Broad St. Energy Co. v. Endeavor Ohio, LLC

• Decision Date: 30 September 2013
• Docket Number: Case No. 2:12–CV–711.
• Citation: 975 F.Supp.2d 878
• Parties: BROAD STREET ENERGY CO., Plaintiff, v. ENDEAVOR OHIO, LLC, Defendant.
• Court: U.S. District Court — Southern District of Ohio

975 F.Supp.2d 878

BROAD STREET ENERGY CO., Plaintiff,
v.
ENDEAVOR OHIO, LLC, Defendant.

Case No. 2:12–CV–711.

United States District Court,
S.D. Ohio,
Eastern Division.

Sept. 30, 2013.

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James Dodds Curphey, David S. Bloomfield, Jr., Tracie N. Ransom, Porter Wright Morris & Arthur, Columbus, OH, for Plaintiff.

Mark Alan Vanderlaan, Robert Martin Zimmerman, Dinsmore & Shohl, Cincinnati, OH, Thomas John Bonasera, Buckingham, Dolittle and Burroughs, Columbus, OH, for Defendant.

OPINION & ORDER
ALGENON L. MARBLEY, District Judge.

This matter is before the Court on the Motion of Plaintiff Broad Street Energy Company (“Broad Street” or “Plaintiff”) for Summary Judgment against Defendant Endeavor Ohio (“Endeavor” or “Defendant”). (Doc. 15.) For the foregoing reasons, Plaintiff's Motion is DENIED.

I. BACKGROUND

Broad Street is an Ohio oil and gas operator that holds title to various mineral rights, oil and gas leases, easements, facilities, and other interests in lands and assets. In April 2012, Endeavor, the “Buyer,” entered into contract with Broad Street, the “Seller,” to purchase large portions of its land, oil, and gas assets for $35 million dollars (the “Purchase Price”). The parties executed this purchase and sale agreement (“PSA” or the “Agreement”) on April 9, 2012. Closing was scheduled to occur 120 days after the execution of the PSA, or on August 7, 2012.

1. Relevant Contract Provisions

Article IV of the PSA governs “Title, Environmental, and Easement Matters.” Section 4.2 of the Agreement addresses “Title Defects.” Pursuant to Section 4.2(a), “[i]n order to assert a Title Defect, Buyer must deliver to Seller a written ‘Title Defect Notice,’ ” conforming to certain requirements, “as soon as possible but not later than 30 days prior to the Closing Date in connection with each Title Defect (the ‘Title Claim Date’).” Id. at § 4.2(a).¹ Pursuant to Section 4.2(b), following issuance of a Title Defect Notice, Broad Street was entitled to cure any title defects prior to Closing. Section 4.2(b) further provides for an adjustment to the Purchase Price for certain properly-noticed, unwaived, uncured title defects. Id. at § 4.2(b).² Finally, Section 4.2(c) provides that, “[n]otwithstanding

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anything to the contrary in this Agreement, Buyer shall be deemed to have waived any Title Defect as to which Buyer has not delivered to Seller a title Defect Notice on or before the Title Claim Date.” Id. at § 4.2(c).³ Based on the date of execution of the PSA, the Title Claim Date fell on Sunday, July 8, 2012. The terms “Title Defect” and “Title Defect Value” are defined in Section 4.1 of the Agreement. See PSA § 4.1(c), (d).

Article X of the PSA governs termination of the Agreement. Section 10.1 provides for certain “Events of Termination.” In particular, Section 10.1 states:

Events of Termination. At any time commencing on the date hereof and ending upon the occurrence of the Closing, and notwithstanding anything contained in this Agreement to the contrary, this agreement may be terminated in writing as follows:

....

(b) by Buyer or Seller, notwithstanding anything contained in Article IV to the contrary, in the event that the aggregate amount of all Title Defect Values equals or exceeds 30% of the unadjusted Purchase Price.

....

(e) by Seller ... if Seller (i) has met all of Buyer's conditions to the Closing set forth in Section 9.2, (ii) is ready, willing and able to perform as contemplated by this Agreement on the Closing Date, and (iii) the Closing does not occur on the Closing Date because Buyer does not, or cannot as contemplated by this Agreement, perform on the Closing Date[.]

....

PSA § 10.1(b), (e).

Pursuant to the PSA, contemporaneously with the execution of the Agreement, Broad Street deposited $3.5 million into an escrow account (the “Escrow Amount”). See PSA § 2.2. The Escrow Amount is “non-refundable, except as provided for in Section 10.2” of the Agreement, which governs “Automatic Terminations” due to no fault of either party. Id.; § 10.2.⁴ Section

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10.3, however, provides that the Escrow Amount is be returned in full to the Buyer in the event that “the Agreement is terminated by Buyer pursuant to any of Sections 10.1(a)-(d),” among other circumstances. In addition, Section 10.3 specifies that the Escrow Amount is to be paid in full to the Seller as liquidated damages, and is the exclusive remedy against the Buyer, in the event the Seller terminates the Agreement pursuant to Section 10.1(e). ⁵

Article XIII of the Agreement contains various miscellaneous provisions. Section 13.15, entitled “Specific Performance,” provides:

Seller agrees that irreparable damage would accrue to Buyer in the event that any of the provisions of this Agreement are not performed by Seller in accordance with the terms hereof and that Buyer shall be entitled to specific performance of the terms hereof, in addition to, and notwithstanding, any other remedy at law or equity available to Buyer.

PSA, § 13.15. In addition, at Section 13.19, the parties included a “Time is of the Essence” provision, which acknowledges that one party's failure to perform timely its obligations under the contract may cause the other party substantial losses.⁶

2. Purported Terminations and Current Dispute

Plaintiffs allege that, as early as March 2012, Broad Street began conducting a title review on the assets that were the subject of the PSA. ( Arthur Decl., Doc. 15–1, at ¶ 12.) On Sunday, July 8, 2012, Endeavor contacted Broad Street by telephone, and informed them that Broad Street would provide Endeavor with written notice of certain Title Defects the following day.

On Monday, July 9, 2012, Endeavor delivered by facsimile and hand delivery a letter under the subject line “Title Defect Notice and Termination of Purchase and Sale Agreement.” ( Arthur Decl., Doc. 15–1, ¶ 10; Termination Letter, Doc. 15–6, 1.) The letter asserted that Broad Street had identified Title Defects on a total of 6,522.00 Net Mineral Acres comprising an aggregate Title Defect value of $19,566,000, or 55.9% of the Purchase Price. ( Termination Letter, Doc. 15–6 at 1.) Broad Street then invoked termination of the Agreement pursuant to Section

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10.1(b) of the PSA, and requested the return of the Escrow Amount pursuant to Section 10.3. ( Id.) The letter was accompanied by documentation identifying 66 allegedly defective titles. ( Arthur Decl., Doc. 15–1, at ¶ 11.) At the time Broad Street accepted delivery of these materials, it signed a Receipt of Title Defect Notice acknowledging “that it received the box of materials labeled Title Defect Notices within the prescribed time allowed pursuant to Section 4.2(a) of the PSA.” ( Id. at ¶ 10–11.)

Broad Street contends that Endeavor had no right to terminate the PSA on these grounds because it did not issue proper Title Defect Notices by the Title Claim Date, and therefore waived any such defects, pursuant to Section 4.2(c). Moreover, Broad Street asserts that it was ready, willing and able to close on the transaction by the Closing Date. Therefore, Broad Street argues that it has a right to terminate the PSA pursuant to Section 10.1(e), and retain the Escrow. Broad Street also asserts that specific performance is the customary equitable remedy in real estate transactions and therefore, it is entitled to specific performance here.

On August 6, 2012, Broad Street filed this breach of contract action against Endeavor. (Doc. 1.) Broad Street's Amended Complaint, (Doc. 8), asserts claims for relief for breach of contract. Count I seeks recovery of the Escrow Amount based on Endeavor's purportedly wrongful termination. Count II seeks specific performance and damages relating to Endeavor's alleged breach of the PSA.

Broad Street moved for Summary Judgment on both claims. This Court heard oral argument from counsel for both parties, and these matters are now ripe for review.

II. STANDARD OF REVIEW

Summary judgment is proper if there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A fact is material if proof of that fact would establish one of the elements of a claim and would affect the application of governing law to the rights of the parties. Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir.1984) (citing Johnson v. Soulis, 542 P.2d 867, 872 (1975)). “All evidence and reasonable inferences ‘must be viewed in the light most favorable to the party opposing the motion.’ ” Pucci v. Nineteenth Dist. Court, 628 F.3d 752, 759 (6th Cir.2010) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). Defendants' burden is satisfied if there is an absence of evidence to support Plaintiff's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Street v. J.C. Bradford & Co., 886 F.2d 1472, 1477–78 (6th Cir.1989).

III. LAW AND ANALYSIS A. Breach of Contract

The PSA is “governed by and ... construed under the laws of the State of Ohio.” PSA, § 13.6. Under Ohio law, interpretation of a written contract is a matter of law for initial determination by the Court. Construction Interior Sys., Inc. v. Marriott Family Rests., Inc., 984 F.2d 749, 754 (6th Cir.1993) (applying Ohio law) (citing Potti v. Duramed Pharms., Inc., 938 F.2d 641, 647 (6th Cir.1991)); see also Long Beach Ass'n, Inc. v. Jones, 82 Ohio St.3d 574, 576, 697 N.E.2d 208 (1998). Moreover, contract interpretation is turned over to the fact-finder only when the relevant contact language is ambiguous, and the determination of whether a contract is ambiguous is decided as a matter

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of law by the Court. Potti, 938 F.2d at 647 (applying Ohio law) (citing Uebelacker v. Cincom Sys., Inc., 48 Ohio App.3d 268, 549 N.E.2d 1210 (1988); Clarke v. Hartley, 7 Ohio App.3d 147, 454 N.E.2d 1322 (1982)). The court decides whether a contract is ambiguous as a matter of law. Id....