written notice to the other party, without obligation or
liability by virtue of the commencement or termination of
Negotiations hereunder or the passage of time associated therewith
and upon such termination, the Parties’ respective obligations to one
16
Cochran v. Norkunas, 919 A.2d 700, 710 (Md. 2007) (“A recognized rule of
construction in ascertaining the true meaning of a contract is that the contract must be
construed in its entirety and, if reasonably possible, effect must be given to each clause so
that a court will not find an interpretation which casts out or disregards a meaningful part
of the language of the writing unless no other course can be sensibly and reasonably
followed.”).
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another shall be only as set forth in the Loan Documents, except that
the provisions of this letter agreement shall survive.17
Thus, when read as a whole, the Pre-Negotiation Agreement is a document that
simply establishes rules to govern any discussions that may take place.18 It does
not obligate any party to negotiate or forbear from exercising remedies otherwise
available.
Windsor’s argument under the implied covenant of good faith and fair
dealing is equally unavailing. “While it is true that a contract in Maryland gives
rise to an implied duty of good faith and fair dealing,” that duty
does not obligate a [party] to take affirmative actions that the [party]
is clearly not required to take under [the contract]. Rather, the duty
simply prohibits one party to a contract from acting in such a manner
as to prevent the other party from performing his obligations under the
contract. In short, while the implied duty of good faith and fair
dealing recognized in Maryland requires that one party to a contract
not frustrate the other party’s performance, it is not understood to
interpose new obligations about which the contract is silent, even if
inclusion of the obligation is thought to be logical and wise.19
17
Compl. Ex. T (Pre-Negotiation Agreement) ¶¶ 4, 6, 8 (emphasis added).
18
See, e.g., Compl. Ex. T (Pre-Negotiation Agreement) at 1 (“Holder is agreeable to
participate in such discussions provided that Holder and Borrower enter into this
Agreement to mutually acknowledge the nature of, and certain understandings with
respect to, the proposed discussions.”); ¶ 1 (agreeing that discussions during the
Negotiations shall not be admissible); ¶ 2 (agreeing that no agreement reached during the
Negotiations shall have any effect unless reduced to writing, signed and delivered by all
parties’ authorized representatives); ¶ 5 (parties designating representatives for the
Negotiation); ¶ 11 (Borrower agreeing to reimburse Holder and CWCAM for all costs
and expenses incurred in pursuit of the negotiations).
19
Blondell v. Littlepage, 991 A.2d 80, 90-91 (Md. 2010) (internal quotations omitted).
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Because CWCAM clearly is not obligated to negotiate under the express terms of
the Pre-Negotiation Agreement, Windsor cannot seek to impose such an obligation
on CWCAM by invoking the implied covenant of good faith and fair dealing.
Second, even assuming, for argument’s sake, that the Pre-Negotiation
Agreement created some kind of obligation on CWCAM to negotiate in good faith,
as Windsor asserts, such an obligation would be so inherently vague as to be
unenforceable. Courts in Maryland have held that “[o]rdinarily, commercial
agreements to negotiate upon terms and conditions to be decided are
unenforceable.”20 After surveying numerous authorities, the Court of Special
Appeals of Maryland determined that the “overwhelming weight of authority holds
that courts will not enforce an agreement to negotiate a contract.”21 One of those
authorities, a decision from Southern District of New York, is particularly apt here:
While the power of the Court to fashion in appropriate cases an
equitable remedy is great, it does not encompass the right to make an
agreement for the parties. To decree . . . as plaintiff requests, would
require the Court to enter into the realm of the conjectural. An
agreement to negotiate in good faith is even more vague than an
agreement to agree. An agreement to negotiate is amorphous and
nebulous, since it implicates so many factors that are themselves
20
First Nat’l Bank of Maryland v. Burton, Parsons & Co., Inc., 470 A.2d 822, 828 (Md.
Ct. Spec. App. 1984).
21
Id. at 829.
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indefinite and uncertain that the intent of the parties can only be
fathomed by conjecture and surmise.22
Although Maryland courts have acknowledged that in some “limited
situations, an agreement to negotiate in good faith may be upheld,” such as where
“the provision for good faith negotiations is part of an otherwise enforceable
contract which itself provides terms or a frame of reference by which the duty to
negotiate may be evaluated,”23 this is not one of them. The Pre-Negotiation
Agreement does not contain any agreed-upon terms or even a frame of reference
for negotiations. To the contrary, it specifically states that “Borrower specifically
acknowledges and agrees that Holder has made no promise, commitment, or
representation whatsoever.”24 Therefore, even if one were to assume that the Pre-
Negotiation Agreement created an obligation to negotiate, which I conclude is not
the case, such an obligation would be unenforceable under Maryland law because
of vagueness.25
22
Id. at 828 (quoting Candid Prods., Inc. v. Int’l Skating Union, 530 F. Supp. 1330,
1336-37 (S.D.N.Y. 1982) (emphasis added)).
23
Helferstay v. Creamer, 473 A.2d 47, 52-53 (Md. Ct. Spec. App. 1984)
24
Compl. Ex. T (Pre-Negotiation Agreement) ¶ 4.
25
Indeed, as I read Windsor’s brief and as was explained during oral argument,
Windsor’s real grievance is not that the parties did not negotiate, but that the parties did
not reach an agreement that Windsor desired. The Complaint itself alleges that the
parties engaged in some negotiations, specifically that Windsor made at least two
proposals, which CWCAM rejected, and that CWCAM made a counter-proposal right
before Windsor filed this action. See Compl. ¶¶ 31, 44, 81-85.
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Third, under Maryland law, specific performance is not available to enforce
a contractual obligation terminable at will:
It is well settled that a court of equity will not decree specific
performance of any contract which one of the parties may rescind at
will. The Court will not interfere in a case where, if it were to do so,
one of the parties might nullify its action by exercising a discretion
given him by the terms of the contract. It would manifestly be
improper to impose upon the Court the task of investigating a
controversy when the facts are such as to preclude any decree it may
render from being conclusive.26
Paragraph 8 of the Pre-Negotiation Agreement unambiguously provides that “Any
party shall have the right to terminate the Negotiations at any time upon written
notice to the other party, without obligation or liability by virtue of the
commencement or termination of Negotiations hereunder or the passage of time
associated therewith.”27 Therefore, even if the Court were to order CWCAM to
specifically perform the purported obligation to negotiate under the Pre-
Negotiation Agreement, CWCAM still could terminate the negotiation at any time
26
Kahn v. Janowski, 60 A.2d 519, 521 (Md. 1948). See also S. Exp. Co. v. W. N.C.R.
Co., 99 U.S. 191, 200 (U.S. 1878) (“A court of equity never interferes where the power
of revocation exists.”); Restatement (Second) of Contracts § 368(1) (1981) (“Specific
performance or an injunction will not be granted against a party who can substantially
nullify the effect of the order by exercising a power of termination or avoidance.”); 25
Williston on Contracts § 67:50 (4th ed.) (“Equity will not enforce a contract specifically
which, by its terms or by operation of law, the defendant may terminate immediately.”).
27
Compl. Ex. T (Pre-Negotiation Agreement) ¶ 8.
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consistent with the terms of the agreement, rendering the Court’s order a nullity.
Under these circumstances, specific performance is not an available remedy.28
Count II of the Complaint, which seeks an injunction enjoining CWCAM
from foreclosing on the Property, is premised upon the existence of an enforceable
obligation to negotiate. Because no such enforceable obligation exists, Count II
fails to state a claim for relief.
28
I am unpersuaded by Windsor’s attempt to invoke the exception described in Kahn v.
Janowski that “conditions and clauses of nullity are not to be executed according to the
rigor of their terms so as to cause forfeitures.” Janowski, 60 A.2d at 522. In Janowski,
the Court of Appeals affirmed the trial court’s refusal to order specific performance of a
contract for the sale of real property that the seller had the contractual right to rescind
within a specified period but remanded for the trial court to determine if the buyer—who
had resided at the property for six years and made numerous improvements in reliance on
the contract—was entitled to other relief. Id. at 520. No comparable injustice is alleged
in this case. Windsor is a sophisticated commercial entity that negotiated a Pre-
Negotiation Agreement with the assistance of counsel and, to repeat, the Pre-Negotiation
Agreement unambiguously provides that Windsor “may not in any way rely on, or claim
reliance on, the Negotiations.” Compl. Ex. T (Pre-Negotiation Agreement) ¶ 6.
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For the foregoing reasons, the Complaint is dismissed with prejudice.29 An
implementing order accompanies this decision.
Sincerely,
/s/ Andre G. Bouchard
Chancellor
AGB/gm
29
In its prayer for relief, Windsor also sought the “return” of $74,562.74, with interest,
which CWCAM allegedly “wrongfully withheld.” Compl. at 23 (Prayer for Relief ¶ d).
Windsor did not plead any cause of action in the Complaint, however, relevant to
awarding such relief. For the avoidance of doubt, dismissal of the Complaint is without
prejudice to Windsor’s ability to file a claim for damages to recover that sum in the future
in a court of proper jurisdiction.
12