Lhc Nashua P'ship v. Nashua

Decision Date28 September 2011
Docket NumberNo. 10–20331.,10–20331.
PartiesLHC NASHUA PARTNERSHIP, LTD., Plaintiff–Appellee,v.PDNED SAGAMORE NASHUA, L.L.C. and PDNED Manager, L.L.C., Defendants–Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

659 F.3d 450

LHC NASHUA PARTNERSHIP, LTD., Plaintiff–Appellee,
v.
PDNED SAGAMORE NASHUA, L.L.C. and PDNED Manager, L.L.C., Defendants–Appellants.

No. 10–20331.

United States Court of Appeals, Fifth Circuit.

Sept. 28, 2011.


[659 F.3d 453]

John Douglas Sutter, Charles W. Kelly (argued), Kelly, Sutter & Kendrick, P.C., Houston, TX, for Plaintiff–Appellee.Lynne Liberato (argued), Christina F. Crozier, Michael T. Powell, Kent Geoffrey Rutter, Casey T. Wallace, Haynes & Boone, L.L.P., Houston, TX, Kevin P. O'Flaherty, Goulston & Storrs, P.C., Boston, MA, for Defendants–Appellants.Appeal from the United States District Court for the Southern District of Texas.Before DAVIS, PRADO and OWEN, Circuit Judges.W. EUGENE DAVIS, Circuit Judge.

Defendants–Appellants PDNED Sagamore Nashua, L.L.C. and PDNED Manager, L.L.C. (collectively “PDNED”) appeal a judgment entered on a jury verdict in favor of Plaintiff–Appellee LHC Nashua Partnership, Ltd. (“LHC”). The litigation arose out of a contract between the parties in which Appellant agreed to transfer its rights to Appellee to purchase shopping-mall property from a third party. Appellee alleged that, based on representations made by Appellant, Appellee expected to lease the property to Lowe's Home Improvement (“Lowe's”).

After Lowe's refused to enter into the Lease and instead purchased the property from PDNED, LHC brought a breach-of-contract suit against PDNED and also asserted claims for promissory estoppel and negligent and fraudulent misrepresentations. The district court granted judgment as a matter of law on LHC's breach-of-contract claim, but allowed LHC to proceed to trial on theories of promissory estoppel, fraudulent misrepresentation, and negligent misrepresentation. The jury returned a verdict in favor of LHC on all three claims and awarded LHC $534,380 in “out-of-pocket” losses and $25,500,000 in “lost profits.” The district court entered final judgment on the verdict. In this appeal, PDNED raises a number of challenges to the final judgment. For the following reasons, we VACATE the judgment with regard to the promissory estoppel claim and the jury's award for lost profits. However, we AFFIRM the judgment on the claims for fraudulent and negligent misrepresentation and the jury's award for out-of-pocket expenses.

I.

In June 2005, PDNED obtained an option to purchase a shopping mall property from a third party. In October 2005, PDNED entered into an agreement with Lowe's called an “Agreement to Enter Into a Ground Lease” (the “AGL”). The AGL granted Lowe's an option to execute a lease on the property for a term of 20 years with an option to renew. The AGL included a proposed, unexecuted form ground lease, of which Section 18.B required PDNED to provide Lowe's with a 30–day right of first refusal to purchase the property before PDNED sold or assigned any of its rights in the lease or the property to a third party during the term of the lease.

Armen Aftlandian was a principal of PDNED. Aftlandian had worked on similar deals with Lowe's in the past. One of Aftlandian's business strategies was to obtain the right to purchase a property, sign an agreement to enter into a ground lease with Lowe's, then transfer his right to purchase the property to a third party who

[659 F.3d 454]

would then sign the ground lease with Lowe's, thereby becoming the landlord.

This is the type of transaction that Defendant PDNED pursued with Plaintiff LHC. Some time in 2006, Aftlandian met with Howard B. Chapman as a potential buyer of the property. Aftlandian and Chapman negotiated over a period of months regarding the potential transaction. Chapman later formed LHC for the purpose of purchasing the property.

According to LHC's assertions in this suit, during negotiations Aftlandian represented to Chapman that in transactions of this type, Lowe's “never buys” similar properties, but rather always signs the ground lease with the new purchaser. PDNED's lawyers told Chapman that Lowe's signing the ground lease was nothing more than a “ministerial act” that would occur at the closing of LHC's deal with PDNED.

On August 16, PDNED provided Lowe's with written notice of its intent to sell the property. The notice stated that Lowe's could exercise its right of first refusal to purchase the property “pursuant to Section 18.B of the form of Ground Lease attached to the [AGL]....” The notice acknowledged, however, that the right of first refusal provision in the unexecuted ground lease was not “in full force with respect to the contemplated transfer.” 1 Lowe's never responded to this notice.

On September 18, 2006, PDNED and LHC 2 entered into the purchase and sale agreement for the property (the “P & S Agreement”). Section 5.1 of the P & S Agreement expressly included as “conditions to closing” that (1) Lowe's execute and deliver the proposed lease attached to the AGL; and (2) Lowe's provide a written waiver of its right of first refusal to purchase the property pursuant to Section 18 of the proposed lease. Section 9.3 of the P & S Agreement also stated that “[t]his Agreement embodies the entire agreement between the parties and supersedes all prior agreements and understandings, if any, relating to the Premises....”

The P & S Agreement set a closing date of October 13, 2006. On September 19, the day after signing the P & S Agreement, LHC provided PDNED with a proposed waiver of the right of first refusal for Lowe's to sign. However, Lowe's never signed it. PDNED assured LHC that Lowe's had agreed “in substance” and that PDNED would use good faith, commercially reasonable efforts to cause the closing with Lowe's .

During this time, LHC secured financing in preparation for closing. Chapman planned to invest $6,914,000 of his own money. He submitted a loan application for the balance of $19,250,000. The loan included the condition that LHC would provide the lender with a lease signed by Lowe's ten days prior to closing.

PDNED continued to assure LHC that it was “continuing to work through the process” of getting approval from Lowe's. However, Lowe's was apparently displeased with PDNED. Lowe's expressed objections to PDNED assigning its rights to a third party and leaving Lowe's with a “strange” landlord. Lowe's threatened PDNED with a loss of future business.

As Lowe's continued to refuse to sign the waiver, LHC and PDNED agreed to a series of extensions of the closing date.

[659 F.3d 455]

On October 30, Aftlandian told Chapman that Lowe's had indicated it might want to purchase the property. In response, Chapman asserted that Lowe's had already waived its right of first refusal. Aftlandian disagreed, referring to the condition in the P & S Agreement calling for Lowe's to waive its right of first refusal in writing. On November 6, Aftlandian offered to return Chapman's deposit and terminate the deal, but Chapman stated that he wanted to “see what Lowe's has got to say.”

On November 14, Lowe's confirmed that it wanted to purchase the property. Aftlandian informed Chapman of this fact, but Chapman continued to hold out hope that Lowe's would “perform.” Finally, on December 5, LHC canceled its loan application, incurring fees in connection with this cancellation. Thereafter, Lowe's bought the property from PDNED.

LHC later filed this suit, raising claims for breach of the P & S Agreement, promissory estoppel, negligent misrepresentation, and fraudulent misrepresentation. LHC argued that PDNED had breached its promises to deliver the property and the ground lease. In support of its misrepresentation claims, LHC produced evidence that Aftlandian worked on a number of previous deals with Lowe's and that contrary to Aftlandian's statements to Chapman, Lowe's, in fact, bought rather than leased three of the properties.

PDNED defended these claims primarily on the basis of the provisions of the P & S Agreement requiring production of a signed lease and a written waiver of Lowe's right of first refusal as “conditions to closing.” At the close of evidence, the district court granted PDNED's motion for judgment as a matter of law on the breach-of-contract claim because of the failure of these conditions to occur. The court determined that these were “conditions precedent” to the parties' performance. However, the district court denied PDNED's motion for judgment as a matter of law with respect to the promissory estoppel and misrepresentation claims and ruled that these claims would be submitted to the jury.

During trial on these remaining claims, LHC provided testimony regarding the fees it had incurred from its lender and the tax liabilities it sustained as a result of the deal falling through. LHC also provided expert testimony and a report estimating the expected profits from the transaction that LHC lost. The district court instructed the jury on the three remaining claims under New Hampshire law.3 The court instructed the jury that compensatory damages consisted of LHC's out-of-pocket expenses and that the jury could consider adding an award of lost profits in the event it found in favor of LHC on the promissory estoppel or fraudulent misrepresentation claims. The jury found PDNED liable for all three claims 4

[659 F.3d 456]

and awarded LHC $534,380 in out-of-pocket costs and $25,500,000 in lost profits.

The district court denied PDNED's subsequent motion for judgment as a matter of law on all three claims and its motion for a new trial. The court entered a final judgment against PDNED on the verdict. PDNED then filed the present appeal.

PDNED argues that the district court erred in several ways, including that (1) the court erroneously applied New Hampshire law instead of Texas law to all three of LHC's claims; (2) the court erred by denying PDNED's motion for judgment as a matter of law regarding LHC's promissory estoppel claim because the claim covers the same subject matter as the breach-of-contract claim and is barred by the P & S Agreement's merger clause; (3) for similar reasons, the...

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