921 F.2d 1343 (6th Cir. 1991), 89-5945, Davidson & Jones Development Co. v. Elmore Development Co., Inc.

Docket Nº:(89-5945/6031),
Citation:921 F.2d 1343
Case Date:January 03, 1991
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 1343

921 F.2d 1343 (6th Cir. 1991)




ELMORE DEVELOPMENT CO., INC., et al., Defendants-Appellants

(89-5945), Manna Construction Co., Inc.,

Intervenor-Appellant (89-6031).

Nos. 89-5945, 89-6031.

United States Court of Appeals, Sixth Circuit

January 3, 1991

Argued May 5, 1990.

Page 1344

Monty L. Walton, Baker, Worthington, Crossley, Stansberry & Woolf, Knoxville, Tenn., Luther P. Cochran, Griffin, Cochrane, Marshall & Elger, W. Henry Parkman (argued), Atlanta, Ga., for plaintiff-appellee.

Charles W. McElroy (argued), David K. Taylor, Boult, Cummings, Conners & Berry, Nashville, Tenn., Robert L. Wilson, Jr., Thaddeus B. Hodgdon, Hollowell & Silverstein, Raleigh, N.C., for defendants-appellants.

Stephen J. Lusk, Carl W. Eshbaugh (argued), Eshbaugh, Simpson & Varner, Knoxville, Tenn., for intervenor-appellant.

Page 1345

Before MARTIN and GUY, Circuit Judges; and DOWD, [*] District Judge.

DOWD, District Judge:

This case involves the claims and counterclaims of several parties interested in developing an outlet mall near the Great Smoky Mountains in Pigeon Forge, Tennessee. Plaintiff/counterdefendant Davidson & Jones Development Company ("D & J") withdrew from an agreement whereby D & J would take title to the proposed outlet mall property and acquire the rights to develop the proposed mall after D & J claimed that conditions precedent to its participation in the project were unfulfilled. Defendants/counterplaintiffs, Elmore Development Co. ("EDC") and MWC Properties, Inc. ("MWC"), counterplaintiff Pigeon Forge Outlet Mall, Inc. ("PFOM"), and intervenor, Manna Construction Company, Inc. ("Manna"), appeal from the district court's grant of summary judgment in favor of D & J in this diversity contract action. For the reasons that follow, we vacate the grant of summary judgment as to EDC's and MWC's breach of contract claims and remand those claims to the district court. In all other respects, we affirm the district court's grant of summary judgment to D & J.


D & J originally filed this suit in North Carolina state court in October 1987, as a declaratory judgment action against EDC and MWC. D & J sought a declaration of nonliability under a contract (the Assignment Agreement) between D & J, EDC and MWC. Following removal to federal district court in North Carolina on the basis of diversity of citizenship, the case was transferred to the Eastern District of Tennessee, pursuant to 28 U.S.C. Sec. 1404(a).

EDC and MWC filed counterclaims, asserting that D & J was liable for breach of the Assignment Agreement, and EDC further claimed that D & J tortiously interfered with EDC's separate contract to purchase the real estate for the proposed development. PFOM joined the action as an additional counterclaimant, asserting that it was a third-party beneficiary under the contract with D & J, and alleging tortious interference with its performance of contracts between it and third parties. Manna's motion to intervene as an additional counterplaintiff was granted. Manna asserted a counterclaim against D & J as a third-party beneficiary, and a counterclaim for tortious interference with Manna's contract with PFOM.

D & J moved for summary judgment in its favor on all claims, including its original declaratory judgment action. The district court granted D & J's motion and dismissed the case in its entirety. The timely appeals of EDC, MWC, PFOM and Manna were consolidated.


  1. General Background. 1

    In January 1987, EDC, a Mississippi corporation, obtained a right of first refusal to purchase 6.7 acres of real property in Pigeon Forge, Tennessee from the landowner in bankruptcy, Bent Creek, Inc. ("Bent Creek"). The property is located near the Great Smoky Mountains National Park, a substantial tourist market. EDC intended to develop a retail outlet mall on the property. Lee Larson Elmore ("Elmore") is the president of EDC. PFOM and MWC are Tennessee corporations formed by Elmore for the purpose of participating in the outlet mall development. Although the record does not disclose the extent of Elmore's control over these corporations, for the sake of convenience we will refer to them collectively as "Elmore's companies."

    Representatives from Elmore's companies began to negotiate with other entities to bring the retail outlet mall project to fruition. PFOM entered into a construction manager's agreement with Manna in March 1987. In April, EDC entered into an

    Page 1346

    architect's contract with Guthrey & Hart, Inc. ("Guthrey"). Elmore, on behalf of his companies, contacted a prospective anchor tenant, Carolina Pottery, Inc. and also retained First Southern Mortgage Company ("First Southern") to help locate persons or entities to provide additional financial backing.

  2. D & J's early involvement.

    First Southern first contacted D & J about the Pigeon Forge project in April 1987. Discussions centered around the possible formation of a joint venture between D & J and one or more of Elmore's affiliated companies. In May 1987, D & J's management approved the concept of entering into a joint venture with Elmore's companies. This approval was communicated to First Southern by letter dated May 22, 1987. On May 27, First American Bank in Knoxville ("FAB") contacted D & J to express its interest in making a loan to finance the project. John Cantrell ("Cantrell"), the bank's Senior Vice President for the real estate division, specified in a letter to both Bill Hicks ("Hicks"), Vice President of D & J, and Julian Peebles ("Peebles"), Senior Vice President of D & J, that the loan would have to be guaranteed by Elmore personally and by D & J corporately.

    Shortly thereafter, D & J began direct discussions with Manna, and D & J reviewed copies of the architect's and construction manager's contracts. In mid-June, new contracts were executed between Manna and PFOM and between Guthrey and PFOM, using new forms as requested by D & J.

    By the beginning of June 1987, D & J, through Hicks, began to negotiate directly with Carolina Pottery. By mid-June, D & J and Carolina Pottery reached agreement on the terms of a lease, which was to be executed by Carolina Pottery of Pigeon Forge, Inc., a corporation to be formed for the purpose of entering into the outlet mall development project. The terms of the lease included a $1 million inducement fee to be paid to Carolina Pottery.

    On June 10, EDC's right of first refusal was replaced with an agreement for purchase and sale of the property. EDC agreed to pay $1,800,000 to the property's owner, Bent Creek, subject to the bankruptcy court's approval. The closing deadline was specified as July 1, 1987, or 30 days following the approval of the sale by the bankruptcy court, whichever was later. The sale was approved by the bankruptcy court on July 2, and a closing date was set for August 2.

    On June 18, 1987, D & J's Chief Financial Officer, Gary Paul Kane ("Kane"), sent to Cantrell corporate financial statements of D & J, as well as the personal financial statements of D & J's principals, Robert L. Jones ("Jones") and Keith Harrod ("Harrod"). Joe Madron ("Madron"), a Vice President of FAB, stated in his deposition and in an affidavit that he discussed the proposed loan with Kane and informed Kane that FAB would require personal guaranties from Jones and Harrod. Kane stated in an affidavit that he does not recall these discussions, and that he was aware that Jones and Harrod generally were reluctant to give personal guaranties. Kane was not authorized to issue loan commitments without the approval of Jones and Harrod.

    In early July 1987, D & J informed Elmore that it was no longer interested in entering into a joint venture for the development of Pigeon Forge Outlet Mall. Despite efforts to do so, Elmore was unable to find a financial backer to replace D & J and Bent Creek refused to close any later than August 2 without the payment of a substantial sum of money.

  3. The Assignment Agreement.

    In early August, Elmore, on behalf of EDC, negotiated with Bent Creek for the extension of the closing deadline, with the consideration furnished by an irrevocable letter of credit in the amount of $100,000 to be paid by EDC. EDC and Bent Creek entered into a second amendment to the purchase agreement, 2 which contained a

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    September 18, 1987 deadline and provided that Bent Creek would call upon the letter of credit and the purchase agreement would expire on that date unless EDC provided the sellers with written notice of its intent to close within 30 days, accompanied either by a letter acceptable to the buyer, committing a lending institution to make the necessary construction and acquisition loan for the project, or by an additional $50,000 payment to Bent Creek.

    D & J and Elmore's companies reopened negotiations in early August. On August 17, 1987, D & J, EDC and MWC entered into the Assignment Agreement that is the subject of this litigation. This agreement provided that D & J would take title to the property and acquire development rights to the project. To acquire these rights, D & J agreed to pay MWC $2 million for the property, 3 a $200,000 developer's fee to EDC, plus $2 per square foot for leases other than Carolina Pottery that had been obtained as a result of Elmore's prior efforts on behalf of his companies.

    The Assignment Agreement included three conditions precedent to D & J's obligation to pay the above sums, and questions concerning those conditions is the central feature of this litigation. These conditions were as follows:

    1. Fee: Subject to the following conditions precedent, each of which is independently material, D & J promises to pay Elmore [EDC]...

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